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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

March 28, 2024

This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP at the request of Skybridge Fintech Ltd. and is protected by the attorney-client privilege and the work-product doctrine. This memorandum is intended solely for the use of Skybridge Fintech Ltd. and its authorized officers, directors, and advisors. It may not be disclosed to, or relied upon by, any other person or entity without the prior written consent of Calderwood & Harkness LLP. This memorandum does not constitute a formal tax opinion, and no formal opinion was ultimately delivered in connection with the transaction described herein.

I. Executive Summary

The purpose of this memorandum is to analyze the federal income tax classification of SkyLend Receivables Trust 2024-1 (EIN: 93-4201855) (the "Trust" or "SRT 2024-1"), a Delaware statutory trust formed on February 14, 2024, which serves as the issuing entity in a proposed $200,000,000 consumer-receivables securitization transaction sponsored by Skybridge Fintech Ltd. ("SBF"). This analysis is prepared at the request of Tomás Reyes, General Counsel of SBF, and Danielle Prescott, Chief Financial Officer of SBF, in connection with the structuring and potential execution of the securitization transaction.

The core question presented is whether SRT 2024-1 qualifies as a "grantor trust" under Subpart E of Subchapter J of the Internal Revenue Code of 1986, as amended (the "Code") — specifically, Sections 671 through 679 — or, alternatively, whether it will be classified as a "business trust" taxable as a corporation or as a partnership under the entity-classification rules set forth in Treasury Regulation §§301.7701-1 through 301.7701-4.

Based on our review of the relevant statutory and regulatory authorities, published revenue rulings, applicable case law, and the draft transaction documents described herein, we conclude that SRT 2024-1 should qualify as a fixed-investment trust (grantor trust) for federal income tax purposes, provided that the terms of the Indenture (draft dated March 4, 2024) limit the trustee's and servicer's discretion over reinvestment and substitution of receivables in the manner set forth in the current drafts, and provided that the two-class structure — consisting of Class A Notes (senior tranche, $170,000,000) and Class B Notes (mezzanine tranche, $22,000,000), together with a retained residual certificate ($8,000,000) — does not create a "power to vary the investment" that would cause the Trust to be classified as a business entity.

This conclusion is subject to a key caveat: the two-class capital structure (senior/subordinate) with a residual interest introduces analytical complexity under Treasury Regulation §301.7701-4(c). The presence of multiple classes of beneficial interests with differing rights to principal and interest collections — allocated through a sequential-pay waterfall rather than on a pro rata basis — requires a careful demonstration that the multiple-class feature does not convert the Trust into an association taxable as a corporation. As discussed in greater detail in Section IV.D below, we believe the weight of authority supports grantor-trust classification for structures of this type, but the analysis is not free from doubt, and the absence of a directly on-point published revenue ruling or Treasury regulation addressing senior/subordinate consumer-receivables trusts warrants disclosure of the classification risk in the offering documents.

We note that this memorandum does not constitute a formal tax opinion. This memorandum was prepared for the purpose of advising SBF in connection with transaction structuring and is intended as a preliminary analysis to support the ultimate delivery of a formal tax opinion at closing. As described further below, the transaction was terminated on May 8, 2024, and no formal tax opinion was issued.

II. Background and Transaction Structure

A. The Parties

The following entities are parties to, or otherwise relevant to, the proposed securitization transaction:

Skybridge Fintech Ltd. ("SBF"). SBF is a Delaware corporation headquartered at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801 (EIN: 84-3291076). SBF serves as the originator, sponsor, and master servicer of the proposed securitization. SBF is a consumer financial technology company that operates the "SkyLend" digital lending platform, through which it originates unsecured consumer installment loans to individual borrowers across the United States. In fiscal year 2023, SBF originated approximately $1.4 billion in consumer loans through the SkyLend platform. As of December 31, 2023, SBF's total receivables portfolio had a gross outstanding principal balance of approximately $876.5 million ($841.4 million net of allowance for credit losses). SBF reported total revenue of $187.3 million for fiscal year 2023. SBF is majority-owned by Pinnacle Growth Equity Partners, LP (described below), which holds 62.4% of SBF's fully diluted equity.

SkyLend Funding LLC (the "Depositor"). The Depositor is a Delaware single-member limited liability company whose sole member is SBF (EIN: 93-4187620). The Depositor was formed on January 30, 2024, for the specific purpose of serving as the intermediate depositor entity in the securitization transaction. The Depositor's manager is Danielle Prescott, CFO of SBF. The Depositor's role in the transaction is to acquire receivables from SBF under the Receivables Purchase Agreement and to transfer such receivables to SRT 2024-1 under the Sale and Servicing Agreement. The interposition of the Depositor between SBF and the Trust is intended to support the characterization of the transfer of receivables as a "true sale" for legal, accounting, and tax purposes and to establish bankruptcy remoteness.

SkyLend Receivables Trust 2024-1 ("the Trust" or "SRT 2024-1"). The Trust is a Delaware statutory trust formed on February 14, 2024, pursuant to the filing of a Certificate of Trust with the Secretary of State of the State of Delaware (EIN: 93-4201855). The Trust serves as the issuing entity for the asset-backed notes described below. The Owner Trustee of the Trust is Keymark Trust Company, National Association, a national banking association with its principal corporate trust office located at 600 North King Street, Wilmington, Delaware 19801. The designated Trust Officer is Elaine Marchetti.

Atlantic Fiduciary Services, Inc. ("AFS"). AFS serves as indenture trustee, paying agent, note registrar, and custodian under the Indenture. AFS is located at 2 Christiana Centre, Suite 1400, Wilmington, Delaware 19801. The Corporate Trust Officer responsible for the transaction is David Moynihan. AFS is an experienced corporate trust services provider that has served as indenture trustee in numerous consumer and commercial asset-backed securitization transactions.

Clearview Loan Servicing, Inc. ("Clearview"). Clearview is an Ohio corporation that will act as third-party servicer and sub-servicer of the receivables in the Trust's pool. Clearview is located at 8800 Brecksville Road, Suite 300, Cleveland, Ohio 44141. Clearview has been engaged by SBF since 2022 under the Master Servicing Agreement dated October 1, 2022 (as amended by Amendment No. 1, executed March 18, 2024). Clearview's role includes the collection of payments on the receivables, the enforcement and workout of defaulted receivables, the preparation of servicer reports, and the remittance of collections to the collection account maintained by the Trust.

Halcyon Securities LLC. Halcyon Securities LLC will serve as sole bookrunning manager and initial purchaser for the offering of the Class A Notes and Class B Notes. Halcyon is located at 200 Vesey Street, 42nd Floor, New York, New York 10281. The Notes are expected to be placed with institutional investors in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended, and Regulation S thereunder.

Pinnacle Growth Equity Partners, LP. Pinnacle Growth Equity Partners, LP is the private equity sponsor of SBF. Pinnacle holds 62.4% of SBF's fully diluted equity through a $95 million Series C preferred equity investment completed in 2021. While Pinnacle is not a direct party to the securitization transaction documents, its ownership position and governance rights in SBF are relevant to the overall analysis of the transaction structure and the identity of the ultimate economic beneficiaries.

B. Transaction Flow

The proposed securitization transaction involves the following principal steps:

Step 1: Origination. SBF originates unsecured consumer installment loans through the SkyLend digital lending platform. These loans have original principal balances ranging from $1,000 to $25,000 and original terms of 12 to 60 months. The loans are fully amortizing, fixed-rate installment obligations with monthly payment schedules. SBF underwrites each loan using its proprietary credit-scoring model, which incorporates FICO scores, alternative data sources, and machine-learning algorithms.

Step 2: Sale to Depositor. SBF sells a designated pool of receivables arising from the consumer installment loans to SkyLend Funding LLC (the Depositor) under the Receivables Purchase Agreement (draft dated March 11, 2024). This sale is intended to constitute a "true sale" for legal purposes, such that the receivables are no longer property of SBF's estate in the event of SBF's bankruptcy. The true-sale characterization is addressed separately in a Draft True-Sale Opinion being prepared by this firm and is not the subject of this memorandum.

Step 3: Transfer to Trust. The Depositor transfers the receivables to SRT 2024-1 under the Sale and Servicing Agreement (draft dated March 11, 2024). This transfer is also intended to constitute a true sale. Upon the transfer, the receivables become the property of the Trust and secure the Trust's obligations under the Indenture.

Step 4: Issuance of Notes. SRT 2024-1 issues asset-backed notes in two classes (Class A Notes and Class B Notes), secured by the receivables pool, under the Indenture (draft dated March 4, 2024). AFS serves as indenture trustee, paying agent, note registrar, and custodian. The Notes are the primary obligations of the Trust and are payable solely from the collections on the receivables and the other Trust assets.

Step 5: Placement of Notes. The Notes are placed with qualified institutional buyers and non-U.S. persons via a Rule 144A / Regulation S private placement, with Halcyon Securities LLC acting as sole bookrunning manager and initial purchaser. A CUSIP prefix of 87165Q has been allocated for the Notes but remains unused as of the date of this memorandum.

C. Capital Structure

The proposed capital structure of SRT 2024-1 is as follows:

The Class A Notes are the senior tranche and have first priority with respect to interest and principal payments. The Class B Notes are the mezzanine tranche and are subordinate to the Class A Notes in respect of both interest and principal payments. The Residual Certificate (also referred to as the subordinated certificate or equity interest) represents the residual economic interest in the Trust and is subordinate to both the Class A Notes and the Class B Notes. The Residual Certificate is retained by SBF through SkyLend Funding LLC and is not offered to investors. Expected ratings are from Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton"), respectively. No ratings were assigned because the transaction was terminated prior to the issuance of final ratings.

