1009-00005 · Skybridge Fintech Ltd · Opinions

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CALDERWOOD & HARKNESS LLP Attorneys at Law

425 Lexington Avenue New York, New York 10017

Telephone: (212) 558-4000 Facsimile: (212) 558-3588

DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR DELIVERY

C&H Matter No. 1009-00005

[__], 2024

SkyLend Receivables Trust 2024-1 c/o Keymark Trust Company, National Association, as Owner Trustee 600 North King Street Wilmington, Delaware 19801

Attention: Elaine Marchetti, Trust Officer

Atlantic Fiduciary Services, Inc., as Indenture Trustee 2 Christiana Centre, Suite 1400 Wilmington, Delaware 19801

Attention: David Moynihan, Corporate Trust Officer

Halcyon Securities LLC, as Initial Purchaser 200 Vesey Street, 42nd Floor New York, New York 10281

Attention: Rebecca Thornton, Managing Director

Re: Non-Consolidation Opinion — SkyLend Receivables Trust 2024-1 ($170,000,000 Class A Asset-Backed Notes and $22,000,000 Class B Asset-Backed Notes); CUSIP Prefix 87165Q (allocated, unused)

Ladies and Gentlemen:

I. Introduction and Role of Counsel

Calderwood & Harkness LLP ("we," "us," or "C&H") has acted as counsel to Skybridge Fintech Ltd., a Delaware corporation ("SBF" or the "Originator"), SkyLend Funding LLC, a Delaware limited liability company (the "Depositor"), and SkyLend Receivables Trust 2024-1, a Delaware statutory trust (the "Trust" or the "Issuer," and together with SBF and the Depositor, our "Clients"), in connection with the proposed issuance by the Trust of $170,000,000 aggregate principal amount of Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), pursuant to that certain Indenture (as defined below) between the Trust and Atlantic Fiduciary Services, Inc., a Delaware banking corporation (in such capacity, the "Indenture Trustee").

This opinion is delivered pursuant to Section [] of the Preliminary Purchase Agreement dated as of [], 2024 (the "Purchase Agreement"), among the Trust, SBF, the Depositor, and Halcyon Securities LLC, a Delaware limited liability company (the "Initial Purchaser"), Halcyon Deal Reference HLC-ABS-2024-017. The Purchase Agreement requires, as a condition to the obligations of the Initial Purchaser to purchase the Notes, the delivery of this opinion of counsel addressing the matters set forth herein.

This opinion addresses whether, in a hypothetical case commenced under Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), in which SBF were a debtor, a court would order the substantive consolidation of the assets and liabilities of (a) the Depositor and/or (b) the Trust with those of SBF. We note that the substantive consolidation doctrine is an equitable remedy developed through case law, and that our analysis necessarily involves the application of legal principles to factual circumstances as we understand them based on our review of the documents described below and the assumptions set forth herein.

In rendering this opinion, we have not independently verified or investigated the underlying business operations, financial condition, or day-to-day activities of SBF, the Depositor, or the Trust, except to the extent reflected in the documents we have examined. We have relied upon certificates of officers of SBF and the representations and warranties contained in the transaction documents with respect to factual matters relevant to this opinion.

II. Documents Examined

In connection with this opinion, we have examined the following documents, instruments, certificates, and records (collectively, the "Reviewed Documents"):

A. Organizational and Formation Documents

1. Certificate of Formation of SkyLend Funding LLC, as filed with the Secretary of State of the State of Delaware on January 30, 2024 (Filing No. 7914826); Employer Identification Number 93-4187620.

2. Limited Liability Company Agreement of SkyLend Funding LLC, dated as of January 30, 2024 (the "LLC Agreement"), between Skybridge Fintech Ltd., as sole member, and Danielle Prescott, as Manager.

3. Certificate of Trust of SkyLend Receivables Trust 2024-1, as filed with the Secretary of State of the State of Delaware on February 14, 2024 (Filing No. 7928153); Employer Identification Number 93-4201855.

4. Trust Agreement, dated as of February 14, 2024 (the "Trust Agreement"), between SkyLend Funding LLC, as depositor, and Keymark Trust Company, National Association, a national banking association organized under the laws of the United States ("Keymark"), as owner trustee (in such capacity, the "Owner Trustee").

5. Secretary's Certificate and Board Resolutions of Skybridge Fintech Ltd., dated [__], 2024, certifying the authorization of the securitization transaction, the formation of the Depositor and the Trust as special-purpose vehicles, and the execution and delivery of the transaction documents by the authorized signatories of SBF, namely: Arun Mehta (Chief Executive Officer), Danielle Prescott (Chief Financial Officer), and Tomás Reyes (General Counsel).

B. Transaction Documents

6. Indenture (draft dated March 4, 2024) (the "Indenture"), between SkyLend Receivables Trust 2024-1, as issuer, and Atlantic Fiduciary Services, Inc. ("AFS"), as indenture trustee.

7. Receivables Purchase Agreement (draft dated March 11, 2024) (the "RPA"), between Skybridge Fintech Ltd., as seller and originator, and SkyLend Funding LLC, as purchaser and depositor.

8. Sale and Servicing Agreement (draft dated March 11, 2024) (the "SSA"), among SkyLend Funding LLC, as depositor, SkyLend Receivables Trust 2024-1, as issuer, Skybridge Fintech Ltd., as servicer, and Clearview Loan Servicing, Inc., as sub-servicer.

9. Administration Agreement (draft dated March 11, 2024) (the "Administration Agreement"), between SkyLend Receivables Trust 2024-1, as issuer, and Skybridge Fintech Ltd., as administrator.

10. Account Control Agreement (draft dated March 11, 2024) (the "Account Control Agreement"), among SkyLend Receivables Trust 2024-1, Atlantic Fiduciary Services, Inc., as indenture trustee and secured party, and Keymark Trust Company, N.A., as collection-account bank.

11. Preliminary Purchase Agreement (draft dated [__], 2024) (the "Purchase Agreement"), among SkyLend Receivables Trust 2024-1, Skybridge Fintech Ltd., SkyLend Funding LLC, and Halcyon Securities LLC, as initial purchaser.

12. Preliminary Offering Memorandum, dated April 5, 2024 (the "Offering Memorandum"), prepared in connection with the offering and sale of the Notes.

C. Other Documents

13. Certificates of Good Standing for SkyLend Funding LLC, issued by the Secretary of State of the State of Delaware, dated [__], 2024.

14. Certificate of Good Standing for SkyLend Receivables Trust 2024-1, issued by the Secretary of State of the State of Delaware, dated [__], 2024.

15. UCC-1 Financing Statements to be filed with the Secretary of State of the State of Delaware and in such other jurisdictions as are necessary in connection with the perfection of the security interests granted under the transaction documents.

16. Such other documents, certificates, records, and instruments as we have deemed necessary or appropriate for purposes of rendering this opinion, including officer's certificates of SBF and the Depositor with respect to factual matters and compliance with separateness covenants.

The documents described in items 6 through 11 above, together with the Trust Agreement, the LLC Agreement, and the Account Control Agreement, are collectively referred to herein as the "Transaction Documents." Capitalized terms used herein without definition have the meanings ascribed to them in the relevant Transaction Document in which they are defined.

III. Assumptions

In rendering this opinion, we have assumed, with your permission and without independent investigation or verification, the following:

1. All documents submitted to us as originals are authentic, and all documents submitted to us as copies conform to the originals thereof. All signatures on documents examined by us are genuine, and all persons executing such documents had legal capacity to do so.

2. Each party to the Transaction Documents other than SBF, the Depositor, and the Trust (including the Indenture Trustee, the Owner Trustee, the Initial Purchaser, the sub-servicer, and the collection-account bank) has the requisite organizational existence, power, and authority to execute, deliver, and perform its obligations under the Transaction Documents to which it is a party.

3. The Transaction Documents will be executed and delivered in substantially the form in which we have reviewed them, and the transactions contemplated thereby will be consummated in accordance with their terms, without waiver of any material condition or modification of any material provision.

4. In the hypothetical bankruptcy proceeding analyzed herein, SBF will be the debtor, and the case will be commenced under the Bankruptcy Code and adjudicated by a federal bankruptcy court sitting in the District of Delaware.

5. No fraud, intentional misconduct, or bad faith has been or will be committed by any party in connection with the transactions contemplated by the Transaction Documents, and all parties have acted and will continue to act in good faith.

6. Based upon information provided to us by SBF, as of December 31, 2023: (a) SBF's total assets were approximately $1,020,000,000, including gross receivables of approximately $876,500,000 and net receivables (after allowance for credit losses) of approximately $841,400,000; (b) SBF's fiscal year 2023 revenue was approximately $187,300,000; (c) SBF originated approximately $1.4 billion in consumer installment loans through its SkyLend platform during fiscal year 2023; and (d) SBF had approximately 312,000 active borrowers as of December 31, 2023.

7. SBF is controlled by Pinnacle Growth Equity Partners, LP ("Pinnacle"), which holds 62.4% of SBF's fully diluted equity. Pinnacle invested $95,000,000 in SBF in connection with a Series C equity financing round completed in 2021.

8. The initial receivables pool to be conveyed to the Trust will consist of approximately 23,100 consumer installment loans with an aggregate outstanding principal balance of approximately $200,000,000, selected from SBF's portfolio of consumer loans originated through the SkyLend platform.

9. All relevant filings and registrations, including UCC financing statements, will be made in a timely and proper manner, and all such filings will be effective and will remain effective throughout the term of the transaction.

10. Each of SBF, the Depositor, and the Trust will at all times comply with the separateness covenants and related provisions contained in the LLC Agreement, the Trust Agreement, and the other Transaction Documents.

IV. Summary of Relevant Structural Features

We set forth below a summary of the structural features of the Depositor and the Trust that are relevant to our analysis. This summary is based upon our review of the Transaction Documents and is not intended to be exhaustive of all terms and conditions thereof.

A. SkyLend Funding LLC (Depositor)

The Depositor is a single-member Delaware limited liability company. Its sole member is Skybridge Fintech Ltd. The Depositor was formed on January 30, 2024, pursuant to its Certificate of Formation filed with the Delaware Secretary of State and the LLC Agreement, for the sole purpose of acquiring consumer receivables from SBF and transferring them to the Trust in connection with the securitization transaction. The Depositor's limited-purpose restriction is set forth in Section 2.04 of the LLC Agreement and provides that the Depositor may not engage in any business activity other than acquiring, holding, and transferring the receivables and performing related functions under the Transaction Documents.

The Depositor is managed by Danielle Prescott, who also serves as Chief Financial Officer of SBF. The LLC Agreement provides for the appointment of at least one independent manager (as described in Section V.A below) whose affirmative consent is required for certain fundamental actions, including the filing of a voluntary bankruptcy petition.

The Depositor's registered office in the State of Delaware is located at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801. This address is the same as SBF's principal headquarters. As discussed in Section VI.B.7 below, the LLC Agreement requires that the Depositor bear its allocable share of overhead attributable to any shared office space and that it identify its office space separately from SBF.

The Depositor has its own Employer Identification Number (93-4187620), maintains its own bank accounts, and is required to maintain books and records separate from those of SBF.

B. SkyLend Receivables Trust 2024-1 (Issuer)

The Trust is a Delaware statutory trust formed on February 14, 2024, pursuant to its Certificate of Trust filed with the Delaware Secretary of State and the Trust Agreement entered into between SkyLend Funding LLC, as depositor, and Keymark Trust Company, N.A., as owner trustee. Keymark is an independent national banking association organized under the laws of the United States, with its principal office located at 600 North King Street, Wilmington, Delaware 19801. Keymark has no ownership or affiliate relationship with SBF or the Depositor. Keymark receives an annual owner trustee fee of $7,500 for its services under the Trust Agreement.

The Trust was formed for the limited purpose of acquiring consumer installment loan receivables from the Depositor, holding such receivables for the benefit of the Noteholders, issuing the Notes to finance the acquisition of such receivables, and performing related activities as contemplated by the Transaction Documents. The Trust is not permitted to engage in any other business activity.