D. Pool Characteristics

The receivables pool to be transferred to SRT 2024-1 is expected to have the following characteristics as of the anticipated cut-off date of March 31, 2024:

• Number of receivables: Approximately 23,100 individual consumer installment-loan receivables

• Aggregate outstanding principal balance (gross, before haircuts): $213,750,000

• Final pool target (after haircuts and selection): $200,000,000

• Weighted average coupon (WAC): 14.82%

• Weighted average remaining term: 38.4 months

• Weighted average FICO at origination: 698

• Maximum single-obligor concentration: 0.15% ($300,000)

• Geographic concentration limit: No single state may represent more than 20% of the aggregate pool balance

The receivables consist of fixed-rate, fully amortizing, unsecured consumer installment loans originated by SBF through the SkyLend platform. All receivables will be required to satisfy the eligibility criteria set forth in the Eligibility Criteria & Representations Schedule to the Sale and Servicing Agreement.

E. Credit Enhancement Features

The proposed transaction includes the following credit enhancement features designed to protect the Class A Notes and Class B Notes from losses on the underlying receivables:

• Overcollateralization target: 3.5% of the initial pool balance, or $7,000,000. Overcollateralization is achieved by the excess of the aggregate outstanding principal balance of the receivables over the aggregate outstanding principal balance of the Notes.

• Reserve account: A cash reserve account funded at closing with an initial balance of 1.00% of the initial pool balance, or $2,000,000. The reserve account is maintained at Keymark Trust Company, N.A. and is available to cover shortfalls in interest and principal payments on the Notes.

• Excess spread: Estimated at 2.85% per annum. Excess spread is the difference between the weighted average coupon on the receivables (14.82%) and the sum of the weighted average coupon on the Notes and the Trust's fees and expenses.

• Subordination: The Class B Notes are subordinate to the Class A Notes in the priority-of-payments waterfall, and the Residual Certificate is subordinate to both classes of Notes. Subordination provides credit support to the senior tranche by absorbing losses after the exhaustion of excess spread, the reserve account, and overcollateralization.

F. Payment Waterfall

Under the Indenture, collections on the receivables and investment earnings on amounts on deposit in the Trust's accounts are applied on each payment date in the following order of priority:

(i) Trustee fees and servicing fees (the servicing fee is 0.50% per annum of the outstanding pool balance, or approximately $1,000,000 per year);

(ii) Interest on the Class A Notes at the applicable coupon rate;

(iii) Interest on the Class B Notes at the applicable coupon rate;

(iv) Principal on the Class A Notes in accordance with the scheduled amortization and any accelerated principal payments resulting from prepayments and losses;

(v) Principal on the Class B Notes in accordance with the scheduled amortization and any accelerated principal payments;

(vi) Replenishment of the reserve account to the required level (1.00% of the initial pool balance);

(vii) Payment of amounts necessary to achieve and maintain the overcollateralization target (3.5% of the initial pool balance); and

(viii) All remaining amounts (the residual) to the holder of the Residual Certificate.

The contractual payment-application waterfall for payments received on the underlying receivables is governed by Section 4.03 of the Master Servicing Agreement (dated October 1, 2022), which provides that payments are applied first to accrued interest, then to outstanding fees, and then to principal.

III. Legal Framework — Trust Classification Under the Internal Revenue Code

A. Overview of Entity Classification Rules

The federal income tax classification of SRT 2024-1 is governed by the entity-classification provisions of the Code and the Treasury Regulations promulgated thereunder. The relevant framework is set forth in Treasury Regulation §§301.7701-1 through 301.7701-4.

Under Treasury Regulation §301.7701-1(a), the Code prescribes the classification of various organizations for federal tax purposes. An organization is classified as one of the following: (i) a trust; (ii) a partnership; (iii) an association taxable as a corporation; or (iv) a disregarded entity. The classification of an organization determines the manner in which its income, deductions, and credits are reported and taxed.

The so-called "check-the-box" regulations, set forth in Treasury Regulation §§301.7701-2 and 301.7701-3, provide an elective classification regime for "eligible entities" — i.e., entities that are not classified as trusts or per se corporations. Under the check-the-box regulations, an unincorporated entity with two or more members is classified by default as a partnership (unless it elects to be treated as an association taxable as a corporation), and an unincorporated entity with a single member is classified by default as a disregarded entity (unless it elects to be treated as an association). These regulations, however, apply only to entities that are properly classified as "business entities" rather than trusts.

Treasury Regulation §301.7701-4 governs the classification of trusts for federal income tax purposes. Under this provision, a trust is distinguished from a business entity based on the purpose for which the arrangement was created and the nature of the activities conducted thereunder. The regulations draw a fundamental distinction between two categories of trusts:

(a) Ordinary trusts — trusts created to protect and conserve property for the benefit of beneficiaries, where the trustee's duties are limited to collecting income, preserving trust property, and distributing the trust corpus and income to beneficiaries in accordance with the trust instrument. Such trusts are classified as trusts for federal tax purposes and are not subject to the check-the-box regime.

(b) Business trusts — trusts created for the purpose of carrying on a profit-making business that would ordinarily be conducted through a corporation, partnership, or other business organization. Business trusts are classified as "business entities" and are subject to the check-the-box regulations. A business trust with two or more members is classified as either a partnership or an association (taxable as a corporation), depending on its characteristics and any election made under the check-the-box regime.

The distinction between an ordinary trust and a business trust is determined by examining the nature of the arrangement, including the powers of the trustee, the character of the trust assets, and the degree to which the beneficiaries are engaged in business activity through the trust vehicle. The label attached to the arrangement under state law — here, a "Delaware statutory trust" — is not determinative for federal income tax purposes. See Treas. Reg. §301.7701-1(a) ("The Internal Revenue Code prescribes the classification of various organizations for federal tax purposes. Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.").

B. Grantor Trust Classification — IRC §§671–679

Subpart E of Subchapter J of the Code (Sections 671 through 679) provides rules for the treatment of trusts in which the grantor or another person is treated as the owner of all or a portion of the trust corpus. These provisions are commonly referred to as the "grantor trust" rules.

Under grantor-trust treatment, the trust is disregarded as a separate taxpayer for federal income tax purposes. The items of income, deduction, and credit attributable to the trust are not reported at the trust level but are instead attributed directly to the grantor (or the deemed owner of the trust's beneficial interests). The practical effect of grantor-trust classification is that the trust is a pass-through vehicle: income earned on the trust's assets is taxed to the owners of the beneficial interests in the trust, and the trust itself pays no federal income tax.

The key advantage of grantor-trust classification for SRT 2024-1 is the avoidance of entity-level federal income tax. If the Trust were classified as an association taxable as a corporation, the income earned on the receivables would be subject to corporate-level federal income tax, and distributions to the noteholders and certificate holder would potentially be subject to a second level of taxation. This would significantly increase the effective tax burden on the transaction and would be economically unacceptable to the parties.

In the context of the proposed securitization, SBF (acting through SkyLend Funding LLC as depositor) is the grantor of the Trust. Under grantor-trust treatment, the certificateholders and noteholders are treated as the owners of undivided interests in the trust assets, and each such owner is taxable on its pro rata share of the trust's income.

The application of specific grantor-trust provisions to SRT 2024-1 includes analysis under the following Code sections:

• IRC §677 (Income for Benefit of Grantor). Under this section, a grantor is treated as the owner of any portion of a trust whose income is, or in the discretion of the grantor or a nonadverse party may be, distributed to the grantor or the grantor's spouse, or held or accumulated for future distribution to the grantor or the grantor's spouse. In the case of SRT 2024-1, to the extent that SBF (through the Depositor) retains the Residual Certificate and is entitled to receive residual distributions from the Trust, SBF may be treated as the owner of a portion of the Trust under this provision.

• IRC §676 (Power to Revoke). Under this section, a grantor is treated as the owner of any portion of a trust where, at any time, the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse party, or both. In the case of SRT 2024-1, the Trust Agreement and Indenture do not grant SBF or any other party a power to revoke the Trust or to revest title to the receivables in SBF. However, the optional clean-up call (discussed below) and the substitution right must be analyzed to confirm that they do not constitute a revocatory power.

The more critical question for securitization purposes, however, is not whether the grantor-trust rules of Sections 671 through 679 technically apply (they generally will, given SBF's retained economic interest through the Residual Certificate), but whether the Trust qualifies as a "fixed-investment trust" under Treasury Regulation §301.7701-4(c) — because only fixed-investment trusts, as distinguished from business trusts, are eligible for grantor-trust treatment. This is the focus of the analysis in Section III.C below.

C. Fixed-Investment Trust vs. Business Trust — Treas. Reg. §301.7701-4(c)

Treasury Regulation §301.7701-4(c) provides the framework for distinguishing between a trust that is a fixed-investment trust (eligible for grantor-trust classification) and a trust that is a business trust (classified as a business entity). A trust is classified as a fixed-investment trust if it satisfies two principal requirements:

(i) Single class or undivided interests. The trust has a single class of ownership interests, or, if the trust has multiple classes, each class represents an undivided beneficial interest in the trust assets; and

(ii) No power to vary the investment. No person has the power to vary the investment of the certificate holders — that is, no person has the authority to acquire new investments or to reinvest proceeds from the trust assets in a manner that would alter the character or composition of the trust's portfolio.

The "power to vary the investment" test is the central analytical inquiry for asset-backed securitization vehicles. The test is designed to distinguish between arrangements that merely hold a fixed pool of assets and distribute the income and principal therefrom to beneficiaries (which are properly classified as trusts) and arrangements that involve active management or reinvestment of the trust's assets (which are more properly classified as business entities).