The Trust proposes to issue: (a) $170,000,000 aggregate principal amount of Class A Notes, and (b) $22,000,000 aggregate principal amount of Class B Notes. In addition, SBF, through SkyLend Funding LLC, retains a residual or subordinated certificate interest in the Trust in the amount of $8,000,000, representing approximately 4.0% of the aggregate securitized balance. This residual interest is subordinated to the Notes in the payment waterfall established by the Indenture.

Atlantic Fiduciary Services, Inc. serves as Indenture Trustee under the Indenture. AFS is an independent Delaware banking corporation with no ownership or affiliate relationship with SBF, the Depositor, or the Trust. AFS received a one-time acceptance fee of $15,000 and receives an annual trustee fee of $12,500 for its services under the Indenture.

The Trust has its own Employer Identification Number (93-4201855) and maintains separate accounts, including a collection account and a reserve account, each of which is subject to the Account Control Agreement among the Trust, AFS (as secured party), and Keymark (in its separate capacity as collection-account bank).

V. Separateness Covenants and Bankruptcy-Remoteness Provisions

The Transaction Documents contain extensive separateness covenants and bankruptcy-remoteness provisions designed to ensure that the Depositor and the Trust maintain their separate legal identities and that the assets held by each entity are not subject to the claims of SBF's creditors. We summarize these covenants and provisions below.

A. Separateness Covenants in the LLC Agreement (SkyLend Funding LLC)

The LLC Agreement contains the following separateness covenants, which are set forth primarily in Section 7.01 thereof:

1. Separate Existence. The Depositor shall maintain its existence as a limited liability company separate and distinct from SBF and all affiliates of SBF. The Depositor shall take all actions necessary to preserve its separate legal identity, and neither SBF nor any affiliate of SBF shall take any action that would cause the Depositor's separate legal existence to be disregarded or that would cause the Depositor's assets and liabilities to be treated as the assets and liabilities of SBF or any other person.

2. Separate Books and Records. The Depositor shall maintain its own books, records, and bank accounts separate from those of SBF and any affiliate of SBF. The Depositor's records shall accurately reflect the Depositor's assets, liabilities, and transactions as distinct from those of SBF.

3. Separate Financial Statements. The Depositor's assets and liabilities shall not be listed on SBF's balance sheet as assets and liabilities of SBF. Although SBF may present consolidated financial statements in accordance with generally accepted accounting principles, such consolidated financial statements shall contain appropriate footnote disclosure clearly noting that the assets of the Depositor are not available to satisfy the obligations of SBF and that the Depositor is a separate legal entity whose assets are not subject to the claims of SBF's creditors. The Depositor shall maintain its own financial statements or schedules that separately identify the Depositor's assets, liabilities, and equity.

4. No Commingling of Funds. The Depositor shall not commingle its funds or other assets with those of SBF or any other person. All cash receipts, disbursements, and other funds of the Depositor shall be maintained in bank accounts in the name of the Depositor and shall not be deposited in, or withdrawn from, any bank account of SBF or any affiliate of SBF.

5. Arm's-Length Transactions. All transactions between the Depositor and SBF or any affiliate of SBF shall be conducted on arm's-length terms, properly documented, and at fair value. Without limiting the generality of the foregoing, the purchase price paid by the Depositor to SBF for the receivables under the RPA shall reflect the reasonably equivalent value of such receivables as determined in accordance with the RPA.

6. Own Name. The Depositor shall conduct business in its own name and shall not conduct business in the name of SBF or any other person. The Depositor shall use its own stationery, business cards, invoices, and other business forms, and shall hold itself out to the public and to all third parties as a separate entity from SBF and its affiliates.

7. Separate Office Space. Although the Depositor may share office space with SBF at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801, the Depositor shall bear its allocable share of overhead expenses associated with such shared space and shall identify its office space separately from that of SBF through appropriate signage, mail handling, or other means. Any allocation of shared overhead shall be on terms that are commercially reasonable and properly documented.

8. No Guarantees. The Depositor shall not guarantee, assume, or become obligated for the debts, obligations, or liabilities of SBF or any other entity, and SBF shall not guarantee, assume, or become obligated for the debts, obligations, or liabilities of the Depositor, except as expressly provided in the Transaction Documents. For the avoidance of doubt, SBF's limited repurchase obligations under the RPA with respect to receivables that breach applicable representations and warranties do not constitute guarantees by SBF of the Depositor's obligations.

9. Adequate Capitalization. The Depositor shall maintain capital sufficient and adequate for the conduct of its business activities and the satisfaction of its anticipated obligations. The Depositor shall not make any distribution to its sole member if, after giving effect to such distribution, the Depositor would be unable to pay its debts as they become due in the ordinary course.

10. Observance of Formalities. The Depositor shall observe all organizational formalities required by the Delaware LLC Act and the LLC Agreement, including the maintenance of proper records of all actions taken by its member or manager, the preparation and maintenance of minutes or written consents reflecting material decisions, and the conduct of its affairs in a manner consistent with its status as a separate legal entity.

11. Independent Director/Manager. The LLC Agreement provides that, in addition to the Manager, the Depositor shall have at least one independent manager (the "Independent Manager") whose affirmative consent is required before the Depositor may (a) file a voluntary petition in bankruptcy, (b) consent to the institution of involuntary bankruptcy proceedings against it, (c) dissolve, liquidate, or wind up its affairs, (d) merge or consolidate with any other entity, or (e) amend, alter, or repeal the provisions of the LLC Agreement requiring the Independent Manager's consent. The Independent Manager is required to be an individual who (i) is not, and has not been during the preceding five years, a member, manager, officer, director, employee, or affiliate of SBF or the Depositor (other than in his or her capacity as Independent Manager), (ii) is not and has not been a creditor, supplier, or customer of SBF or the Depositor, and (iii) is provided by a nationally recognized provider of independent directors or managers for special-purpose entities.

12. Limited Purpose. The Depositor's activities are strictly restricted to (a) acquiring receivables from SBF pursuant to the RPA, (b) transferring such receivables to the Trust pursuant to the SSA, (c) performing its obligations under the Transaction Documents, and (d) engaging in activities that are necessary, suitable, or convenient to accomplish the foregoing. The Depositor may not engage in any business activity outside the scope of the securitization.

13. No Employees. The Depositor shall have no employees of its own. To the extent the Depositor requires the services of personnel, such personnel shall be provided by SBF or its affiliates pursuant to appropriate secondment, services, or agency arrangements documented on arm's-length terms, and the costs of such services shall be allocated to the Depositor on a commercially reasonable basis.

B. Separateness Covenants in the Trust Agreement (SkyLend Receivables Trust 2024-1)

The Trust Agreement contains the following separateness covenants, which are set forth primarily in Section 3.06 thereof:

1. Separate Existence. The Trust shall maintain its existence as a Delaware statutory trust separate and distinct from SBF, the Depositor, and any affiliate of SBF or the Depositor. The Trust shall take all actions necessary to preserve its separate legal identity as a Delaware statutory trust.

2. Limited Purpose. The Trust's sole activity shall be to (a) acquire, hold, administer, and finance consumer installment loan receivables, (b) issue the Notes, (c) make payments on the Notes and distributions on the certificates in accordance with the Indenture and the Trust Agreement, and (d) engage in activities that are necessary, suitable, or convenient to accomplish the foregoing. The Trust shall not engage in any other business activity or acquire any assets other than the receivables and related rights contemplated by the Transaction Documents.

3. Independent Owner Trustee. Keymark Trust Company, N.A. serves as Owner Trustee and is an entity entirely independent of SBF and the Depositor. Keymark is a national banking association organized under the laws of the United States, with its principal office located at 600 North King Street, Wilmington, Delaware 19801. Keymark has no ownership, management, or affiliate relationship with SBF, the Depositor, or any affiliate thereof. The appointment of an independent owner trustee provides structural assurance that the Trust's affairs will be conducted independently of SBF.

4. Separate Books, Records, and Accounts. The Trust shall maintain separate books, records, and bank accounts from those of SBF, the Depositor, and any affiliate of SBF or the Depositor. The Trust's collection account and reserve account are maintained at Keymark Trust Company, N.A. (in its capacity as collection-account bank) and are subject to the Account Control Agreement, pursuant to which AFS, as Indenture Trustee and secured party, has a perfected first-priority security interest in all funds on deposit in such accounts.

5. No Commingling. The Trust's assets shall not be commingled with those of SBF, the Depositor, or any other person. All collections and other amounts received by the Trust shall be deposited directly into the Trust's collection account and shall not be deposited in, or transferred to, any account of SBF or the Depositor, except as provided in the payment waterfall established by the Indenture.

6. Own Name. The Trust shall operate in its own name and shall not conduct business in the name of SBF, the Depositor, or any other person. All correspondence, filings, reports, and other communications made by or on behalf of the Trust shall identify the Trust by its full legal name.

7. Arm's-Length Dealings. All dealings between the Trust, on the one hand, and SBF or the Depositor, on the other hand, shall be at arm's length and on commercially reasonable terms. The servicing fee payable to SBF (as servicer) under the SSA is set at 0.50% per annum of the outstanding principal balance of the receivables, which reflects a market-rate servicing fee for consumer installment loan receivables of the type securitized herein.

8. No Voluntary Petition. The Trust Agreement restricts the filing of any voluntary petition for relief under the Bankruptcy Code or any similar proceeding without the prior consent of the Owner Trustee and the holders of 100% of the aggregate outstanding principal amount of the Notes. This provision is designed to reduce the risk that SBF, the Depositor, or any other party affiliated with SBF could unilaterally cause the Trust to file for bankruptcy protection.

9. No Guarantees. The Trust shall not guarantee, assume, or become liable for the debts, obligations, or liabilities of SBF, the Depositor, or any other entity. The Trust's obligations are limited to payments on the Notes and the certificates in accordance with the Indenture and the Trust Agreement, and no other person has recourse to the Trust's assets except as provided in the Transaction Documents.

C. Additional Structural Protections in Transaction Documents

In addition to the separateness covenants summarized above, the Transaction Documents contain a number of additional structural protections that support the separateness of the Depositor and the Trust from SBF:

True-Sale Provisions in the RPA. The RPA provides for the irrevocable transfer of the receivables from SBF to the Depositor. The RPA characterizes the transfer as a "sale" of the receivables for reasonably equivalent value. SBF retains no equitable interest in the transferred receivables, subject to SBF's limited obligation to repurchase receivables that are subsequently determined to have breached applicable representations and warranties at the time of transfer. The purchase price payable by the Depositor to SBF under the RPA is determined by reference to the outstanding principal balance of the receivables, adjusted for accrued interest and an agreed-upon purchase-price percentage reflecting the fair market value of the receivables. The RPA contains representations by SBF to the effect that the transfer constitutes a true sale and that SBF intends and shall treat the transfer as a sale for all purposes, including accounting, tax, and legal purposes.

Transfer from Depositor to Trust under the SSA. The SSA provides for the transfer of the receivables from the Depositor to the Trust, structured as a sale or, in the alternative, a capital contribution. In either case, the Trust becomes the sole owner of the receivables and the related rights. The Depositor retains no beneficial interest in the receivables following the transfer, other than SBF's indirect residual interest through the subordinated certificate held by SkyLend Funding LLC.

Grant of Security Interest under the Indenture. The Indenture provides for the grant of a security interest in all of the Trust's assets — including the receivables, the collection account, the reserve account, all proceeds thereof, and all other rights of the Trust under the Transaction Documents — to AFS, as Indenture Trustee, for the benefit of the Noteholders. The Indenture establishes a payment waterfall governing the distribution of collections and other amounts received by the Trust, with the Class A Noteholders entitled to priority of payment over the Class B Noteholders, and the Class B Noteholders entitled to priority over the holder of the residual/subordinated certificate interest.

Credit Enhancement. The transaction includes the following credit enhancement features: (a) overcollateralization with a target of 3.5% of the aggregate initial Note balance, amounting to $7,000,000; (b) a reserve account funded at closing in the amount of 1.00% of the aggregate initial Note balance, amounting to $2,000,000; and (c) estimated excess spread of approximately 2.85% per annum, representing the difference between the weighted-average interest rate on the receivables and the weighted-average coupon on the Notes and other transaction costs.