Several published revenue rulings provide guidance on the application of the power-to-vary test:

Revenue Ruling 75-192. In this ruling, the IRS considered an investment trust that held a fixed portfolio of corporate bonds. The trust instrument prohibited the trustee from acquiring new bonds or reinvesting the proceeds of matured or called bonds in new instruments. The IRS concluded that the trust was a fixed-investment trust eligible for grantor-trust classification, because the portfolio was fixed and no party had the power to vary the investment.

Revenue Ruling 78-149. In this ruling, the IRS considered an investment trust with multiple classes of ownership interests that had varying rights to income and principal. The IRS held that the existence of multiple classes of ownership, by itself, does not disqualify a trust from grantor-trust classification, provided that each class represents an undivided beneficial interest in the trust assets and no person has the power to vary the investment. This ruling is significant for SRT 2024-1 because the Trust has three classes of beneficial interests (Class A Notes, Class B Notes, and the Residual Certificate).

Revenue Ruling 84-10. In this ruling, the IRS addressed the question of whether the temporary reinvestment of trust proceeds (e.g., collections received between payment dates) in short-term, high-quality obligations constitutes a "power to vary the investment." The IRS concluded that such reinvestment does not constitute a power to vary the investment if (i) the reinvestment is limited to short-term, highly liquid instruments of the highest credit quality, (ii) the reinvestment is incidental to the primary purpose of the trust (i.e., holding the fixed pool and distributing collections), and (iii) the reinvestment proceeds are distributed to beneficiaries on the next payment date. This ruling is directly relevant to SRT 2024-1's treatment of collections held in the collection account pending distribution.

D. Multiple-Class Structures and the "Power to Vary" Concern

Treasury Regulation §301.7701-4(c)(1) provides that if a trust has multiple classes of beneficial interests, the arrangement may be treated as a business entity if the multiple-class structure is equivalent to an entity carrying on a business and dividing the profits thereof. The inquiry is fact-specific and requires an examination of the totality of the circumstances, including the nature of the trust assets, the powers of the trustee and other parties, and the economic substance of the arrangement.

The two-class note structure of SRT 2024-1 — Class A Notes (senior, $170,000,000) and Class B Notes (mezzanine, $22,000,000), plus the Residual Certificate ($8,000,000) — creates a senior/subordinate relationship in which collections are allocated based on a priority-of-payments waterfall. This differs from a simple pro rata allocation of trust receipts among identical ownership interests. In a pro rata structure, each certificate holder receives the same percentage of each collection dollar; in a sequential-pay or senior/subordinate structure, the senior class has priority over the subordinate class in the receipt of both interest and principal payments.

The critical question is whether the subordination and priority-waterfall features cause the Trust to be classified as a business entity rather than a grantor trust. The concern is that a senior/subordinate structure — in which the subordinate class absorbs losses first and the senior class receives preferential payments — resembles the capital structure of a corporation (with its debt and equity tranches) or a partnership (with its preferred and residual allocations), rather than the simple, undivided ownership of a fixed pool of assets that is characteristic of a grantor trust.

Analysis of IRS guidance on "fast-pay/slow-pay" structures indicates that the sequential-pay feature (Class A senior to Class B) raises analytical questions, but published rulings and extensive industry practice have generally permitted such structures to qualify as fixed-investment trusts where the following conditions are met:

(a) The underlying pool of assets is fixed and not subject to active management or reinvestment;

(b) The allocation of collections among the classes is determined by fixed, pre-established rules set forth in the trust instrument, and no party has discretion to alter the allocation;

(c) No party has the power to acquire new assets or reinvest trust proceeds in a manner that would vary the investment of the certificate holders; and

(d) The trust does not engage in any business activity beyond holding the assets and distributing collections.

These conditions are analyzed in the context of SRT 2024-1 in Section IV below.

IV. Analysis — Application to SRT 2024-1

A. Fixed-Pool Requirement

A threshold requirement for grantor-trust classification is that the trust hold a fixed pool of assets. Under the draft Indenture (March 4, 2024), the receivables pool for SRT 2024-1 is determined as of the cut-off date, which is expected to be March 31, 2024. After the cut-off date, the pool is static: no new receivables may be added to the pool, and the Trust may not acquire additional consumer loans or other long-term assets.

The Indenture does not provide for a revolving period during which new receivables may be purchased with collections from the existing pool. This is a critical structural feature. In a revolving-pool securitization, the trust has the ability to acquire new receivables during a designated reinvestment period, which raises significant power-to-vary concerns and typically precludes grantor-trust classification (such structures are often structured as partnerships or REMICs instead). By contrast, SRT 2024-1 is a static-pool or amortizing structure in which collections are distributed to the noteholders and certificate holder in accordance with the payment waterfall, and the pool of receivables simply amortizes over time.

The Indenture does contain a limited substitution right, under which SBF may substitute receivables in the pool under certain narrowly defined circumstances. Specifically, if a receivable is found to have breached the eligibility criteria or the representations and warranties set forth in the Eligibility Criteria & Representations Schedule to the Sale and Servicing Agreement, SBF has the right (and, under certain circumstances, the obligation) to substitute a conforming receivable for the non-conforming receivable within 60 days of the closing date. Any substitute receivable must satisfy all of the eligibility criteria specified in the Schedule, including requirements as to outstanding principal balance, remaining term, borrower credit score, delinquency status, and geographic location.

This substitution right is properly characterized as a curative mechanism — it permits the correction of errors in the initial pool selection and the replacement of receivables that fail to satisfy the contractual criteria — rather than a discretionary reinvestment power. The substitution right does not give SBF or any other party the ability to change the nature or composition of the pool by acquiring receivables with different risk characteristics or by reinvesting trust proceeds in new assets. Moreover, the substitution right is limited in time (60 days post-closing) and in scope (only non-conforming receivables may be replaced, and only with conforming receivables).

Additionally, the Indenture provides for a limited reallocation of collections, which is ministerial in nature. For example, if a receivable is prepaid in full, the principal collections are applied in accordance with the payment waterfall and are not reinvested in new receivables.

Conclusion: The pool is fixed. The substitution right is limited, non-discretionary, and curative in nature. These features are consistent with grantor-trust treatment under the fixed-investment-trust standard of Treasury Regulation §301.7701-4(c).

B. Reinvestment Limitations

Under the Indenture, collections received on the receivables (including principal, interest, and recoveries) prior to each monthly payment date are deposited into the collection account maintained at Keymark Trust Company, N.A. Amounts on deposit in the collection account may be temporarily invested in "Eligible Investments," as defined in the Indenture. The definition of Eligible Investments is limited to the following categories of short-term, highly rated instruments:

(a) Direct obligations of the United States of America (i.e., U.S. Treasury obligations) with maturities not exceeding 30 days;

(b) Commercial paper rated at least A-1 by Standard & Poor's (or the equivalent rating by another nationally recognized rating agency) and P-1 by Moody's (or the equivalent rating by another nationally recognized rating agency), with maturities not exceeding 30 days;

(c) Certificates of deposit issued by a depository institution whose short-term unsecured debt obligations are rated at least A-1/P-1, with maturities not exceeding 30 days;

(d) Money market funds that invest exclusively in the obligations described in clauses (a) through (c) above and that are rated AAAm or equivalent by a nationally recognized rating agency; and

(e) Such other short-term instruments as may be approved in writing by the rating agencies rating the Notes, subject to the requirement that such instruments have maturities not exceeding 30 days and credit quality consistent with the rating levels assigned to the Notes.

The temporary reinvestment of collections in Eligible Investments is incidental and ministerial. The purpose of such reinvestment is to earn a modest return on funds held in the collection account between payment dates, rather than to alter the character or composition of the trust's portfolio. No party — including the Owner Trustee, the Indenture Trustee, the Servicer, or SBF — has the discretion to invest collections in consumer loans, corporate bonds, equities, or any other long-term assets.

This reinvestment arrangement is squarely within the scope of the "incidental reinvestment" exception recognized in Revenue Ruling 84-10. In that ruling, the IRS concluded that the temporary reinvestment of trust proceeds in short-term, high-quality obligations pending distribution to beneficiaries does not constitute a "power to vary the investment" of the certificate holders, because such reinvestment is incidental to the primary purpose of the trust — holding the fixed pool and distributing collections. The reinvestment limitations in SRT 2024-1's Indenture are at least as restrictive as the arrangements approved in Revenue Ruling 84-10: the Eligible Investments are limited to the highest-quality, shortest-term instruments, and the investment proceeds are distributed to the noteholders and certificate holder on the next monthly payment date.

Conclusion: The reinvestment limitations in the Indenture satisfy the fixed-investment-trust standard. The temporary reinvestment of collections in Eligible Investments is incidental and ministerial and does not constitute a "power to vary the investment" of the certificate holders.

C. Servicer Discretion Analysis

The servicer's powers and duties under the Sale and Servicing Agreement and the Master Servicing Agreement are relevant to the power-to-vary analysis because the servicer is the party with the most direct involvement in the day-to-day management of the receivables. If the servicer has broad discretionary powers to modify, restructure, or substitute receivables, such powers could be characterized as a power to vary the investment.

Under the proposed transaction structure, Clearview Loan Servicing, Inc. acts as sub-servicer of the receivables, and SBF acts as master servicer. The servicer's authority under the Sale and Servicing Agreement is limited to the following:

(a) Collection and enforcement. The servicer is authorized to collect payments on the receivables, to pursue delinquent accounts through standard collection procedures, and to enforce the terms of the receivables (including the initiation of legal proceedings against defaulting borrowers) in accordance with customary servicing standards.

(b) Workout and modification. The servicer has limited authority to modify the terms of defaulted or delinquent receivables, including the ability to grant payment deferrals, reduce interest rates, or extend loan terms. These modification powers are subject to quantitative caps specified in the Sale and Servicing Agreement. Specifically, the aggregate outstanding principal balance of receivables subject to modification at any time may not exceed a specified percentage (expected to be 5.0% to 7.5%) of the initial pool balance. Individual modifications are subject to further limitations on the magnitude of any interest-rate reduction (not to exceed 200 basis points), the length of any term extension (not to exceed 12 months), and the aggregate number of deferrals per receivable (not to exceed two).

(c) Reporting. The servicer is required to prepare and deliver monthly servicer reports to the Indenture Trustee, the Owner Trustee, and the Administrator, detailing collections, delinquencies, defaults, losses, and other performance metrics for the receivables pool.

(d) Remittance. The servicer is required to remit collections on the receivables to the collection account maintained at Keymark Trust Company, N.A., on or before the second business day following receipt.

Critically, the servicer has no authority to acquire new receivables for the Trust, to invest trust proceeds in assets other than Eligible Investments, or to alter the composition of the receivables pool. The servicer's modification authority is reactive (i.e., exercised only in response to borrower defaults or delinquencies) rather than proactive, and is subject to quantitative limits that prevent the servicer from materially altering the risk profile of the pool. Moreover, the servicer's modifications serve the interests of all certificate holders and noteholders by maximizing recovery on defaulted or delinquent receivables — they are loss-mitigation tools, not investment decisions.

The servicer's limited modification authority does not rise to the level of a "power to vary the investment" within the meaning of Treasury Regulation §301.7701-4(c) because: (i) the modifications are reactive and curative, not proactive or discretionary in the investment sense; (ii) the modifications are subject to quantitative caps that prevent material alteration of the pool's characteristics; (iii) the modifications are exercised in accordance with customary servicing standards and are intended to maximize recovery for the benefit of all beneficial interest holders; and (iv) the servicer has no authority to acquire new assets or reinvest trust proceeds.

Conclusion: The servicer's discretion is sufficiently limited for grantor-trust purposes. The servicer's modification authority does not constitute a power to vary the investment of the certificate holders.

D. Multiple-Class Analysis — Senior/Subordinate Structure

As described in Section II.C above, SRT 2024-1 has three classes of beneficial interests: Class A Notes (senior, $170,000,000), Class B Notes (mezzanine, $22,000,000), and the Residual Certificate ($8,000,000). Under the Indenture waterfall, collections on the receivables are allocated based on a fixed priority: first, to trustee and servicing fees; second, to interest on the Class A Notes; third, to interest on the Class B Notes; fourth, to principal on the Class A Notes; fifth, to principal on the Class B Notes; sixth, to reserve account replenishment; seventh, to overcollateralization target build; and eighth, to the holder of the Residual Certificate.

The allocation of collections among the three classes is not pro rata — that is, each class does not receive the same percentage of each collection dollar. Instead, the allocation is sequential, with the senior class receiving priority over the subordinate classes. This sequential-pay feature distinguishes SRT 2024-1 from a simple pass-through trust in which all beneficial interest holders receive identical, pro rata shares of the trust's income and principal.

The question is whether this multiple-class, sequential-pay structure causes SRT 2024-1 to be classified as a business entity rather than a grantor trust. The analysis proceeds under Treasury Regulation §301.7701-4(c)(1), which provides that multiple classes of beneficial interests may cause a trust to be treated as a business entity if the arrangement is "equivalent to an entity carrying on a business and dividing the profits thereof."

We believe that the weight of authority supports the conclusion that the two-class note structure of SRT 2024-1, with a retained residual certificate, does not preclude grantor-trust classification. The following considerations support this conclusion:

First, the allocation of collections among the classes is determined by fixed, pre-established rules set forth in the Indenture. The waterfall is entirely non-discretionary: no party — including the Owner Trustee, the Indenture Trustee, the Servicer, or SBF — has the ability to alter the priority of payments or to redirect collections from one class to another. The mechanical operation of the waterfall is a function of the contractual terms of the Indenture, not of any party's business judgment.

Second, the receivables pool is fixed as of the cut-off date. As discussed in Section IV.A, no new receivables may be added to the pool (except through the limited substitution right), and no party has the power to acquire new investments or reinvest trust proceeds in long-term assets. The static nature of the pool is a critical factor distinguishing SRT 2024-1 from a business entity, which would be expected to actively manage and turn over its investment portfolio.

Third, the subordination feature — under which the Class B Notes and the Residual Certificate absorb losses before the Class A Notes — is a structural credit-enhancement mechanism, not a profit-sharing arrangement. The purpose of subordination is to provide credit support to the senior tranche, not to divide the profits of a business venture among equity and debt holders. The credit enhancement features (overcollateralization, reserve account, excess spread, and subordination) are standard features of fixed-pool securitization transactions and do not, by themselves, convert a trust into a business entity.

Fourth, published IRS guidance supports the classification of multi-class asset-backed trusts as grantor trusts where the pool is fixed and no party has the power to vary the investment. Revenue Ruling 78-149, discussed in Section III.C above, holds that multiple classes of ownership with varying rights to income and principal do not automatically disqualify a trust from grantor-trust treatment, provided that no person has the power to vary the investment of the certificate holders. Although Revenue Ruling 78-149 does not specifically address senior/subordinate structures with sequential-pay waterfalls, its reasoning is applicable to the present facts: the existence of multiple classes of beneficial interests is not, by itself, sufficient to convert a trust into a business entity.

Fifth, the IRS has issued numerous private letter rulings permitting two-class (or multi-class) asset-backed structures to qualify as grantor trusts where the underlying pool is fixed and no discretionary reinvestment occurs. While private letter rulings may not be cited as precedent and may not be relied upon by taxpayers other than the recipients, they are indicative of the IRS's administrative practice and provide useful guidance on the application of the entity-classification rules to securitization structures. The consistent pattern of these rulings supports the conclusion that senior/subordinate consumer ABS structures routinely qualify as grantor trusts.

Sixth, industry practice strongly supports grantor-trust classification for structures of this type. Senior/subordinate consumer-receivables securitization trusts are among the most common securitization vehicles in the U.S. capital markets, and they are routinely structured and marketed as grantor trusts. The standard offering memorandum disclosures for such transactions describe the trusts as grantor trusts for federal income tax purposes, and the underwriters, rating agencies, and investors in such transactions generally expect and rely upon grantor-trust classification.

We note, however, that the analysis is not free from all doubt. The absence of a directly on-point published revenue ruling or Treasury regulation specifically addressing senior/subordinate consumer-receivables trusts with sequential-pay waterfalls means that the analysis must be based on the general principles of Treasury Regulation §301.7701-4(c) and the reasoning of the published rulings discussed above. We are not aware of any published authority that would preclude grantor-trust classification for a structure like SRT 2024-1, but the possibility of a contrary IRS position cannot be entirely eliminated.

Conclusion: The two-class structure, with a retained residual certificate, should not preclude grantor-trust classification for SRT 2024-1. The allocation of collections among the classes is determined by fixed, non-discretionary rules, and the pool is static. The subordination and credit-enhancement features are structural mechanisms, not indicia of a business entity.

E. Absence of Business Activity

A further factor supporting grantor-trust classification is the absence of business activity within SRT 2024-1. As described in the transaction documents, the Trust has no employees, no offices, and no business operations beyond holding the receivables and distributing collections to the noteholders and certificate holder in accordance with the payment waterfall.

The Trust Agreement dated February 14, 2024, includes separateness covenants and limited-purpose restrictions that confine the Trust's activities to the following:

(a) Owning the receivables and the related assets transferred to it under the Sale and Servicing Agreement;

(b) Issuing the Class A Notes, the Class B Notes, and the Residual Certificate under the Indenture;

(c) Performing its obligations under the transaction documents (including the Trust Agreement, the Indenture, the Sale and Servicing Agreement, and the Administration Agreement); and

(d) Engaging in such other activities as are incidental to or necessary for the performance of the foregoing.

The Trust is prohibited from engaging in any business activity, acquiring any assets other than the receivables and the Eligible Investments, incurring any indebtedness other than the Notes, or taking any action that would be inconsistent with its status as a special-purpose entity.

The Owner Trustee (Keymark Trust Company, N.A.) has only ministerial duties under the Trust Agreement. The Owner Trustee does not have the authority to manage the receivables, to make investment decisions, or to exercise business judgment on behalf of the Trust. Its role is limited to holding legal title to the Trust assets, executing documents on behalf of the Trust, and performing such other administrative functions as are specified in the Trust Agreement.

The Indenture Trustee (AFS) acts as paying agent, note registrar, and custodian in a fiduciary capacity. AFS's duties are defined by the Indenture and are limited to receiving collections from the servicer, applying collections in accordance with the payment waterfall, maintaining the accounts of the Trust, and performing its other duties under the Indenture. AFS has no business discretion and does not manage or administer the receivables.

SBF's role as administrator under the Administration Agreement (anticipated to be entered into at closing) is limited to providing administrative, reporting, and compliance support to the Trust. The administrator does not exercise business judgment or profit-seeking activity on behalf of the Trust.

Conclusion: SRT 2024-1 exhibits no indicia of a business trust. The arrangement is protective and conserving in nature — it is designed solely to hold a fixed pool of receivables, distribute collections, and wind down as the receivables amortize. There is no active management, no profit-seeking activity, and no business operations within the Trust.

F. Comparison with Taxable Mortgage Pool (TMP) Rules — IRC §7701(i)

Section 7701(i) of the Code provides that certain arrangements with multiple classes of debt obligations secured by real-property mortgages or interests therein are treated as "taxable mortgage pools" (TMPs). An entity classified as a TMP is taxed as a corporation, regardless of its classification under the general entity-classification rules or the grantor-trust provisions.