Administration Agreement. The Administration Agreement provides that SBF will serve as administrator of the Trust, performing certain administrative functions including the preparation of reports, the filing of tax returns, and the provision of notices to the Indenture Trustee and the Owner Trustee. SBF performs these functions in a fiduciary capacity for the benefit of the Trust and the Noteholders. Importantly, the Administration Agreement does not give SBF control over the Trust's assets or the authority to direct the disposition of such assets outside the terms of the Transaction Documents.

Retained Interest. SBF retains, through SkyLend Funding LLC, only the $8,000,000 residual/subordinated certificate interest, representing approximately 4.0% of the aggregate initial deal size of $200,000,000. This retained interest is junior to all payments on the Notes and is subject to the payment waterfall provisions of the Indenture. The retained interest provides risk-retention compliance and aligns SBF's economic interests with those of the Noteholders, but it does not give SBF any proprietary interest in the receivables or any right to direct the Trust's activities.

VI. Legal Analysis

A. Standard for Substantive Consolidation

Substantive consolidation is a judicially developed equitable doctrine under the Bankruptcy Code that permits a bankruptcy court, in appropriate circumstances, to disregard the separate legal identities of affiliated entities and treat their assets and liabilities as though they belonged to a single entity. The effect of substantive consolidation is to pool the assets and liabilities of the consolidated entities, eliminate intercompany claims, and treat the creditors of all consolidated entities as creditors of a single estate. The doctrine is codified nowhere in the Bankruptcy Code but has been recognized by courts as an exercise of the bankruptcy court's broad equitable powers under Sections 105(a) and 1123(a)(5)(C) of the Bankruptcy Code.

Courts have consistently emphasized that substantive consolidation is an extraordinary remedy that should be applied sparingly, because it deprives creditors of each affected entity of their right to look solely to the assets of the entity with which they dealt. As the Second Circuit stated in In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515 (2d Cir. 1988), substantive consolidation is a remedy "to be used sparingly" because of its "potential for inequity."

Two principal analytical frameworks have emerged in the case law for evaluating substantive-consolidation claims:

The *Augie/Restivo* Test. Under the test adopted by the Second Circuit in Augie/Restivo, a proponent of substantive consolidation must demonstrate either: (i) that creditors dealt with the entities as a single economic unit and did not rely on the separate identity of the individual entities in extending credit; or (ii) that the affairs of the entities are so entangled that consolidation will benefit all creditors. This test places particular emphasis on the expectations of creditors and on whether the entities maintained a separate identity in their dealings with third parties. The Second Circuit cautioned that "the mere fact of common ownership, identity of directors, or shared office space" is insufficient, standing alone, to warrant substantive consolidation.

The *Auto-Train* Test. Under the multi-factor test articulated in In re Auto-Train Corp., 810 F.2d 270 (D.C. Cir. 1987), and its progeny, courts consider a range of factors in determining whether substantive consolidation is appropriate, including: (i) the degree of difficulty in segregating and ascertaining the individual assets and liabilities of each entity; (ii) the presence or absence of consolidated financial statements; (iii) the profitability of consolidation at a single physical location; (iv) the commingling of assets and business functions; (v) the unity of interests and ownership between the entities; (vi) the existence of parent-subsidiary guarantees or cross-pledges of assets; (vii) the transfer of assets without observance of formalities; and (viii) whether the entities observe corporate formalities.

Both tests reflect the fundamental principle that substantive consolidation is warranted only where the separate legal identities of the entities are, in substance, illusory — either because creditors did not rely on the separateness of the entities, or because the entanglement of the entities' affairs is so extreme that separating them would be impractical or prejudicial to creditors.

Courts have been particularly reluctant to order substantive consolidation in the structured-finance context, where the entire purpose of the transaction structure is to create separate entities whose assets are isolated from the bankruptcy estate of the originator. As the bankruptcy court observed in In re LTV Steel Co., Inc., 285 B.R. 259 (Bankr. N.D. Ohio 2002), the separateness features embedded in a securitization transaction — including the formation of special-purpose vehicles, the observance of separateness covenants, and the use of true-sale structures — are specifically designed to withstand substantive-consolidation attacks and should be given effect by courts. While the LTV Steel decision addressed the turnover of securitized assets on other grounds, it acknowledged the significance of structural protections in the substantive-consolidation analysis.

B. Application to SkyLend Funding LLC (Depositor)

We have analyzed whether a court, properly applying existing law, would order the substantive consolidation of the Depositor with SBF in a hypothetical bankruptcy proceeding of SBF. For the reasons set forth below, we conclude that such a result should not obtain, provided that the separateness covenants and structural protections described herein are complied with in all material respects.

1. Separateness of Identity. The Depositor was formed as a distinct legal entity under the Delaware Limited Liability Company Act, 6 Del. C. Ch. 18, with its own Certificate of Formation, its own Employer Identification Number (93-4187620), and its own organizational document (the LLC Agreement). The Depositor has a named manager (Danielle Prescott) and is subject to limited-purpose restrictions that confine its activities to the acquisition and transfer of receivables in connection with the securitization. The Depositor's formation and governance documents establish it as a legal entity separate and apart from SBF.

The LLC Agreement further reinforces the Depositor's separate identity through the comprehensive separateness covenants described in Section V.A above. The Depositor is required to maintain its own books, records, and bank accounts; to conduct business in its own name; to use its own stationery and business forms; and to hold itself out to all third parties as a separate entity. These covenants are consistent with the standards that courts have identified as indicative of genuine separateness between affiliated entities.

The appointment of an Independent Manager, whose affirmative consent is required before the Depositor may file a voluntary bankruptcy petition, provides an additional structural safeguard. The Independent Manager requirement ensures that the decision to place the Depositor into bankruptcy cannot be made unilaterally by SBF or by SBF's management, thereby reducing the risk that the Depositor would be drawn into a bankruptcy proceeding of SBF.

2. No Commingling of Assets. The LLC Agreement expressly prohibits the commingling of the Depositor's funds or assets with those of SBF or any other person. The Depositor is required to maintain its own bank accounts, and all cash receipts and disbursements of the Depositor are to flow through those accounts. The receivables transferred to the Depositor under the RPA are documented as having been acquired by the Depositor at fair value, and the Depositor's only assets are the receivables (which it holds temporarily before transferring them to the Trust) and its rights under the Transaction Documents. The Depositor does not hold any SBF operating assets, inventory, intellectual property, or other business assets.

The prohibition on commingling is a critical factor in the substantive-consolidation analysis. Courts have consistently held that where an entity maintains separate bank accounts and does not commingle its funds with those of an affiliate, the case for substantive consolidation is significantly weakened. See, e.g., In re Owens Ashgrove Partners LLC, 419 F.3d 195, 211 (3d Cir. 2005) (noting that "courts should begin the [substantive consolidation] analysis by examining whether the debtor entities respected their separate legal identities" and emphasizing the significance of separate finances).

3. Arm's-Length Transactions. All transactions between the Depositor and SBF are conducted on arm's-length terms and are properly documented. The RPA provides for the purchase of receivables at fair market value, and the purchase price is determined by reference to the outstanding principal balance of the receivables, adjusted for accrued interest and an agreed-upon purchase-price percentage. The terms of the RPA are consistent with those that would be obtained in an arm's-length transaction between unrelated parties.

The requirement that all inter-entity transactions be at arm's length and at fair value is a well-recognized separateness factor. Where transactions between affiliated entities are conducted at fair value and are properly documented, courts are less likely to conclude that the entities operate as a single economic unit.

4. No Guarantees or Cross-Obligations. The Depositor does not guarantee, assume, or become obligated for the debts of SBF, and SBF does not guarantee the debts of the Depositor, except as expressly provided in the Transaction Documents. SBF's limited repurchase obligation under the RPA — pursuant to which SBF is obligated to repurchase receivables that breach applicable representations and warranties — runs to the Depositor (and, through the SSA, to the Trust) and does not constitute a guarantee of the Depositor's obligations to third parties. The absence of cross-guarantees or cross-pledges of assets between SBF and the Depositor is a significant factor weighing against substantive consolidation.

5. Adequate Capitalization. The LLC Agreement requires the Depositor to maintain capital adequate for the conduct of its business and the satisfaction of its anticipated obligations. The Depositor is a limited-purpose entity whose business activities are confined to the acquisition and transfer of receivables. The Transaction Documents are structured to ensure that the Depositor receives reasonably equivalent value for the receivables it transfers to the Trust, and the Depositor is not permitted to make distributions that would render it unable to pay its debts as they become due. Courts have identified adequate capitalization as a relevant factor in the substantive-consolidation and veil-piercing analyses, and the Depositor's capitalization requirements support the conclusion that it is a genuinely separate entity.

6. Observation of Formalities. The LLC Agreement requires the Depositor to observe all organizational formalities, including the maintenance of records of actions taken by its member and manager, the preparation and retention of written consents, and the conduct of its affairs in a manner consistent with its status as a separate legal entity. The observance of formalities is one of the most frequently cited factors in the substantive-consolidation case law, and the Depositor's compliance with this requirement reinforces its separate identity.

7. Potential Risk Factor — Common Address and Single Member. We acknowledge that the Depositor shares its registered office and business address with SBF at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801, and that SBF is the sole member of the Depositor. These facts, standing alone, could be cited by a proponent of substantive consolidation as evidence of unity of identity between SBF and the Depositor.

However, common ownership and shared office space are typical and indeed expected features of securitization special-purpose vehicles. Courts have consistently recognized that these features do not, by themselves, negate the separateness of affiliated entities, particularly where — as here — comprehensive separateness covenants are in place and are observed. See Augie/Restivo, 860 F.2d at 518 ("mere ownership of one corporation by another does not constitute a basis for consolidation"); In re Owens Ashgrove Partners LLC, 419 F.3d at 211 (noting that "mere common ownership" is insufficient to warrant substantive consolidation). The LLC Agreement's requirement that the Depositor bear its allocable share of overhead and identify its space separately from SBF further mitigates any concern arising from the shared address.

Moreover, the single-member structure of the Depositor is a standard feature of securitization transactions and is contemplated by the Delaware LLC Act, which expressly permits the formation of single-member limited liability companies. The key inquiry is not whether the Depositor is wholly owned by SBF, but whether the Depositor's affairs are conducted separately from those of SBF — and, as discussed above, the Transaction Documents contain extensive provisions designed to ensure such separateness.

C. Application to SkyLend Receivables Trust 2024-1 (Trust)

We have also analyzed whether a court, properly applying existing law, would order the substantive consolidation of the Trust with SBF (or with the Depositor) in a hypothetical bankruptcy proceeding of SBF. For the reasons set forth below, we conclude that such a result should not obtain, provided that the separateness covenants and structural protections described herein are complied with in all material respects.

1. Separateness of Identity. The Trust was formed as a Delaware statutory trust under the Delaware Statutory Trust Act, 12 Del. C. Ch. 38, with its own Certificate of Trust, its own Employer Identification Number (93-4201855), and its own governing instrument (the Trust Agreement). The Trust is a legal entity separate and distinct from SBF, the Depositor, and all affiliates thereof. The Trust operates exclusively in its own name, and all filings, reports, and communications made by or on behalf of the Trust identify the Trust by its full legal name, "SkyLend Receivables Trust 2024-1."

The Trust's separate identity is further reinforced by its independent governance structure, its separate accounts, and the comprehensive separateness covenants contained in the Trust Agreement, each of which is discussed below.

2. Independent Governance. The Trust's governance is structured to ensure independence from SBF and the Depositor. Keymark Trust Company, N.A., a national banking association with no affiliate relationship to SBF or the Depositor, serves as Owner Trustee. In that capacity, Keymark is responsible for the execution of documents on behalf of the Trust, the maintenance of certain records, and the performance of other duties specified in the Trust Agreement. Keymark's independence from SBF provides assurance that the Trust's affairs are not under the direction or control of SBF or its management.