Specifically, Section 7701(i)(2) defines a "taxable mortgage pool" as any entity (other than a REMIC) if: (i) substantially all of the assets of such entity consist of debt obligations (or interests therein) and more than 50% of such debt obligations (or interests therein) consist of real estate mortgages (or interests therein); (ii) such entity is the obligor under debt obligations with two or more maturities; and (iii) under the terms of the debt obligations referred to in clause (ii), payments on such debt obligations bear a relationship to payments on the debt obligations (or interests therein) referred to in clause (i).

The TMP classification is designed to prevent taxpayers from issuing multiple classes of debt obligations secured by real-property mortgages without either (a) electing REMIC status and complying with the REMIC requirements or (b) being taxed as a corporation.

SRT 2024-1 is secured by unsecured consumer installment-loan receivables originated through the SkyLend platform. The receivables are not secured by real property, and they do not constitute "real estate mortgages" or "interests therein" within the meaning of Section 7701(i). Therefore, the TMP classification rules of Section 7701(i) are inapplicable to SRT 2024-1.

This section is included for completeness because the multi-class note structure of SRT 2024-1 (Class A Notes and Class B Notes with different maturities) could raise TMP concerns if the underlying collateral were real-estate-related. For consumer-receivables securitizations backed by unsecured personal loans, TMP classification is not a risk.

Conclusion: Section 7701(i) TMP classification is not applicable to SRT 2024-1.

G. REMIC Analysis — IRC §§860A–860G

Sections 860A through 860G of the Code provide a special tax regime for "real estate mortgage investment conduits" (REMICs). A REMIC is a tax-transparent entity that may issue multiple classes of interests (regular interests and residual interests) backed by real estate mortgages and is not subject to entity-level federal income tax, subject to certain exceptions.

A REMIC election is available only for an entity or arrangement substantially all of whose assets consist of "qualified mortgages" and "permitted investments." Section 860G(a)(3) defines "qualified mortgage" to include, among other things, any obligation principally secured by an interest in real property. The receivables in SRT 2024-1 are unsecured consumer installment loans originated through the SkyLend platform. These receivables are not secured by real property and do not qualify as "qualified mortgages" within the meaning of Section 860G(a)(3).

Because the receivables do not qualify as qualified mortgages, SRT 2024-1 is not eligible for a REMIC election under Sections 860A through 860G. REMIC classification is therefore not available and not relevant to the analysis.

This section is included for completeness to confirm that the alternative pass-through structure available for real-estate-backed securitizations is not available for SRT 2024-1 and to rule out any mischaracterization of the Trust as a REMIC.

Conclusion: REMIC classification under IRC §§860A–860G is inapplicable to SRT 2024-1.

V. Tax Reporting and Compliance Considerations

A. Grantor Trust Reporting

If SRT 2024-1 is treated as a grantor trust for federal income tax purposes, the Trust is not required to compute or pay federal income tax at the entity level. Instead, the Trust files on a "reporting" basis only. The specific reporting requirements are as follows:

The Trust will file an annual federal income tax return on Form 1041 (U.S. Income Tax Return for Estates and Trusts) with the Internal Revenue Service. However, the Form 1041 will not report any income, deductions, or credits at the trust level. Instead, the Form 1041 will include a statement pursuant to Treasury Regulation §1.671-4 identifying SRT 2024-1 as a grantor trust and providing the name, address, and taxpayer identification number (TIN) of each person treated as the owner of a portion of the Trust.

Each noteholder and the holder of the Residual Certificate will receive information reporting reflecting its allocable share of the Trust's interest income, fees, expenses, and losses. For noteholders, this information will typically be provided on Form 1099-INT (Interest Income) or Form 1099-OID (Original Issue discount), as applicable. For the holder of the Residual Certificate (SBF, through SkyLend Funding LLC), the information may be provided on a Schedule K-1 equivalent or through a grantor-trust reporting statement attached to the Form 1041.

The Trust's reporting obligations will be the responsibility of SBF, acting in its capacity as administrator under the Administration Agreement. SBF will be responsible for arranging for the preparation and filing of the Trust's Form 1041, the preparation and distribution of Forms 1099 (or equivalent information statements) to noteholders, and compliance with all other applicable federal tax-reporting requirements.

B. FATCA and Withholding Considerations

The Notes will be placed with institutional investors under Rule 144A (for domestic investors) and Regulation S (for non-U.S. investors). Payments of interest on the Notes to non-U.S. holders are subject to withholding obligations under Sections 1441 and 1442 of the Code (imposing a 30% withholding tax on certain U.S.-source payments to non-resident aliens and foreign corporations, respectively) and the Foreign Account Tax Compliance Act ("FATCA"), codified in Sections 1471 through 1474 of the Code.

AFS, as paying agent for the Trust, will be responsible for withholding applicable taxes on interest payments to non-U.S. holders. A non-U.S. holder may establish eligibility for an exemption from, or a reduced rate of, withholding tax by providing AFS with a valid Form W-8BEN (for individuals) or Form W-8BEN-E (for entities) establishing the holder's status as a resident of a country with which the United States has an income-tax treaty that provides for a reduced rate of withholding on interest income, or establishing the holder's eligibility for the portfolio-interest exemption under Section 871(h) or Section 881(c) of the Code.

With respect to FATCA compliance, SRT 2024-1 will be required to either (a) register with the IRS as a "reporting financial institution" and comply with the due-diligence, reporting, and withholding obligations imposed on financial institutions under the FATCA regime, or (b) establish that it qualifies for an exemption from such obligations (e.g., as a "deemed-compliant" financial institution under the applicable Treasury Regulations or an applicable intergovernmental agreement). SBF, as administrator, will be responsible for ensuring the Trust's compliance with FATCA.

C. State and Local Tax Considerations

This memorandum addresses only the federal income tax treatment of SRT 2024-1. State and local tax treatment of the Trust may vary significantly by jurisdiction.

SBF should consult with its state and local tax advisors regarding potential state income, franchise, or excise tax obligations of the Trust in the State of Delaware (as the jurisdiction of organization) and in any other jurisdiction in which the Trust may be deemed to have a taxable nexus (e.g., by reason of the location of the receivables, the borrowers, the servicer, or the paying agent).

As a general matter, Delaware statutory trusts are exempt from Delaware state income tax. However, Delaware imposes an annual franchise tax on Delaware statutory trusts in the amount of $300 per year, payable on or before June 1 of each year. The Trust will be subject to this franchise tax obligation for so long as it remains a Delaware statutory trust in good standing.

Other states may impose income, franchise, or excise taxes on the Trust or on the income derived from receivables originated in, or payable by borrowers located in, such states. The state tax treatment of securitization trusts is a complex and evolving area of law, and a separate state tax analysis would be required to fully assess the Trust's state and local tax obligations.

VI. Assumptions and Qualifications

The analysis set forth in this memorandum is subject to the following assumptions and qualifications:

1. Transaction documents. The analysis is based on our review of the following draft and executed transaction documents: (i) the Trust Agreement — SkyLend Receivables Trust 2024-1 (dated February 14, 2024); (ii) the draft Indenture — SRT 2024-1 and AFS (draft dated March 4, 2024); (iii) the draft Sale and Servicing Agreement (draft dated March 11, 2024); and (iv) the draft Receivables Purchase Agreement (draft dated March 11, 2024). The execution version of the Indenture was never finalized due to the termination of the transaction. We have also reviewed the LLC Agreement of SkyLend Funding LLC and the Master Servicing Agreement between SBF and Clearview (dated October 1, 2022), as amended by Amendment No. 1 (executed March 18, 2024).

2. Final documents. We have assumed that the final transaction documents, had they been executed, would not have materially deviated from the drafts reviewed. To the extent that the final documents would have included terms or provisions materially different from those set forth in the drafts, the analysis set forth herein may need to be revised.

3. Conduct of the parties. We have assumed that no party will exercise any power or take any action inconsistent with the limited-purpose nature of the Trust as described in the transaction documents. If any party were to act in a manner inconsistent with the Trust's limited-purpose restrictions — for example, by directing the Trust to acquire new receivables, by exercising the substitution right in a manner that exceeds the contractual limitations, or by granting the servicer broader modification authority than contemplated by the Sale and Servicing Agreement — the grantor-trust classification could be jeopardized.

4. Current law. The analysis is based on federal income tax law in effect as of the date of this memorandum (March 28, 2024), including the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published revenue rulings, revenue procedures, IRS notices, and relevant case law. Federal income tax law is subject to change, and any change in the applicable statutes, regulations, or administrative or judicial interpretations after the date of this memorandum could affect the conclusions expressed herein.