In addition, Atlantic Fiduciary Services, Inc. serves as Indenture Trustee. AFS is a Delaware banking corporation that is also independent of SBF and the Depositor. AFS holds a perfected security interest in all of the Trust's assets for the benefit of the Noteholders and has the authority to exercise remedies in the event of a default under the Indenture. The presence of two independent fiduciaries — one at the trust level and one at the indenture level — provides robust structural independence for the Trust.

The Trust Agreement further restricts the filing of a voluntary bankruptcy petition by the Trust, requiring the prior consent of both the Owner Trustee and the holders of 100% of the outstanding principal amount of the Notes. This supermajority consent requirement (effectively, a unanimity requirement) provides a powerful structural barrier against the involuntary inclusion of the Trust in any bankruptcy proceeding of SBF. While a bankruptcy court retains the equitable power to consolidate entities notwithstanding such contractual restrictions, the existence of the restriction is a relevant factor in the analysis and demonstrates the parties' intent to maintain the Trust's bankruptcy-remote status.

3. No Commingling. The Trust maintains separate bank accounts — specifically, the collection account and the reserve account — which are subject to the Account Control Agreement among the Trust, AFS (as Indenture Trustee and secured party), and Keymark (in its capacity as collection-account bank). All collections on the receivables are required to be deposited into the Trust's collection account, and funds in the collection account are distributed in accordance with the payment waterfall established by the Indenture. The Trust's assets consist solely of the receivables pool (approximately 23,100 consumer installment loans with an aggregate outstanding principal balance of approximately $200,000,000), related contractual rights, and cash on deposit in the Trust's accounts.

The Trust's assets are not available to satisfy SBF's creditors, and the Trust's accounts are not accessible by SBF or the Depositor except through the payment waterfall, which provides for the payment of certain fees and expenses (including the servicing fee and the administration fee) before distributions to the holder of the residual/subordinated certificate interest. The absence of commingling between the Trust's assets and SBF's assets is a critical factor supporting the conclusion that substantive consolidation should not be ordered.

4. Limited Purpose. The Trust Agreement strictly limits the Trust's activities to acquiring, holding, administering, and financing the receivables and issuing the Notes. The Trust has no authority to conduct any business outside the scope of the securitization contemplated by the Transaction Documents. This limited-purpose restriction ensures that the Trust's assets are dedicated to the satisfaction of the Noteholders' claims and are not diverted to serve SBF's general business purposes.

5. Arm's-Length Relationships. All transactions between the Trust and SBF or the Depositor are conducted on arm's-length terms and at commercially reasonable prices. The transfer of receivables from the Depositor to the Trust under the SSA is documented as a sale (or, in the alternative, a contribution) at fair value. The servicing arrangement between the Trust and SBF (as servicer) provides for the payment of a servicing fee of 0.50% per annum of the outstanding principal balance of the receivables, which is estimated at approximately $1,000,000 annually based on the initial pool balance. This servicing fee is consistent with market rates for servicing consumer installment loan receivables of the type included in the Trust's portfolio. The sub-servicing arrangement between SBF and Clearview Loan Servicing, Inc. is a separate contractual arrangement that does not affect the arm's-length nature of the Trust's dealings with SBF.

The Administration Agreement between the Trust and SBF similarly provides for the payment of an administration fee at commercially reasonable rates. All fees and expenses payable by the Trust to SBF are accounted for in the payment waterfall established by the Indenture, ensuring transparency and accountability.

6. Two-Step Isolation. The receivables pass through two distinct transfers before arriving in the Trust: first, from SBF to the Depositor under the RPA (a true sale), and second, from the Depositor to the Trust under the SSA (a sale or contribution). This two-step structure is a well-recognized feature of securitization transactions and is specifically designed to create an additional layer of separation between the originator (SBF) and the ultimate holder of the receivables (the Trust). The interposition of the Depositor as an intermediary entity means that even if a court were to conclude that the transfer from SBF to the Depositor was not a true sale — a conclusion we do not believe would be warranted under the circumstances — the Trust's assets would still be one additional step removed from SBF's estate. The two-step structure reduces the likelihood that a court would view the Trust's assets as part of SBF's estate and strengthens the case against substantive consolidation.

D. Creditor-Reliance Analysis

A critical element of the substantive-consolidation analysis is whether the creditors of the entity whose consolidation is sought relied on the separate identity of that entity, or instead dealt with the entities as a single economic unit. Under the Augie/Restivo framework, where creditors extended credit in reliance on the separateness of the entities, substantive consolidation is disfavored because it would deprive those creditors of the benefit of their bargain.

In this case, the Noteholders who will purchase the Class A Notes ($170,000,000) and the Class B Notes ($22,000,000) will rely entirely on the credit quality of the receivables pool and the structural protections of the Trust, rather than on the general creditworthiness of SBF. The Offering Memorandum, dated April 5, 2024, clearly and prominently discloses the bankruptcy-remote structure of the Trust and the limited-recourse nature of the Notes. Specifically, the Offering Memorandum states that:

(a) the Notes are obligations solely of the Trust and are payable solely from the Trust's assets;

(b) neither SBF, the Depositor, nor any affiliate thereof guarantees the payment of principal, interest, or any other amounts due on the Notes;

(c) the Trust has been structured as a bankruptcy-remote entity, and the transaction has been designed to insulate the Trust's assets from the bankruptcy estate of SBF; and

(d) in the event of SBF's bankruptcy, there can be no assurance that a court would not order the substantive consolidation of the Trust with SBF, but the parties believe that the structural protections described in the Offering Memorandum significantly reduce this risk.

Accordingly, each Noteholder will have extended credit to the Trust — and not to SBF — in explicit reliance on the separateness of the Trust and the availability of the receivables as the sole source of repayment. This creditor-reliance factor weighs heavily against substantive consolidation.

Furthermore, preliminary ratings were sought from Meridian Credit Ratings, Inc. (expected Aaa(sf) on the Class A Notes and A2(sf) on the Class B Notes) and Carrollton Ratings Group LLC (expected AA+(sf) on the Class A Notes and A(sf) on the Class B Notes). These preliminary ratings were assigned based in part on the rating agencies' analysis of the separateness of the Trust from SBF and the structural protections embedded in the Transaction Documents, including the separateness covenants, the independent trustee structure, the true-sale characterization of the receivable transfers, and the credit enhancement features of the transaction. The credit enhancement includes overcollateralization of 3.5% ($7,000,000), a reserve account of 1.00% ($2,000,000), and estimated excess spread of approximately 2.85% per annum. The fact that independent rating agencies analyzed and relied upon the bankruptcy-remote structure of the Trust in assigning their preliminary ratings is additional evidence that the market treats the Trust as a separate entity whose creditworthiness is distinct from that of SBF.

E. Delaware Law Considerations

Several provisions of Delaware law are relevant to the analysis and provide additional support for the separateness of the Depositor and the Trust from SBF.

Delaware Statutory Trust Act. The Delaware Statutory Trust Act, 12 Del. C. Ch. 38, provides that a Delaware statutory trust is a separate legal entity. Specifically, Section 3801(g) of the Act defines a "statutory trust" as a separate legal entity, and Section 3803 provides that a statutory trust may sue and be sued, hold title to property, and enter into contracts in its own name. The Trust was formed in accordance with the Act and is entitled to the legal benefits of its status as a separate legal entity under Delaware law.

Delaware LLC Act. The Delaware Limited Liability Company Act, 6 Del. C. Ch. 18, similarly recognizes the separate legal existence of a limited liability company. Section 18-201(b) provides that a Delaware LLC has the power and authority to carry on any lawful business purpose and shall be a separate legal entity from its members. The Depositor was formed in accordance with the Act and is entitled to the legal benefits of its status as a separate legal entity.

Enforceability of Separateness Covenants. Delaware courts have given strong effect to separateness covenants in organizational documents, particularly in the structured-finance context. The contractual provisions requiring the observance of separateness formalities, the prohibition on commingling, and the requirement for independent managers are all enforceable under Delaware law and are entitled to significant weight in the substantive-consolidation analysis.

Contractual Restrictions on Voluntary Petitions. Delaware public policy favors the enforceability of contractual limitations on the ability of special-purpose entities to file voluntary bankruptcy petitions. The LLC Agreement's Independent Manager requirement and the Trust Agreement's 100% Noteholder consent requirement are consistent with Delaware's approach to the enforceability of such restrictions. While a federal bankruptcy court may, in appropriate circumstances, override such contractual restrictions, the existence of the restrictions is a relevant factor that a court would consider in determining whether to order substantive consolidation.

VII. Qualifications and Limitations

This opinion is subject to the following qualifications and limitations:

1. This opinion is limited to the laws of the State of New York, the General Corporation Law and Limited Liability Company Act of the State of Delaware, the Delaware Statutory Trust Act (12 Del. C. Ch. 38), and applicable federal law, including Title 11 of the United States Code (the Bankruptcy Code). We express no opinion as to the laws of any other jurisdiction.

2. The question of whether a court would order substantive consolidation is inherently an equitable determination that is made by a court on a case-by-case basis, taking into account all relevant facts and circumstances existing at the time the determination is made. No assurance can be given as to how a particular court would rule on a substantive-consolidation request, and the outcome of any such proceeding would depend upon the specific facts and circumstances presented to the court at the time of the proceeding, which may differ from those assumed herein.

3. This opinion assumes that SBF, the Depositor, and the Trust will at all times comply with the separateness covenants and other provisions of the LLC Agreement, the Trust Agreement, and the other Transaction Documents as described herein. Failure to observe such covenants — including any failure to maintain separate books and records, to avoid commingling of funds, to conduct transactions on arm's-length terms, to maintain adequate capitalization, or to observe organizational formalities — could materially and adversely affect the analysis set forth in this opinion and the conclusions expressed herein.

4. This opinion does not address the application of fraudulent-transfer laws (including Sections 544, 548, and 550 of the Bankruptcy Code and any applicable state fraudulent-transfer or fraudulent-conveyance statutes, including the Delaware Uniform Voidable Transactions Act) or preference laws (including Section 547 of the Bankruptcy Code) to the transfers of receivables from SBF to the Depositor or from the Depositor to the Trust.

5. This opinion does not address the application of state insolvency laws, receivership proceedings, or any similar state or federal regulatory proceedings applicable to SBF, the Depositor, or the Trust.

6. This opinion is subject to customary bankruptcy and equitable-principles qualifications, including limitations arising from applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally, and from general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).

7. This opinion is rendered as of the date hereof and speaks only to the law in effect on such date. We undertake no obligation to update this opinion or to advise any addressee of any change in law or fact that may occur after the date hereof that might affect the analysis or conclusions set forth herein.

8. This opinion is rendered solely for the benefit of the addressees hereof in connection with the transactions described herein and may not be relied upon by any other person or entity without our prior written consent. This opinion may not be quoted, referred to, or filed with any governmental agency or other person without our prior written consent, except that copies of this opinion may be furnished to the rating agencies in connection with their evaluation of the Notes and to legal counsel for the addressees.

VIII. Opinion

Based upon and subject to the foregoing, including all assumptions, qualifications, and limitations set forth herein, it is our opinion that:

1. As to SkyLend Funding LLC. In a hypothetical case under Title 11 of the United States Code in which Skybridge Fintech Ltd. were a debtor, a court, properly applying existing law, should not order the substantive consolidation of the assets and liabilities of SkyLend Funding LLC with those of Skybridge Fintech Ltd., provided that the separateness covenants contained in the LLC Agreement and the other Transaction Documents have been and continue to be complied with in all material respects.