5. Matters not addressed. This memorandum does not address the following matters, which are outside the scope of this analysis:

(a) The tax characterization of the transfer of receivables from SBF to SkyLend Funding LLC (i.e., whether the transfer constitutes a "true sale" or a "secured financing" for federal income tax purposes). This issue is addressed separately in the Draft True-Sal

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
March 28, 2024
This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP at the request of Skybridge Fintech Ltd. and is protected by the attorney-client privilege and the work-product doctrine. This memorandum is intended solely for the use of Skybridge Fintech Ltd. and its authorized officers, directors, and advisors. It may not be disclosed to, or relied upon by, any other person or entity without the prior written consent of Calderwood & Harkness LLP. This memorandum does not constitute a formal tax opinion, and no formal opinion was ultimately delivered in connection with the transaction described herein.
I. Executive Summary
The purpose of this memorandum is to analyze the federal income tax classification of SkyLend Receivables Trust 2024-1 (EIN: 93-4201855) (the "Trust" or "SRT 2024-1"), a Delaware statutory trust formed on February 14, 2024, which serves as the issuing entity in a proposed $200,000,000 consumer-receivables securitization transaction sponsored by Skybridge Fintech Ltd. ("SBF"). This analysis is prepared at the request of Tomás Reyes, General Counsel of SBF, and Danielle Prescott, Chief Financial Officer of SBF, in connection with the structuring and potential execution of the securitization transaction.
The core question presented is whether SRT 2024-1 qualifies as a "grantor trust" under Subpart E of Subchapter J of the Internal Revenue Code of 1986, as amended (the "Code") — specifically, Sections 671 through 679 — or, alternatively, whether it will be classified as a "business trust" taxable as a corporation or as a partnership under the entity-classification rules set forth in Treasury Regulation §§301.7701-1 through 301.7701-4.
Based on our review of the relevant statutory and regulatory authorities, published revenue rulings, applicable case law, and the draft transaction documents described herein, we conclude that SRT 2024-1 should qualify as a fixed-investment trust (grantor trust) for federal income tax purposes, provided that the terms of the Indenture (draft dated March 4, 2024) limit the trustee's and servicer's discretion over reinvestment and substitution of receivables in the manner set forth in the current drafts, and provided that the two-class structure — consisting of Class A Notes (senior tranche, $170,000,000) and Class B Notes (mezzanine tranche, $22,000,000), together with a retained residual certificate ($8,000,000) — does not create a "power to vary the investment" that would cause the Trust to be classified as a business entity.
This conclusion is subject to a key caveat: the two-class capital structure (senior/subordinate) with a residual interest introduces analytical complexity under Treasury Regulation §301.7701-4(c). The presence of multiple classes of beneficial interests with differing rights to principal and interest collections — allocated through a sequential-pay waterfall rather than on a pro rata basis — requires a careful demonstration that the multiple-class feature does not convert the Trust into an association taxable as a corporation. As discussed in greater detail in Section IV.D below, we believe the weight of authority supports grantor-trust classification for structures of this type, but the analysis is not free from doubt, and the absence of a directly on-point published revenue ruling or Treasury regulation addressing senior/subordinate consumer-receivables trusts warrants disclosure of the classification risk in the offering documents.
We note that this memorandum does not constitute a formal tax opinion. This memorandum was prepared for the purpose of advising SBF in connection with transaction structuring and is intended as a preliminary analysis to support the ultimate delivery of a formal tax opinion at closing. As described further below, the transaction was terminated on May 8, 2024, and no formal tax opinion was issued.
II. Background and Transaction Structure
A. The Parties
The following entities are parties to, or otherwise relevant to, the proposed securitization transaction:
Skybridge Fintech Ltd. ("SBF"). SBF is a Delaware corporation headquartered at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801 (EIN: 84-3291076). SBF serves as the originator, sponsor, and master servicer of the proposed securitization. SBF is a consumer financial technology company that operates the "SkyLend" digital lending platform, through which it originates unsecured consumer installment loans to individual borrowers across the United States. In fiscal year 2023, SBF originated approximately $1.4 billion in consumer loans through the SkyLend platform. As of December 31, 2023, SBF's total receivables portfolio had a gross outstanding principal balance of approximately $876.5 million ($841.4 million net of allowance for credit losses). SBF reported total revenue of $187.3 million for fiscal year 2023. SBF is majority-owned by Pinnacle Growth Equity Partners, LP (described below), which holds 62.4% of SBF's fully diluted equity.
SkyLend Funding LLC (the "Depositor"). The Depositor is a Delaware single-member limited liability company whose sole member is SBF (EIN: 93-4187620). The Depositor was formed on January 30, 2024, for the specific purpose of serving as the intermediate depositor entity in the securitization transaction. The Depositor's manager is Danielle Prescott, CFO of SBF. The Depositor's role in the transaction is to acquire receivables from SBF under the Receivables Purchase Agreement and to transfer such receivables to SRT 2024-1 under the Sale and Servicing Agreement. The interposition of the Depositor between SBF and the Trust is intended to support the characterization of the transfer of receivables as a "true sale" for legal, accounting, and tax purposes and to establish bankruptcy remoteness.
SkyLend Receivables Trust 2024-1 ("the Trust" or "SRT 2024-1"). The Trust is a Delaware statutory trust formed on February 14, 2024, pursuant to the filing of a Certificate of Trust with the Secretary of State of the State of Delaware (EIN: 93-4201855). The Trust serves as the issuing entity for the asset-backed notes described below. The Owner Trustee of the Trust is Keymark Trust Company, National Association, a national banking association with its principal corporate trust office located at 600 North King Street, Wilmington, Delaware 19801. The designated Trust Officer is Elaine Marchetti.
Atlantic Fiduciary Services, Inc. ("AFS"). AFS serves as indenture trustee, paying agent, note registrar, and custodian under the Indenture. AFS is located at 2 Christiana Centre, Suite 1400, Wilmington, Delaware 19801. The Corporate Trust Officer responsible for the transaction is David Moynihan. AFS is an experienced corporate trust services provider that has served as indenture trustee in numerous consumer and commercial asset-backed securitization transactions.
Clearview Loan Servicing, Inc. ("Clearview"). Clearview is an Ohio corporation that will act as third-party servicer and sub-servicer of the receivables in the Trust's pool. Clearview is located at 8800 Brecksville Road, Suite 300, Cleveland, Ohio 44141. Clearview has been engaged by SBF since 2022 under the Master Servicing Agreement dated October 1, 2022 (as amended by Amendment No. 1, executed March 18, 2024). Clearview's role includes the collection of payments on the receivables, the enforcement and workout of defaulted receivables, the preparation of servicer reports, and the remittance of collections to the collection account maintained by the Trust.
Halcyon Securities LLC. Halcyon Securities LLC will serve as sole bookrunning manager and initial purchaser for the offering of the Class A Notes and Class B Notes. Halcyon is located at 200 Vesey Street, 42nd Floor, New York, New York 10281. The Notes are expected to be placed with institutional investors in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended, and Regulation S thereunder.
Pinnacle Growth Equity Partners, LP. Pinnacle Growth Equity Partners, LP is the private equity sponsor of SBF. Pinnacle holds 62.4% of SBF's fully diluted equity through a $95 million Series C preferred equity investment completed in 2021. While Pinnacle is not a direct party to the securitization transaction documents, its ownership position and governance rights in SBF are relevant to the overall analysis of the transaction structure and the identity of the ultimate economic beneficiaries.
B. Transaction Flow
The proposed securitization transaction involves the following principal steps:
Step 1: Origination. SBF originates unsecured consumer installment loans through the SkyLend digital lending platform. These loans have original principal balances ranging from $1,000 to $25,000 and original terms of 12 to 60 months. The loans are fully amortizing, fixed-rate installment obligations with monthly payment schedules. SBF underwrites each loan using its proprietary credit-scoring model, which incorporates FICO scores, alternative data sources, and machine-learning algorithms.
Step 2: Sale to Depositor. SBF sells a designated pool of receivables arising from the consumer installment loans to SkyLend Funding LLC (the Depositor) under the Receivables Purchase Agreement (draft dated March 11, 2024). This sale is intended to constitute a "true sale" for legal purposes, such that the receivables are no longer property of SBF's estate in the event of SBF's bankruptcy. The true-sale characterization is addressed separately in a Draft True-Sale Opinion being prepared by this firm and is not the subject of this memorandum.
Step 3: Transfer to Trust. The Depositor transfers the receivables to SRT 2024-1 under the Sale and Servicing Agreement (draft dated March 11, 2024). This transfer is also intended to constitute a true sale. Upon the transfer, the receivables become the property of the Trust and secure the Trust's obligations under the Indenture.
Step 4: Issuance of Notes. SRT 2024-1 issues asset-backed notes in two classes (Class A Notes and Class B Notes), secured by the receivables pool, under the Indenture (draft dated March 4, 2024). AFS serves as indenture trustee, paying agent, note registrar, and custodian. The Notes are the primary obligations of the Trust and are payable solely from the collections on the receivables and the other Trust assets.
Step 5: Placement of Notes. The Notes are placed with qualified institutional buyers and non-U.S. persons via a Rule 144A / Regulation S private placement, with Halcyon Securities LLC acting as sole bookrunning manager and initial purchaser. A CUSIP prefix of 87165Q has been allocated for the Notes but remains unused as of the date of this memorandum.
C. Capital Structure
The proposed capital structure of SRT 2024-1 is as follows:
The Class A Notes are the senior tranche and have first priority with respect to interest and principal payments. The Class B Notes are the mezzanine tranche and are subordinate to the Class A Notes in respect of both interest and principal payments. The Residual Certificate (also referred to as the subordinated certificate or equity interest) represents the residual economic interest in the Trust and is subordinate to both the Class A Notes and the Class B Notes. The Residual Certificate is retained by SBF through SkyLend Funding LLC and is not offered to investors. Expected ratings are from Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton"), respectively. No ratings were assigned because the transaction was terminated prior to the issuance of final ratings.
D. Pool Characteristics
The receivables pool to be transferred to SRT 2024-1 is expected to have the following characteristics as of the anticipated cut-off date of March 31, 2024:
• Number of receivables: Approximately 23,100 individual consumer installment-loan receivables
• Aggregate outstanding principal balance (gross, before haircuts): $213,750,000
• Final pool target (after haircuts and selection): $200,000,000
• Weighted average coupon (WAC): 14.82%
• Weighted average remaining term: 38.4 months
• Weighted average FICO at origination: 698
• Maximum single-obligor concentration: 0.15% ($300,000)
• Geographic concentration limit: No single state may represent more than 20% of the aggregate pool balance
The receivables consist of fixed-rate, fully amortizing, unsecured consumer installment loans originated by SBF through the SkyLend platform. All receivables will be required to satisfy the eligibility criteria set forth in the Eligibility Criteria & Representations Schedule to the Sale and Servicing Agreement.
E. Credit Enhancement Features
The proposed transaction includes the following credit enhancement features designed to protect the Class A Notes and Class B Notes from losses on the underlying receivables:
• Overcollateralization target: 3.5% of the initial pool balance, or $7,000,000. Overcollateralization is achieved by the excess of the aggregate outstanding principal balance of the receivables over the aggregate outstanding principal balance of the Notes.
• Reserve account: A cash reserve account funded at closing with an initial balance of 1.00% of the initial pool balance, or $2,000,000. The reserve account is maintained at Keymark Trust Company, N.A. and is available to cover shortfalls in interest and principal payments on the Notes.
• Excess spread: Estimated at 2.85% per annum. Excess spread is the difference between the weighted average coupon on the receivables (14.82%) and the sum of the weighted average coupon on the Notes and the Trust's fees and expenses.
• Subordination: The Class B Notes are subordinate to the Class A Notes in the priority-of-payments waterfall, and the Residual Certificate is subordinate to both classes of Notes. Subordination provides credit support to the senior tranche by absorbing losses after the exhaustion of excess spread, the reserve account, and overcollateralization.
F. Payment Waterfall
Under the Indenture, collections on the receivables and investment earnings on amounts on deposit in the Trust's accounts are applied on each payment date in the following order of priority:
(i) Trustee fees and servicing fees (the servicing fee is 0.50% per annum of the outstanding pool balance, or approximately $1,000,000 per year);
(ii) Interest on the Class A Notes at the applicable coupon rate;
(iii) Interest on the Class B Notes at the applicable coupon rate;
(iv) Principal on the Class A Notes in accordance with the scheduled amortization and any accelerated principal payments resulting from prepayments and losses;
(v) Principal on the Class B Notes in accordance with the scheduled amortization and any accelerated principal payments;
(vi) Replenishment of the reserve account to the required level (1.00% of the initial pool balance);
(vii) Payment of amounts necessary to achieve and maintain the overcollateralization target (3.5% of the initial pool balance); and
(viii) All remaining amounts (the residual) to the holder of the Residual Certificate.
The contractual payment-application waterfall for payments received on the underlying receivables is governed by Section 4.03 of the Master Servicing Agreement (dated October 1, 2022), which provides that payments are applied first to accrued interest, then to outstanding fees, and then to principal.
III. Legal Framework — Trust Classification Under the Internal Revenue Code
A. Overview of Entity Classification Rules
The federal income tax classification of SRT 2024-1 is governed by the entity-classification provisions of the Code and the Treasury Regulations promulgated thereunder. The relevant framework is set forth in Treasury Regulation §§301.7701-1 through 301.7701-4.
Under Treasury Regulation §301.7701-1(a), the Code prescribes the classification of various organizations for federal tax purposes. An organization is classified as one of the following: (i) a trust; (ii) a partnership; (iii) an association taxable as a corporation; or (iv) a disregarded entity. The classification of an organization determines the manner in which its income, deductions, and credits are reported and taxed.
The so-called "check-the-box" regulations, set forth in Treasury Regulation §§301.7701-2 and 301.7701-3, provide an elective classification regime for "eligible entities" — i.e., entities that are not classified as trusts or per se corporations. Under the check-the-box regulations, an unincorporated entity with two or more members is classified by default as a partnership (unless it elects to be treated as an association taxable as a corporation), and an unincorporated entity with a single member is classified by default as a disregarded entity (unless it elects to be treated as an association). These regulations, however, apply only to entities that are properly classified as "business entities" rather than trusts.
Treasury Regulation §301.7701-4 governs the classification of trusts for federal income tax purposes. Under this provision, a trust is distinguished from a business entity based on the purpose for which the arrangement was created and the nature of the activities conducted thereunder. The regulations draw a fundamental distinction between two categories of trusts:
(a) Ordinary trusts — trusts created to protect and conserve property for the benefit of beneficiaries, where the trustee's duties are limited to collecting income, preserving trust property, and distributing the trust corpus and income to beneficiaries in accordance with the trust instrument. Such trusts are classified as trusts for federal tax purposes and are not subject to the check-the-box regime.
(b) Business trusts — trusts created for the purpose of carrying on a profit-making business that would ordinarily be conducted through a corporation, partnership, or other business organization. Business trusts are classified as "business entities" and are subject to the check-the-box regulations. A business trust with two or more members is classified as either a partnership or an association (taxable as a corporation), depending on its characteristics and any election made under the check-the-box regime.
The distinction between an ordinary trust and a business trust is determined by examining the nature of the arrangement, including the powers of the trustee, the character of the trust assets, and the degree to which the beneficiaries are engaged in business activity through the trust vehicle. The label attached to the arrangement under state law — here, a "Delaware statutory trust" — is not determinative for federal income tax purposes. See Treas. Reg. §301.7701-1(a) ("The Internal Revenue Code prescribes the classification of various organizations for federal tax purposes. Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.").
B. Grantor Trust Classification — IRC §§671–679
Subpart E of Subchapter J of the Code (Sections 671 through 679) provides rules for the treatment of trusts in which the grantor or another person is treated as the owner of all or a portion of the trust corpus. These provisions are commonly referred to as the "grantor trust" rules.
Under grantor-trust treatment, the trust is disregarded as a separate taxpayer for federal income tax purposes. The items of income, deduction, and credit attributable to the trust are not reported at the trust level but are instead attributed directly to the grantor (or the deemed owner of the trust's beneficial interests). The practical effect of grantor-trust classification is that the trust is a pass-through vehicle: income earned on the trust's assets is taxed to the owners of the beneficial interests in the trust, and the trust itself pays no federal income tax.
The key advantage of grantor-trust classification for SRT 2024-1 is the avoidance of entity-level federal income tax. If the Trust were classified as an association taxable as a corporation, the income earned on the receivables would be subject to corporate-level federal income tax, and distributions to the noteholders and certificate holder would potentially be subject to a second level of taxation. This would significantly increase the effective tax burden on the transaction and would be economically unacceptable to the parties.
In the context of the proposed securitization, SBF (acting through SkyLend Funding LLC as depositor) is the grantor of the Trust. Under grantor-trust treatment, the certificateholders and noteholders are treated as the owners of undivided interests in the trust assets, and each such owner is taxable on its pro rata share of the trust's income.
The application of specific grantor-trust provisions to SRT 2024-1 includes analysis under the following Code sections:
• IRC §677 (Income for Benefit of Grantor). Under this section, a grantor is treated as the owner of any portion of a trust whose income is, or in the discretion of the grantor or a nonadverse party may be, distributed to the grantor or the grantor's spouse, or held or accumulated for future distribution to the grantor or the grantor's spouse. In the case of SRT 2024-1, to the extent that SBF (through the Depositor) retains the Residual Certificate and is entitled to receive residual distributions from the Trust, SBF may be treated as the owner of a portion of the Trust under this provision.
• IRC §676 (Power to Revoke). Under this section, a grantor is treated as the owner of any portion of a trust where, at any time, the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse party, or both. In the case of SRT 2024-1, the Trust Agreement and Indenture do not grant SBF or any other party a power to revoke the Trust or to revest title to the receivables in SBF. However, the optional clean-up call (discussed below) and the substitution right must be analyzed to confirm that they do not constitute a revocatory power.
The more critical question for securitization purposes, however, is not whether the grantor-trust rules of Sections 671 through 679 technically apply (they generally will, given SBF's retained economic interest through the Residual Certificate), but whether the Trust qualifies as a "fixed-investment trust" under Treasury Regulation §301.7701-4(c) — because only fixed-investment trusts, as distinguished from business trusts, are eligible for grantor-trust treatment. This is the focus of the analysis in Section III.C below.
C. Fixed-Investment Trust vs. Business Trust — Treas. Reg. §301.7701-4(c)
Treasury Regulation §301.7701-4(c) provides the framework for distinguishing between a trust that is a fixed-investment trust (eligible for grantor-trust classification) and a trust that is a business trust (classified as a business entity). A trust is classified as a fixed-investment trust if it satisfies two principal requirements:
(i) Single class or undivided interests. The trust has a single class of ownership interests, or, if the trust has multiple classes, each class represents an undivided beneficial interest in the trust assets; and
(ii) No power to vary the investment. No person has the power to vary the investment of the certificate holders — that is, no person has the authority to acquire new investments or to reinvest proceeds from the trust assets in a manner that would alter the character or composition of the trust's portfolio.
The "power to vary the investment" test is the central analytical inquiry for asset-backed securitization vehicles. The test is designed to distinguish between arrangements that merely hold a fixed pool of assets and distribute the income and principal therefrom to beneficiaries (which are properly classified as trusts) and arrangements that involve active management or reinvestment of the trust's assets (which are more properly classified as business entities).
Several published revenue rulings provide guidance on the application of the power-to-vary test:
Revenue Ruling 75-192. In this ruling, the IRS considered an investment trust that held a fixed portfolio of corporate bonds. The trust instrument prohibited the trustee from acquiring new bonds or reinvesting the proceeds of matured or called bonds in new instruments. The IRS concluded that the trust was a fixed-investment trust eligible for grantor-trust classification, because the portfolio was fixed and no party had the power to vary the investment.
Revenue Ruling 78-149. In this ruling, the IRS considered an investment trust with multiple classes of ownership interests that had varying rights to income and principal. The IRS held that the existence of multiple classes of ownership, by itself, does not disqualify a trust from grantor-trust classification, provided that each class represents an undivided beneficial interest in the trust assets and no person has the power to vary the investment. This ruling is significant for SRT 2024-1 because the Trust has three classes of beneficial interests (Class A Notes, Class B Notes, and the Residual Certificate).