2. As to SkyLend Receivables Trust 2024-1. In a hypothetical case under Title 11 of the United States Code in which Skybridge Fintech Ltd. were a debtor, a court, properly applying existing law, should not order the substantive consolidation of the assets and liabilities of SkyLend Receivables Trust 2024-1 with those of Skybridge Fintech Ltd. or SkyLend Funding LLC, provided that the separateness covenants contained in the Trust Agreement, the LLC Agreement, and the other Transaction Documents have been

CALDERWOOD & HARKNESS LLP Attorneys at Law
425 Lexington Avenue New York, New York 10017
Telephone: (212) 558-4000 Facsimile: (212) 558-3588
DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR DELIVERY
C&H Matter No. 1009-00005
[__], 2024
SkyLend Receivables Trust 2024-1 c/o Keymark Trust Company, National Association, as Owner Trustee 600 North King Street Wilmington, Delaware 19801
Attention: Elaine Marchetti, Trust Officer
Atlantic Fiduciary Services, Inc., as Indenture Trustee 2 Christiana Centre, Suite 1400 Wilmington, Delaware 19801
Attention: David Moynihan, Corporate Trust Officer
Halcyon Securities LLC, as Initial Purchaser 200 Vesey Street, 42nd Floor New York, New York 10281
Attention: Rebecca Thornton, Managing Director
Re: Non-Consolidation Opinion — SkyLend Receivables Trust 2024-1 ($170,000,000 Class A Asset-Backed Notes and $22,000,000 Class B Asset-Backed Notes); CUSIP Prefix 87165Q (allocated, unused)
Ladies and Gentlemen:
I. Introduction and Role of Counsel
Calderwood & Harkness LLP ("we," "us," or "C&H") has acted as counsel to Skybridge Fintech Ltd., a Delaware corporation ("SBF" or the "Originator"), SkyLend Funding LLC, a Delaware limited liability company (the "Depositor"), and SkyLend Receivables Trust 2024-1, a Delaware statutory trust (the "Trust" or the "Issuer," and together with SBF and the Depositor, our "Clients"), in connection with the proposed issuance by the Trust of $170,000,000 aggregate principal amount of Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), pursuant to that certain Indenture (as defined below) between the Trust and Atlantic Fiduciary Services, Inc., a Delaware banking corporation (in such capacity, the "Indenture Trustee").
This opinion is delivered pursuant to Section [] of the Preliminary Purchase Agreement dated as of [], 2024 (the "Purchase Agreement"), among the Trust, SBF, the Depositor, and Halcyon Securities LLC, a Delaware limited liability company (the "Initial Purchaser"), Halcyon Deal Reference HLC-ABS-2024-017. The Purchase Agreement requires, as a condition to the obligations of the Initial Purchaser to purchase the Notes, the delivery of this opinion of counsel addressing the matters set forth herein.
This opinion addresses whether, in a hypothetical case commenced under Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), in which SBF were a debtor, a court would order the substantive consolidation of the assets and liabilities of (a) the Depositor and/or (b) the Trust with those of SBF. We note that the substantive consolidation doctrine is an equitable remedy developed through case law, and that our analysis necessarily involves the application of legal principles to factual circumstances as we understand them based on our review of the documents described below and the assumptions set forth herein.
In rendering this opinion, we have not independently verified or investigated the underlying business operations, financial condition, or day-to-day activities of SBF, the Depositor, or the Trust, except to the extent reflected in the documents we have examined. We have relied upon certificates of officers of SBF and the representations and warranties contained in the transaction documents with respect to factual matters relevant to this opinion.
II. Documents Examined
In connection with this opinion, we have examined the following documents, instruments, certificates, and records (collectively, the "Reviewed Documents"):
A. Organizational and Formation Documents
1. Certificate of Formation of SkyLend Funding LLC, as filed with the Secretary of State of the State of Delaware on January 30, 2024 (Filing No. 7914826); Employer Identification Number 93-4187620.
2. Limited Liability Company Agreement of SkyLend Funding LLC, dated as of January 30, 2024 (the "LLC Agreement"), between Skybridge Fintech Ltd., as sole member, and Danielle Prescott, as Manager.
3. Certificate of Trust of SkyLend Receivables Trust 2024-1, as filed with the Secretary of State of the State of Delaware on February 14, 2024 (Filing No. 7928153); Employer Identification Number 93-4201855.
4. Trust Agreement, dated as of February 14, 2024 (the "Trust Agreement"), between SkyLend Funding LLC, as depositor, and Keymark Trust Company, National Association, a national banking association organized under the laws of the United States ("Keymark"), as owner trustee (in such capacity, the "Owner Trustee").
5. Secretary's Certificate and Board Resolutions of Skybridge Fintech Ltd., dated [__], 2024, certifying the authorization of the securitization transaction, the formation of the Depositor and the Trust as special-purpose vehicles, and the execution and delivery of the transaction documents by the authorized signatories of SBF, namely: Arun Mehta (Chief Executive Officer), Danielle Prescott (Chief Financial Officer), and Tomás Reyes (General Counsel).
B. Transaction Documents
6. Indenture (draft dated March 4, 2024) (the "Indenture"), between SkyLend Receivables Trust 2024-1, as issuer, and Atlantic Fiduciary Services, Inc. ("AFS"), as indenture trustee.
7. Receivables Purchase Agreement (draft dated March 11, 2024) (the "RPA"), between Skybridge Fintech Ltd., as seller and originator, and SkyLend Funding LLC, as purchaser and depositor.
8. Sale and Servicing Agreement (draft dated March 11, 2024) (the "SSA"), among SkyLend Funding LLC, as depositor, SkyLend Receivables Trust 2024-1, as issuer, Skybridge Fintech Ltd., as servicer, and Clearview Loan Servicing, Inc., as sub-servicer.
9. Administration Agreement (draft dated March 11, 2024) (the "Administration Agreement"), between SkyLend Receivables Trust 2024-1, as issuer, and Skybridge Fintech Ltd., as administrator.
10. Account Control Agreement (draft dated March 11, 2024) (the "Account Control Agreement"), among SkyLend Receivables Trust 2024-1, Atlantic Fiduciary Services, Inc., as indenture trustee and secured party, and Keymark Trust Company, N.A., as collection-account bank.
11. Preliminary Purchase Agreement (draft dated [__], 2024) (the "Purchase Agreement"), among SkyLend Receivables Trust 2024-1, Skybridge Fintech Ltd., SkyLend Funding LLC, and Halcyon Securities LLC, as initial purchaser.
12. Preliminary Offering Memorandum, dated April 5, 2024 (the "Offering Memorandum"), prepared in connection with the offering and sale of the Notes.
C. Other Documents
13. Certificates of Good Standing for SkyLend Funding LLC, issued by the Secretary of State of the State of Delaware, dated [__], 2024.
14. Certificate of Good Standing for SkyLend Receivables Trust 2024-1, issued by the Secretary of State of the State of Delaware, dated [__], 2024.
15. UCC-1 Financing Statements to be filed with the Secretary of State of the State of Delaware and in such other jurisdictions as are necessary in connection with the perfection of the security interests granted under the transaction documents.
16. Such other documents, certificates, records, and instruments as we have deemed necessary or appropriate for purposes of rendering this opinion, including officer's certificates of SBF and the Depositor with respect to factual matters and compliance with separateness covenants.
The documents described in items 6 through 11 above, together with the Trust Agreement, the LLC Agreement, and the Account Control Agreement, are collectively referred to herein as the "Transaction Documents." Capitalized terms used herein without definition have the meanings ascribed to them in the relevant Transaction Document in which they are defined.
III. Assumptions
In rendering this opinion, we have assumed, with your permission and without independent investigation or verification, the following:
1. All documents submitted to us as originals are authentic, and all documents submitted to us as copies conform to the originals thereof. All signatures on documents examined by us are genuine, and all persons executing such documents had legal capacity to do so.
2. Each party to the Transaction Documents other than SBF, the Depositor, and the Trust (including the Indenture Trustee, the Owner Trustee, the Initial Purchaser, the sub-servicer, and the collection-account bank) has the requisite organizational existence, power, and authority to execute, deliver, and perform its obligations under the Transaction Documents to which it is a party.
3. The Transaction Documents will be executed and delivered in substantially the form in which we have reviewed them, and the transactions contemplated thereby will be consummated in accordance with their terms, without waiver of any material condition or modification of any material provision.
4. In the hypothetical bankruptcy proceeding analyzed herein, SBF will be the debtor, and the case will be commenced under the Bankruptcy Code and adjudicated by a federal bankruptcy court sitting in the District of Delaware.
5. No fraud, intentional misconduct, or bad faith has been or will be committed by any party in connection with the transactions contemplated by the Transaction Documents, and all parties have acted and will continue to act in good faith.
6. Based upon information provided to us by SBF, as of December 31, 2023: (a) SBF's total assets were approximately $1,020,000,000, including gross receivables of approximately $876,500,000 and net receivables (after allowance for credit losses) of approximately $841,400,000; (b) SBF's fiscal year 2023 revenue was approximately $187,300,000; (c) SBF originated approximately $1.4 billion in consumer installment loans through its SkyLend platform during fiscal year 2023; and (d) SBF had approximately 312,000 active borrowers as of December 31, 2023.
7. SBF is controlled by Pinnacle Growth Equity Partners, LP ("Pinnacle"), which holds 62.4% of SBF's fully diluted equity. Pinnacle invested $95,000,000 in SBF in connection with a Series C equity financing round completed in 2021.
8. The initial receivables pool to be conveyed to the Trust will consist of approximately 23,100 consumer installment loans with an aggregate outstanding principal balance of approximately $200,000,000, selected from SBF's portfolio of consumer loans originated through the SkyLend platform.
9. All relevant filings and registrations, including UCC financing statements, will be made in a timely and proper manner, and all such filings will be effective and will remain effective throughout the term of the transaction.
10. Each of SBF, the Depositor, and the Trust will at all times comply with the separateness covenants and related provisions contained in the LLC Agreement, the Trust Agreement, and the other Transaction Documents.
IV. Summary of Relevant Structural Features
We set forth below a summary of the structural features of the Depositor and the Trust that are relevant to our analysis. This summary is based upon our review of the Transaction Documents and is not intended to be exhaustive of all terms and conditions thereof.
A. SkyLend Funding LLC (Depositor)
The Depositor is a single-member Delaware limited liability company. Its sole member is Skybridge Fintech Ltd. The Depositor was formed on January 30, 2024, pursuant to its Certificate of Formation filed with the Delaware Secretary of State and the LLC Agreement, for the sole purpose of acquiring consumer receivables from SBF and transferring them to the Trust in connection with the securitization transaction. The Depositor's limited-purpose restriction is set forth in Section 2.04 of the LLC Agreement and provides that the Depositor may not engage in any business activity other than acquiring, holding, and transferring the receivables and performing related functions under the Transaction Documents.
The Depositor is managed by Danielle Prescott, who also serves as Chief Financial Officer of SBF. The LLC Agreement provides for the appointment of at least one independent manager (as described in Section V.A below) whose affirmative consent is required for certain fundamental actions, including the filing of a voluntary bankruptcy petition.
The Depositor's registered office in the State of Delaware is located at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801. This address is the same as SBF's principal headquarters. As discussed in Section VI.B.7 below, the LLC Agreement requires that the Depositor bear its allocable share of overhead attributable to any shared office space and that it identify its office space separately from SBF.
The Depositor has its own Employer Identification Number (93-4187620), maintains its own bank accounts, and is required to maintain books and records separate from those of SBF.
B. SkyLend Receivables Trust 2024-1 (Issuer)
The Trust is a Delaware statutory trust formed on February 14, 2024, pursuant to its Certificate of Trust filed with the Delaware Secretary of State and the Trust Agreement entered into between SkyLend Funding LLC, as depositor, and Keymark Trust Company, N.A., as owner trustee. Keymark is an independent national banking association organized under the laws of the United States, with its principal office located at 600 North King Street, Wilmington, Delaware 19801. Keymark has no ownership or affiliate relationship with SBF or the Depositor. Keymark receives an annual owner trustee fee of $7,500 for its services under the Trust Agreement.
The Trust was formed for the limited purpose of acquiring consumer installment loan receivables from the Depositor, holding such receivables for the benefit of the Noteholders, issuing the Notes to finance the acquisition of such receivables, and performing related activities as contemplated by the Transaction Documents. The Trust is not permitted to engage in any other business activity.
The Trust proposes to issue: (a) $170,000,000 aggregate principal amount of Class A Notes, and (b) $22,000,000 aggregate principal amount of Class B Notes. In addition, SBF, through SkyLend Funding LLC, retains a residual or subordinated certificate interest in the Trust in the amount of $8,000,000, representing approximately 4.0% of the aggregate securitized balance. This residual interest is subordinated to the Notes in the payment waterfall established by the Indenture.
Atlantic Fiduciary Services, Inc. serves as Indenture Trustee under the Indenture. AFS is an independent Delaware banking corporation with no ownership or affiliate relationship with SBF, the Depositor, or the Trust. AFS received a one-time acceptance fee of $15,000 and receives an annual trustee fee of $12,500 for its services under the Indenture.
The Trust has its own Employer Identification Number (93-4201855) and maintains separate accounts, including a collection account and a reserve account, each of which is subject to the Account Control Agreement among the Trust, AFS (as secured party), and Keymark (in its separate capacity as collection-account bank).
V. Separateness Covenants and Bankruptcy-Remoteness Provisions
The Transaction Documents contain extensive separateness covenants and bankruptcy-remoteness provisions designed to ensure that the Depositor and the Trust maintain their separate legal identities and that the assets held by each entity are not subject to the claims of SBF's creditors. We summarize these covenants and provisions below.
A. Separateness Covenants in the LLC Agreement (SkyLend Funding LLC)
The LLC Agreement contains the following separateness covenants, which are set forth primarily in Section 7.01 thereof:
1. Separate Existence. The Depositor shall maintain its existence as a limited liability company separate and distinct from SBF and all affiliates of SBF. The Depositor shall take all actions necessary to preserve its separate legal identity, and neither SBF nor any affiliate of SBF shall take any action that would cause the Depositor's separate legal existence to be disregarded or that would cause the Depositor's assets and liabilities to be treated as the assets and liabilities of SBF or any other person.
2. Separate Books and Records. The Depositor shall maintain its own books, records, and bank accounts separate from those of SBF and any affiliate of SBF. The Depositor's records shall accurately reflect the Depositor's assets, liabilities, and transactions as distinct from those of SBF.
3. Separate Financial Statements. The Depositor's assets and liabilities shall not be listed on SBF's balance sheet as assets and liabilities of SBF. Although SBF may present consolidated financial statements in accordance with generally accepted accounting principles, such consolidated financial statements shall contain appropriate footnote disclosure clearly noting that the assets of the Depositor are not available to satisfy the obligations of SBF and that the Depositor is a separate legal entity whose assets are not subject to the claims of SBF's creditors. The Depositor shall maintain its own financial statements or schedules that separately identify the Depositor's assets, liabilities, and equity.
4. No Commingling of Funds. The Depositor shall not commingle its funds or other assets with those of SBF or any other person. All cash receipts, disbursements, and other funds of the Depositor shall be maintained in bank accounts in the name of the Depositor and shall not be deposited in, or withdrawn from, any bank account of SBF or any affiliate of SBF.
5. Arm's-Length Transactions. All transactions between the Depositor and SBF or any affiliate of SBF shall be conducted on arm's-length terms, properly documented, and at fair value. Without limiting the generality of the foregoing, the purchase price paid by the Depositor to SBF for the receivables under the RPA shall reflect the reasonably equivalent value of such receivables as determined in accordance with the RPA.
6. Own Name. The Depositor shall conduct business in its own name and shall not conduct business in the name of SBF or any other person. The Depositor shall use its own stationery, business cards, invoices, and other business forms, and shall hold itself out to the public and to all third parties as a separate entity from SBF and its affiliates.
7. Separate Office Space. Although the Depositor may share office space with SBF at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801, the Depositor shall bear its allocable share of overhead expenses associated with such shared space and shall identify its office space separately from that of SBF through appropriate signage, mail handling, or other means. Any allocation of shared overhead shall be on terms that are commercially reasonable and properly documented.
8. No Guarantees. The Depositor shall not guarantee, assume, or become obligated for the debts, obligations, or liabilities of SBF or any other entity, and SBF shall not guarantee, assume, or become obligated for the debts, obligations, or liabilities of the Depositor, except as expressly provided in the Transaction Documents. For the avoidance of doubt, SBF's limited repurchase obligations under the RPA with respect to receivables that breach applicable representations and warranties do not constitute guarantees by SBF of the Depositor's obligations.
9. Adequate Capitalization. The Depositor shall maintain capital sufficient and adequate for the conduct of its business activities and the satisfaction of its anticipated obligations. The Depositor shall not make any distribution to its sole member if, after giving effect to such distribution, the Depositor would be unable to pay its debts as they become due in the ordinary course.
10. Observance of Formalities. The Depositor shall observe all organizational formalities required by the Delaware LLC Act and the LLC Agreement, including the maintenance of proper records of all actions taken by its member or manager, the preparation and maintenance of minutes or written consents reflecting material decisions, and the conduct of its affairs in a manner consistent with its status as a separate legal entity.
11. Independent Director/Manager. The LLC Agreement provides that, in addition to the Manager, the Depositor shall have at least one independent manager (the "Independent Manager") whose affirmative consent is required before the Depositor may (a) file a voluntary petition in bankruptcy, (b) consent to the institution of involuntary bankruptcy proceedings against it, (c) dissolve, liquidate, or wind up its affairs, (d) merge or consolidate with any other entity, or (e) amend, alter, or repeal the provisions of the LLC Agreement requiring the Independent Manager's consent. The Independent Manager is required to be an individual who (i) is not, and has not been during the preceding five years, a member, manager, officer, director, employee, or affiliate of SBF or the Depositor (other than in his or her capacity as Independent Manager), (ii) is not and has not been a creditor, supplier, or customer of SBF or the Depositor, and (iii) is provided by a nationally recognized provider of independent directors or managers for special-purpose entities.
12. Limited Purpose. The Depositor's activities are strictly restricted to (a) acquiring receivables from SBF pursuant to the RPA, (b) transferring such receivables to the Trust pursuant to the SSA, (c) performing its obligations under the Transaction Documents, and (d) engaging in activities that are necessary, suitable, or convenient to accomplish the foregoing. The Depositor may not engage in any business activity outside the scope of the securitization.
13. No Employees. The Depositor shall have no employees of its own. To the extent the Depositor requires the services of personnel, such personnel shall be provided by SBF or its affiliates pursuant to appropriate secondment, services, or agency arrangements documented on arm's-length terms, and the costs of such services shall be allocated to the Depositor on a commercially reasonable basis.
B. Separateness Covenants in the Trust Agreement (SkyLend Receivables Trust 2024-1)
The Trust Agreement contains the following separateness covenants, which are set forth primarily in Section 3.06 thereof:
1. Separate Existence. The Trust shall maintain its existence as a Delaware statutory trust separate and distinct from SBF, the Depositor, and any affiliate of SBF or the Depositor. The Trust shall take all actions necessary to preserve its separate legal identity as a Delaware statutory trust.
2. Limited Purpose. The Trust's sole activity shall be to (a) acquire, hold, administer, and finance consumer installment loan receivables, (b) issue the Notes, (c) make payments on the Notes and distributions on the certificates in accordance with the Indenture and the Trust Agreement, and (d) engage in activities that are necessary, suitable, or convenient to accomplish the foregoing. The Trust shall not engage in any other business activity or acquire any assets other than the receivables and related rights contemplated by the Transaction Documents.
3. Independent Owner Trustee. Keymark Trust Company, N.A. serves as Owner Trustee and is an entity entirely independent of SBF and the Depositor. Keymark is a national banking association organized under the laws of the United States, with its principal office located at 600 North King Street, Wilmington, Delaware 19801. Keymark has no ownership, management, or affiliate relationship with SBF, the Depositor, or any affiliate thereof. The appointment of an independent owner trustee provides structural assurance that the Trust's affairs will be conducted independently of SBF.
4. Separate Books, Records, and Accounts. The Trust shall maintain separate books, records, and bank accounts from those of SBF, the Depositor, and any affiliate of SBF or the Depositor. The Trust's collection account and reserve account are maintained at Keymark Trust Company, N.A. (in its capacity as collection-account bank) and are subject to the Account Control Agreement, pursuant to which AFS, as Indenture Trustee and secured party, has a perfected first-priority security interest in all funds on deposit in such accounts.
5. No Commingling. The Trust's assets shall not be commingled with those of SBF, the Depositor, or any other person. All collections and other amounts received by the Trust shall be deposited directly into the Trust's collection account and shall not be deposited in, or transferred to, any account of SBF or the Depositor, except as provided in the payment waterfall established by the Indenture.
6. Own Name. The Trust shall operate in its own name and shall not conduct business in the name of SBF, the Depositor, or any other person. All correspondence, filings, reports, and other communications made by or on behalf of the Trust shall identify the Trust by its full legal name.
7. Arm's-Length Dealings. All dealings between the Trust, on the one hand, and SBF or the Depositor, on the other hand, shall be at arm's length and on commercially reasonable terms. The servicing fee payable to SBF (as servicer) under the SSA is set at 0.50% per annum of the outstanding principal balance of the receivables, which reflects a market-rate servicing fee for consumer installment loan receivables of the type securitized herein.
8. No Voluntary Petition. The Trust Agreement restricts the filing of any voluntary petition for relief under the Bankruptcy Code or any similar proceeding without the prior consent of the Owner Trustee and the holders of 100% of the aggregate outstanding principal amount of the Notes. This provision is designed to reduce the risk that SBF, the Depositor, or any other party affiliated with SBF could unilaterally cause the Trust to file for bankruptcy protection.
9. No Guarantees. The Trust shall not guarantee, assume, or become liable for the debts, obligations, or liabilities of SBF, the Depositor, or any other entity. The Trust's obligations are limited to payments on the Notes and the certificates in accordance with the Indenture and the Trust Agreement, and no other person has recourse to the Trust's assets except as provided in the Transaction Documents.
C. Additional Structural Protections in Transaction Documents
In addition to the separateness covenants summarized above, the Transaction Documents contain a number of additional structural protections that support the separateness of the Depositor and the Trust from SBF:
True-Sale Provisions in the RPA. The RPA provides for the irrevocable transfer of the receivables from SBF to the Depositor. The RPA characterizes the transfer as a "sale" of the receivables for reasonably equivalent value. SBF retains no equitable interest in the transferred receivables, subject to SBF's limited obligation to repurchase receivables that are subsequently determined to have breached applicable representations and warranties at the time of transfer. The purchase price payable by the Depositor to SBF under the RPA is determined by reference to the outstanding principal balance of the receivables, adjusted for accrued interest and an agreed-upon purchase-price percentage reflecting the fair market value of the receivables. The RPA contains representations by SBF to the effect that the transfer constitutes a true sale and that SBF intends and shall treat the transfer as a sale for all purposes, including accounting, tax, and legal purposes.
Transfer from Depositor to Trust under the SSA. The SSA provides for the transfer of the receivables from the Depositor to the Trust, structured as a sale or, in the alternative, a capital contribution. In either case, the Trust becomes the sole owner of the receivables and the related rights. The Depositor retains no beneficial interest in the receivables following the transfer, other than SBF's indirect residual interest through the subordinated certificate held by SkyLend Funding LLC.
Grant of Security Interest under the Indenture. The Indenture provides for the grant of a security interest in all of the Trust's assets — including the receivables, the collection account, the reserve account, all proceeds thereof, and all other rights of the Trust under the Transaction Documents — to AFS, as Indenture Trustee, for the benefit of the Noteholders. The Indenture establishes a payment waterfall governing the distribution of collections and other amounts received by the Trust, with the Class A Noteholders entitled to priority of payment over the Class B Noteholders, and the Class B Noteholders entitled to priority over the holder of the residual/subordinated certificate interest.
Credit Enhancement. The transaction includes the following credit enhancement features: (a) overcollateralization with a target of 3.5% of the aggregate initial Note balance, amounting to $7,000,000; (b) a reserve account funded at closing in the amount of 1.00% of the aggregate initial Note balance, amounting to $2,000,000; and (c) estimated excess spread of approximately 2.85% per annum, representing the difference between the weighted-average interest rate on the receivables and the weighted-average coupon on the Notes and other transaction costs.
Administration Agreement. The Administration Agreement provides that SBF will serve as administrator of the Trust, performing certain administrative functions including the preparation of reports, the filing of tax returns, and the provision of notices to the Indenture Trustee and the Owner Trustee. SBF performs these functions in a fiduciary capacity for the benefit of the Trust and the Noteholders. Importantly, the Administration Agreement does not give SBF control over the Trust's assets or the authority to direct the disposition of such assets outside the terms of the Transaction Documents.
Retained Interest. SBF retains, through SkyLend Funding LLC, only the $8,000,000 residual/subordinated certificate interest, representing approximately 4.0% of the aggregate initial deal size of $200,000,000. This retained interest is junior to all payments on the Notes and is subject to the payment waterfall provisions of the Indenture. The retained interest provides risk-retention compliance and aligns SBF's economic interests with those of the Noteholders, but it does not give SBF any proprietary interest in the receivables or any right to direct the Trust's activities.
VI. Legal Analysis
A. Standard for Substantive Consolidation
Substantive consolidation is a judicially developed equitable doctrine under the Bankruptcy Code that permits a bankruptcy court, in appropriate circumstances, to disregard the separate legal identities of affiliated entities and treat their assets and liabilities as though they belonged to a single entity. The effect of substantive consolidation is to pool the assets and liabilities of the consolidated entities, eliminate intercompany claims, and treat the creditors of all consolidated entities as creditors of a single estate. The doctrine is codified nowhere in the Bankruptcy Code but has been recognized by courts as an exercise of the bankruptcy court's broad equitable powers under Sections 105(a) and 1123(a)(5)(C) of the Bankruptcy Code.
Courts have consistently emphasized that substantive consolidation is an extraordinary remedy that should be applied sparingly, because it deprives creditors of each affected entity of their right to look solely to the assets of the entity with which they dealt. As the Second Circuit stated in In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515 (2d Cir. 1988), substantive consolidation is a remedy "to be used sparingly" because of its "potential for inequity."
Two principal analytical frameworks have emerged in the case law for evaluating substantive-consolidation claims:
The *Augie/Restivo* Test. Under the test adopted by the Second Circuit in Augie/Restivo, a proponent of substantive consolidation must demonstrate either: (i) that creditors dealt with the entities as a single economic unit and did not rely on the separate identity of the individual entities in extending credit; or (ii) that the affairs of the entities are so entangled that consolidation will benefit all creditors. This test places particular emphasis on the expectations of creditors and on whether the entities maintained a separate identity in their dealings with third parties. The Second Circuit cautioned that "the mere fact of common ownership, identity of directors, or shared office space" is insufficient, standing alone, to warrant substantive consolidation.
The *Auto-Train* Test. Under the multi-factor test articulated in In re Auto-Train Corp., 810 F.2d 270 (D.C. Cir. 1987), and its progeny, courts consider a range of factors in determining whether substantive consolidation is appropriate, including: (i) the degree of difficulty in segregating and ascertaining the individual assets and liabilities of each entity; (ii) the presence or absence of consolidated financial statements; (iii) the profitability of consolidation at a single physical location; (iv) the commingling of assets and business functions; (v) the unity of interests and ownership between the entities; (vi) the existence of parent-subsidiary guarantees or cross-pledges of assets; (vii) the transfer of assets without observance of formalities; and (viii) whether the entities observe corporate formalities.
Both tests reflect the fundamental principle that substantive consolidation is warranted only where the separate legal identities of the entities are, in substance, illusory — either because creditors did not rely on the separateness of the entities, or because the entanglement of the entities' affairs is so extreme that separating them would be impractical or prejudicial to creditors.
Courts have been particularly reluctant to order substantive consolidation in the structured-finance context, where the entire purpose of the transaction structure is to create separate entities whose assets are isolated from the bankruptcy estate of the originator. As the bankruptcy court observed in In re LTV Steel Co., Inc., 285 B.R. 259 (Bankr. N.D. Ohio 2002), the separateness features embedded in a securitization transaction — including the formation of special-purpose vehicles, the observance of separateness covenants, and the use of true-sale structures — are specifically designed to withstand substantive-consolidation attacks and should be given effect by courts. While the LTV Steel decision addressed the turnover of securitized assets on other grounds, it acknowledged the significance of structural protections in the substantive-consolidation analysis.
B. Application to SkyLend Funding LLC (Depositor)
We have analyzed whether a court, properly applying existing law, would order the substantive consolidation of the Depositor with SBF in a hypothetical bankruptcy proceeding of SBF. For the reasons set forth below, we conclude that such a result should not obtain, provided that the separateness covenants and structural protections described herein are complied with in all material respects.
1. Separateness of Identity. The Depositor was formed as a distinct legal entity under the Delaware Limited Liability Company Act, 6 Del. C. Ch. 18, with its own Certificate of Formation, its own Employer Identification Number (93-4187620), and its own organizational document (the LLC Agreement). The Depositor has a named manager (Danielle Prescott) and is subject to limited-purpose restrictions that confine its activities to the acquisition and transfer of receivables in connection with the securitization. The Depositor's formation and governance documents establish it as a legal entity separate and apart from SBF.
The LLC Agreement further reinforces the Depositor's separate identity through the comprehensive separateness covenants described in Section V.A above. The Depositor is required to maintain its own books, records, and bank accounts; to conduct business in its own name; to use its own stationery and business forms; and to hold itself out to all third parties as a separate entity. These covenants are consistent with the standards that courts have identified as indicative of genuine separateness between affiliated entities.
The appointment of an Independent Manager, whose affirmative consent is required before the Depositor may file a voluntary bankruptcy petition, provides an additional structural safeguard. The Independent Manager requirement ensures that the decision to place the Depositor into bankruptcy cannot be made unilaterally by SBF or by SBF's management, thereby reducing the risk that the Depositor would be drawn into a bankruptcy proceeding of SBF.
2. No Commingling of Assets. The LLC Agreement expressly prohibits the commingling of the Depositor's funds or assets with those of SBF or any other person. The Depositor is required to maintain its own bank accounts, and all cash receipts and disbursements of the Depositor are to flow through those accounts. The receivables transferred to the Depositor under the RPA are documented as having been acquired by the Depositor at fair value, and the Depositor's only assets are the receivables (which it holds temporarily before transferring them to the Trust) and its rights under the Transaction Documents. The Depositor does not hold any SBF operating assets, inventory, intellectual property, or other business assets.
The prohibition on commingling is a critical factor in the substantive-consolidation analysis. Courts have consistently held that where an entity maintains separate bank accounts and does not commingle its funds with those of an affiliate, the case for substantive consolidation is significantly weakened. See, e.g., In re Owens Ashgrove Partners LLC, 419 F.3d 195, 211 (3d Cir. 2005) (noting that "courts should begin the [substantive consolidation] analysis by examining whether the debtor entities respected their separate legal identities" and emphasizing the significance of separate finances).
3. Arm's-Length Transactions. All transactions between the Depositor and SBF are conducted on arm's-length terms and are properly documented. The RPA provides for the purchase of receivables at fair market value, and the purchase price is determined by reference to the outstanding principal balance of the receivables, adjusted for accrued interest and an agreed-upon purchase-price percentage. The terms of the RPA are consistent with those that would be obtained in an arm's-length transaction between unrelated parties.
The requirement that all inter-entity transactions be at arm's length and at fair value is a well-recognized separateness factor. Where transactions between affiliated entities are conducted at fair value and are properly documented, courts are less likely to conclude that the entities operate as a single economic unit.
4. No Guarantees or Cross-Obligations. The Depositor does not guarantee, assume, or become obligated for the debts of SBF, and SBF does not guarantee the debts of the Depositor, except as expressly provided in the Transaction Documents. SBF's limited repurchase obligation under the RPA — pursuant to which SBF is obligated to repurchase receivables that breach applicable representations and warranties — runs to the Depositor (and, through the SSA, to the Trust) and does not constitute a guarantee of the Depositor's obligations to third parties. The absence of cross-guarantees or cross-pledges of assets between SBF and the Depositor is a significant factor weighing against substantive consolidation.
5. Adequate Capitalization. The LLC Agreement requires the Depositor to maintain capital adequate for the conduct of its business and the satisfaction of its anticipated obligations. The Depositor is a limited-purpose entity whose business activities are confined to the acquisition and transfer of receivables. The Transaction Documents are structured to ensure that the Depositor receives reasonably equivalent value for the receivables it transfers to the Trust, and the Depositor is not permitted to make distributions that would render it unable to pay its debts as they become due. Courts have identified adequate capitalization as a relevant factor in the substantive-consolidation and veil-piercing analyses, and the Depositor's capitalization requirements support the conclusion that it is a genuinely separate entity.
6. Observation of Formalities. The LLC Agreement requires the Depositor to observe all organizational formalities, including the maintenance of records of actions taken by its member and manager, the preparation and retention of written consents, and the conduct of its affairs in a manner consistent with its status as a separate legal entity. The observance of formalities is one of the most frequently cited factors in the substantive-consolidation case law, and the Depositor's compliance with this requirement reinforces its separate identity.
7. Potential Risk Factor — Common Address and Single Member. We acknowledge that the Depositor shares its registered office and business address with SBF at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801, and that SBF is the sole member of the Depositor. These facts, standing alone, could be cited by a proponent of substantive consolidation as evidence of unity of identity between SBF and the Depositor.
However, common ownership and shared office space are typical and indeed expected features of securitization special-purpose vehicles. Courts have consistently recognized that these features do not, by themselves, negate the separateness of affiliated entities, particularly where — as here — comprehensive separateness covenants are in place and are observed. See Augie/Restivo, 860 F.2d at 518 ("mere ownership of one corporation by another does not constitute a basis for consolidation"); In re Owens Ashgrove Partners LLC, 419 F.3d at 211 (noting that "mere common ownership" is insufficient to warrant substantive consolidation). The LLC Agreement's requirement that the Depositor bear its allocable share of overhead and identify its space separately from SBF further mitigates any concern arising from the shared address.
Moreover, the single-member structure of the Depositor is a standard feature of securitization transactions and is contemplated by the Delaware LLC Act, which expressly permits the formation of single-member limited liability companies. The key inquiry is not whether the Depositor is wholly owned by SBF, but whether the Depositor's affairs are conducted separately from those of SBF — and, as discussed above, the Transaction Documents contain extensive provisions designed to ensure such separateness.
C. Application to SkyLend Receivables Trust 2024-1 (Trust)
We have also analyzed whether a court, properly applying existing law, would order the substantive consolidation of the Trust with SBF (or with the Depositor) in a hypothetical bankruptcy proceeding of SBF. For the reasons set forth below, we conclude that such a result should not obtain, provided that the separateness covenants and structural protections described herein are complied with in all material respects.
1. Separateness of Identity. The Trust was formed as a Delaware statutory trust under the Delaware Statutory Trust Act, 12 Del. C. Ch. 38, with its own Certificate of Trust, its own Employer Identification Number (93-4201855), and its own governing instrument (the Trust Agreement). The Trust is a legal entity separate and distinct from SBF, the Depositor, and all affiliates thereof. The Trust operates exclusively in its own name, and all filings, reports, and communications made by or on behalf of the Trust identify the Trust by its full legal name, "SkyLend Receivables Trust 2024-1."
The Trust's separate identity is further reinforced by its independent governance structure, its separate accounts, and the comprehensive separateness covenants contained in the Trust Agreement, each of which is discussed below.
2. Independent Governance. The Trust's governance is structured to ensure independence from SBF and the Depositor. Keymark Trust Company, N.A., a national banking association with no affiliate relationship to SBF or the Depositor, serves as Owner Trustee. In that capacity, Keymark is responsible for the execution of documents on behalf of the Trust, the maintenance of certain records, and the performance of other duties specified in the Trust Agreement. Keymark's independence from SBF provides assurance that the Trust's affairs are not under the direction or control of SBF or its management.
In addition, Atlantic Fiduciary Services, Inc. serves as Indenture Trustee. AFS is a Delaware banking corporation that is also independent of SBF and the Depositor. AFS holds a perfected security interest in all of the Trust's assets for the benefit of the Noteholders and has the authority to exercise remedies in the event of a default under the Indenture. The presence of two independent fiduciaries — one at the trust level and one at the indenture level — provides robust structural independence for the Trust.
The Trust Agreement further restricts the filing of a voluntary bankruptcy petition by the Trust, requiring the prior consent of both the Owner Trustee and the holders of 100% of the outstanding principal amount of the Notes. This supermajority consent requirement (effectively, a unanimity requirement) provides a powerful structural barrier against the involuntary inclusion of the Trust in any bankruptcy proceeding of SBF. While a bankruptcy court retains the equitable power to consolidate entities notwithstanding such contractual restrictions, the existence of the restriction is a relevant factor in the analysis and demonstrates the parties' intent to maintain the Trust's bankruptcy-remote status.
3. No Commingling. The Trust maintains separate bank accounts — specifically, the collection account and the reserve account — which are subject to the Account Control Agreement among the Trust, AFS (as Indenture Trustee and secured party), and Keymark (in its capacity as collection-account bank). All collections on the receivables are required to be deposited into the Trust's collection account, and funds in the collection account are distributed in accordance with the payment waterfall established by the Indenture. The Trust's assets consist solely of the receivables pool (approximately 23,100 consumer installment loans with an aggregate outstanding principal balance of approximately $200,000,000), related contractual rights, and cash on deposit in the Trust's accounts.
The Trust's assets are not available to satisfy SBF's creditors, and the Trust's accounts are not accessible by SBF or the Depositor except through the payment waterfall, which provides for the payment of certain fees and expenses (including the servicing fee and the administration fee) before distributions to the holder of the residual/subordinated certificate interest. The absence of commingling between the Trust's assets and SBF's assets is a critical factor supporting the conclusion that substantive consolidation should not be ordered.
4. Limited Purpose. The Trust Agreement strictly limits the Trust's activities to acquiring, holding, administering, and financing the receivables and issuing the Notes. The Trust has no authority to conduct any business outside the scope of the securitization contemplated by the Transaction Documents. This limited-purpose restriction ensures that the Trust's assets are dedicated to the satisfaction of the Noteholders' claims and are not diverted to serve SBF's general business purposes.
5. Arm's-Length Relationships. All transactions between the Trust and SBF or the Depositor are conducted on arm's-length terms and at commercially reasonable prices. The transfer of receivables from the Depositor to the Trust under the SSA is documented as a sale (or, in the alternative, a contribution) at fair value. The servicing arrangement between the Trust and SBF (as servicer) provides for the payment of a servicing fee of 0.50% per annum of the outstanding principal balance of the receivables, which is estimated at approximately $1,000,000 annually based on the initial pool balance. This servicing fee is consistent with market rates for servicing consumer installment loan receivables of the type included in the Trust's portfolio. The sub-servicing arrangement between SBF and Clearview Loan Servicing, Inc. is a separate contractual arrangement that does not affect the arm's-length nature of the Trust's dealings with SBF.
The Administration Agreement between the Trust and SBF similarly provides for the payment of an administration fee at commercially reasonable rates. All fees and expenses payable by the Trust to SBF are accounted for in the payment waterfall established by the Indenture, ensuring transparency and accountability.
6. Two-Step Isolation. The receivables pass through two distinct transfers before arriving in the Trust: first, from SBF to the Depositor under the RPA (a true sale), and second, from the Depositor to the Trust under the SSA (a sale or contribution). This two-step structure is a well-recognized feature of securitization transactions and is specifically designed to create an additional layer of separation between the originator (SBF) and the ultimate holder of the receivables (the Trust). The interposition of the Depositor as an intermediary entity means that even if a court were to conclude that the transfer from SBF to the Depositor was not a true sale — a conclusion we do not believe would be warranted under the circumstances — the Trust's assets would still be one additional step removed from SBF's estate. The two-step structure reduces the likelihood that a court would view the Trust's assets as part of SBF's estate and strengthens the case against substantive consolidation.
D. Creditor-Reliance Analysis
A critical element of the substantive-consolidation analysis is whether the creditors of the entity whose consolidation is sought relied on the separate identity of that entity, or instead dealt with the entities as a single economic unit. Under the Augie/Restivo framework, where creditors extended credit in reliance on the separateness of the entities, substantive consolidation is disfavored because it would deprive those creditors of the benefit of their bargain.
In this case, the Noteholders who will purchase the Class A Notes ($170,000,000) and the Class B Notes ($22,000,000) will rely entirely on the credit quality of the receivables pool and the structural protections of the Trust, rather than on the general creditworthiness of SBF. The Offering Memorandum, dated April 5, 2024, clearly and prominently discloses the bankruptcy-remote structure of the Trust and the limited-recourse nature of the Notes. Specifically, the Offering Memorandum states that:
(a) the Notes are obligations solely of the Trust and are payable solely from the Trust's assets;
(b) neither SBF, the Depositor, nor any affiliate thereof guarantees the payment of principal, interest, or any other amounts due on the Notes;
(c) the Trust has been structured as a bankruptcy-remote entity, and the transaction has been designed to insulate the Trust's assets from the bankruptcy estate of SBF; and
(d) in the event of SBF's bankruptcy, there can be no assurance that a court would not order the substantive consolidation of the Trust with SBF, but the parties believe that the structural protections described in the Offering Memorandum significantly reduce this risk.
Accordingly, each Noteholder will have extended credit to the Trust — and not to SBF — in explicit reliance on the separateness of the Trust and the availability of the receivables as the sole source of repayment. This creditor-reliance factor weighs heavily against substantive consolidation.
Furthermore, preliminary ratings were sought from Meridian Credit Ratings, Inc. (expected Aaa(sf) on the Class A Notes and A2(sf) on the Class B Notes) and Carrollton Ratings Group LLC (expected AA+(sf) on the Class A Notes and A(sf) on the Class B Notes). These preliminary ratings were assigned based in part on the rating agencies' analysis of the separateness of the Trust from SBF and the structural protections embedded in the Transaction Documents, including the separateness covenants, the independent trustee structure, the true-sale characterization of the receivable transfers, and the credit enhancement features of the transaction. The credit enhancement includes overcollateralization of 3.5% ($7,000,000), a reserve account of 1.00% ($2,000,000), and estimated excess spread of approximately 2.85% per annum. The fact that independent rating agencies analyzed and relied upon the bankruptcy-remote structure of the Trust in assigning their preliminary ratings is additional evidence that the market treats the Trust as a separate entity whose creditworthiness is distinct from that of SBF.
E. Delaware Law Considerations
Several provisions of Delaware law are relevant to the analysis and provide additional support for the separateness of the Depositor and the Trust from SBF.
Delaware Statutory Trust Act. The Delaware Statutory Trust Act, 12 Del. C. Ch. 38, provides that a Delaware statutory trust is a separate legal entity. Specifically, Section 3801(g) of the Act defines a "statutory trust" as a separate legal entity, and Section 3803 provides that a statutory trust may sue and be sued, hold title to property, and enter into contracts in its own name. The Trust was formed in accordance with the Act and is entitled to the legal benefits of its status as a separate legal entity under Delaware law.
Delaware LLC Act. The Delaware Limited Liability Company Act, 6 Del. C. Ch. 18, similarly recognizes the separate legal existence of a limited liability company. Section 18-201(b) provides that a Delaware LLC has the power and authority to carry on any lawful business purpose and shall be a separate legal entity from its members. The Depositor was formed in accordance with the Act and is entitled to the legal benefits of its status as a separate legal entity.
Enforceability of Separateness Covenants. Delaware courts have given strong effect to separateness covenants in organizational documents, particularly in the structured-finance context. The contractual provisions requiring the observance of separateness formalities, the prohibition on commingling, and the requirement for independent managers are all enforceable under Delaware law and are entitled to significant weight in the substantive-consolidation analysis.
Contractual Restrictions on Voluntary Petitions. Delaware public policy favors the enforceability of contractual limitations on the ability of special-purpose entities to file voluntary bankruptcy petitions. The LLC Agreement's Independent Manager requirement and the Trust Agreement's 100% Noteholder consent requirement are consistent with Delaware's approach to the enforceability of such restrictions. While a federal bankruptcy court may, in appropriate circumstances, override such contractual restrictions, the existence of the restrictions is a relevant factor that a court would consider in determining whether to order substantive consolidation.
VII. Qualifications and Limitations
This opinion is subject to the following qualifications and limitations:
1. This opinion is limited to the laws of the State of New York, the General Corporation Law and Limited Liability Company Act of the State of Delaware, the Delaware Statutory Trust Act (12 Del. C. Ch. 38), and applicable federal law, including Title 11 of the United States Code (the Bankruptcy Code). We express no opinion as to the laws of any other jurisdiction.
2. The question of whether a court would order substantive consolidation is inherently an equitable determination that is made by a court on a case-by-case basis, taking into account all relevant facts and circumstances existing at the time the determination is made. No assurance can be given as to how a particular court would rule on a substantive-consolidation request, and the outcome of any such proceeding would depend upon the specific facts and circumstances presented to the court at the time of the proceeding, which may differ from those assumed herein.
3. This opinion assumes that SBF, the Depositor, and the Trust will at all times comply with the separateness covenants and other provisions of the LLC Agreement, the Trust Agreement, and the other Transaction Documents as described herein. Failure to observe such covenants — including any failure to maintain separate books and records, to avoid commingling of funds, to conduct transactions on arm's-length terms, to maintain adequate capitalization, or to observe organizational formalities — could materially and adversely affect the analysis set forth in this opinion and the conclusions expressed herein.
4. This opinion does not address the application of fraudulent-transfer laws (including Sections 544, 548, and 550 of the Bankruptcy Code and any applicable state fraudulent-transfer or fraudulent-conveyance statutes, including the Delaware Uniform Voidable Transactions Act) or preference laws (including Section 547 of the Bankruptcy Code) to the transfers of receivables from SBF to the Depositor or from the Depositor to the Trust.
5. This opinion does not address the application of state insolvency laws, receivership proceedings, or any similar state or federal regulatory proceedings applicable to SBF, the Depositor, or the Trust.
6. This opinion is subject to customary bankruptcy and equitable-principles qualifications, including limitations arising from applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally, and from general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).
7. This opinion is rendered as of the date hereof and speaks only to the law in effect on such date. We undertake no obligation to update this opinion or to advise any addressee of any change in law or fact that may occur after the date hereof that might affect the analysis or conclusions set forth herein.
8. This opinion is rendered solely for the benefit of the addressees hereof in connection with the transactions described herein and may not be relied upon by any other person or entity without our prior written consent. This opinion may not be quoted, referred to, or filed with any governmental agency or other person without our prior written consent, except that copies of this opinion may be furnished to the rating agencies in connection with their evaluation of the Notes and to legal counsel for the addressees.
VIII. Opinion
Based upon and subject to the foregoing, including all assumptions, qualifications, and limitations set forth herein, it is our opinion that:
1. As to SkyLend Funding LLC. In a hypothetical case under Title 11 of the United States Code in which Skybridge Fintech Ltd. were a debtor, a court, properly applying existing law, should not order the substantive consolidation of the assets and liabilities of SkyLend Funding LLC with those of Skybridge Fintech Ltd., provided that the separateness covenants contained in the LLC Agreement and the other Transaction Documents have been and continue to be complied with in all material respects.
2. As to SkyLend Receivables Trust 2024-1. In a hypothetical case under Title 11 of the United States Code in which Skybridge Fintech Ltd. were a debtor, a court, properly applying existing law, should not order the substantive consolidation of the assets and liabilities of SkyLend Receivables Trust 2024-1 with those of Skybridge Fintech Ltd. or SkyLend Funding LLC, provided that the separateness covenants contained in the Trust Agreement, the LLC Agreement, and the other Transaction Documents have been

CALDERWOOD & HARKNESS LLP Attorneys at Law

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