Revenue Ruling 84-10. In this ruling, the IRS addressed the question of whether the temporary reinvestment of trust proceeds (e.g., collections received between payment dates) in short-term, high-quality obligations constitutes a "power to vary the investment." The IRS concluded that such reinvestment does not constitute a power to vary the investment if (i) the reinvestment is limited to short-term, highly liquid instruments of the highest credit quality, (ii) the reinvestment is incidental to the primary purpose of the trust (i.e., holding the fixed pool and distributing collections), and (iii) the reinvestment proceeds are distributed to beneficiaries on the next payment date. This ruling is directly relevant to SRT 2024-1's treatment of collections held in the collection account pending distribution.
D. Multiple-Class Structures and the "Power to Vary" Concern
Treasury Regulation §301.7701-4(c)(1) provides that if a trust has multiple classes of beneficial interests, the arrangement may be treated as a business entity if the multiple-class structure is equivalent to an entity carrying on a business and dividing the profits thereof. The inquiry is fact-specific and requires an examination of the totality of the circumstances, including the nature of the trust assets, the powers of the trustee and other parties, and the economic substance of the arrangement.
The two-class note structure of SRT 2024-1 — Class A Notes (senior, $170,000,000) and Class B Notes (mezzanine, $22,000,000), plus the Residual Certificate ($8,000,000) — creates a senior/subordinate relationship in which collections are allocated based on a priority-of-payments waterfall. This differs from a simple pro rata allocation of trust receipts among identical ownership interests. In a pro rata structure, each certificate holder receives the same percentage of each collection dollar; in a sequential-pay or senior/subordinate structure, the senior class has priority over the subordinate class in the receipt of both interest and principal payments.
The critical question is whether the subordination and priority-waterfall features cause the Trust to be classified as a business entity rather than a grantor trust. The concern is that a senior/subordinate structure — in which the subordinate class absorbs losses first and the senior class receives preferential payments — resembles the capital structure of a corporation (with its debt and equity tranches) or a partnership (with its preferred and residual allocations), rather than the simple, undivided ownership of a fixed pool of assets that is characteristic of a grantor trust.
Analysis of IRS guidance on "fast-pay/slow-pay" structures indicates that the sequential-pay feature (Class A senior to Class B) raises analytical questions, but published rulings and extensive industry practice have generally permitted such structures to qualify as fixed-investment trusts where the following conditions are met:
(a) The underlying pool of assets is fixed and not subject to active management or reinvestment;
(b) The allocation of collections among the classes is determined by fixed, pre-established rules set forth in the trust instrument, and no party has discretion to alter the allocation;
(c) No party has the power to acquire new assets or reinvest trust proceeds in a manner that would vary the investment of the certificate holders; and
(d) The trust does not engage in any business activity beyond holding the assets and distributing collections.
These conditions are analyzed in the context of SRT 2024-1 in Section IV below.
IV. Analysis — Application to SRT 2024-1
A. Fixed-Pool Requirement
A threshold requirement for grantor-trust classification is that the trust hold a fixed pool of assets. Under the draft Indenture (March 4, 2024), the receivables pool for SRT 2024-1 is determined as of the cut-off date, which is expected to be March 31, 2024. After the cut-off date, the pool is static: no new receivables may be added to the pool, and the Trust may not acquire additional consumer loans or other long-term assets.
The Indenture does not provide for a revolving period during which new receivables may be purchased with collections from the existing pool. This is a critical structural feature. In a revolving-pool securitization, the trust has the ability to acquire new receivables during a designated reinvestment period, which raises significant power-to-vary concerns and typically precludes grantor-trust classification (such structures are often structured as partnerships or REMICs instead). By contrast, SRT 2024-1 is a static-pool or amortizing structure in which collections are distributed to the noteholders and certificate holder in accordance with the payment waterfall, and the pool of receivables simply amortizes over time.
The Indenture does contain a limited substitution right, under which SBF may substitute receivables in the pool under certain narrowly defined circumstances. Specifically, if a receivable is found to have breached the eligibility criteria or the representations and warranties set forth in the Eligibility Criteria & Representations Schedule to the Sale and Servicing Agreement, SBF has the right (and, under certain circumstances, the obligation) to substitute a conforming receivable for the non-conforming receivable within 60 days of the closing date. Any substitute receivable must satisfy all of the eligibility criteria specified in the Schedule, including requirements as to outstanding principal balance, remaining term, borrower credit score, delinquency status, and geographic location.
This substitution right is properly characterized as a curative mechanism — it permits the correction of errors in the initial pool selection and the replacement of receivables that fail to satisfy the contractual criteria — rather than a discretionary reinvestment power. The substitution right does not give SBF or any other party the ability to change the nature or composition of the pool by acquiring receivables with different risk characteristics or by reinvesting trust proceeds in new assets. Moreover, the substitution right is limited in time (60 days post-closing) and in scope (only non-conforming receivables may be replaced, and only with conforming receivables).
Additionally, the Indenture provides for a limited reallocation of collections, which is ministerial in nature. For example, if a receivable is prepaid in full, the principal collections are applied in accordance with the payment waterfall and are not reinvested in new receivables.
Conclusion: The pool is fixed. The substitution right is limited, non-discretionary, and curative in nature. These features are consistent with grantor-trust treatment under the fixed-investment-trust standard of Treasury Regulation §301.7701-4(c).
B. Reinvestment Limitations
Under the Indenture, collections received on the receivables (including principal, interest, and recoveries) prior to each monthly payment date are deposited into the collection account maintained at Keymark Trust Company, N.A. Amounts on deposit in the collection account may be temporarily invested in "Eligible Investments," as defined in the Indenture. The definition of Eligible Investments is limited to the following categories of short-term, highly rated instruments:
(a) Direct obligations of the United States of America (i.e., U.S. Treasury obligations) with maturities not exceeding 30 days;
(b) Commercial paper rated at least A-1 by Standard & Poor's (or the equivalent rating by another nationally recognized rating agency) and P-1 by Moody's (or the equivalent rating by another nationally recognized rating agency), with maturities not exceeding 30 days;
(c) Certificates of deposit issued by a depository institution whose short-term unsecured debt obligations are rated at least A-1/P-1, with maturities not exceeding 30 days;
(d) Money market funds that invest exclusively in the obligations described in clauses (a) through (c) above and that are rated AAAm or equivalent by a nationally recognized rating agency; and
(e) Such other short-term instruments as may be approved in writing by the rating agencies rating the Notes, subject to the requirement that such instruments have maturities not exceeding 30 days and credit quality consistent with the rating levels assigned to the Notes.
The temporary reinvestment of collections in Eligible Investments is incidental and ministerial. The purpose of such reinvestment is to earn a modest return on funds held in the collection account between payment dates, rather than to alter the character or composition of the trust's portfolio. No party — including the Owner Trustee, the Indenture Trustee, the Servicer, or SBF — has the discretion to invest collections in consumer loans, corporate bonds, equities, or any other long-term assets.
This reinvestment arrangement is squarely within the scope of the "incidental reinvestment" exception recognized in Revenue Ruling 84-10. In that ruling, the IRS concluded that the temporary reinvestment of trust proceeds in short-term, high-quality obligations pending distribution to beneficiaries does not constitute a "power to vary the investment" of the certificate holders, because such reinvestment is incidental to the primary purpose of the trust — holding the fixed pool and distributing collections. The reinvestment limitations in SRT 2024-1's Indenture are at least as restrictive as the arrangements approved in Revenue Ruling 84-10: the Eligible Investments are limited to the highest-quality, shortest-term instruments, and the investment proceeds are distributed to the noteholders and certificate holder on the next monthly payment date.
Conclusion: The reinvestment limitations in the Indenture satisfy the fixed-investment-trust standard. The temporary reinvestment of collections in Eligible Investments is incidental and ministerial and does not constitute a "power to vary the investment" of the certificate holders.
C. Servicer Discretion Analysis
The servicer's powers and duties under the Sale and Servicing Agreement and the Master Servicing Agreement are relevant to the power-to-vary analysis because the servicer is the party with the most direct involvement in the day-to-day management of the receivables. If the servicer has broad discretionary powers to modify, restructure, or substitute receivables, such powers could be characterized as a power to vary the investment.
Under the proposed transaction structure, Clearview Loan Servicing, Inc. acts as sub-servicer of the receivables, and SBF acts as master servicer. The servicer's authority under the Sale and Servicing Agreement is limited to the following:
(a) Collection and enforcement. The servicer is authorized to collect payments on the receivables, to pursue delinquent accounts through standard collection procedures, and to enforce the terms of the receivables (including the initiation of legal proceedings against defaulting borrowers) in accordance with customary servicing standards.
(b) Workout and modification. The servicer has limited authority to modify the terms of defaulted or delinquent receivables, including the ability to grant payment deferrals, reduce interest rates, or extend loan terms. These modification powers are subject to quantitative caps specified in the Sale and Servicing Agreement. Specifically, the aggregate outstanding principal balance of receivables subject to modification at any time may not exceed a specified percentage (expected to be 5.0% to 7.5%) of the initial pool balance. Individual modifications are subject to further limitations on the magnitude of any interest-rate reduction (not to exceed 200 basis points), the length of any term extension (not to exceed 12 months), and the aggregate number of deferrals per receivable (not to exceed two).
(c) Reporting. The servicer is required to prepare and deliver monthly servicer reports to the Indenture Trustee, the Owner Trustee, and the Administrator, detailing collections, delinquencies, defaults, losses, and other performance metrics for the receivables pool.
(d) Remittance. The servicer is required to remit collections on the receivables to the collection account maintained at Keymark Trust Company, N.A., on or before the second business day following receipt.
Critically, the servicer has no authority to acquire new receivables for the Trust, to invest trust proceeds in assets other than Eligible Investments, or to alter the composition of the receivables pool. The servicer's modification authority is reactive (i.e., exercised only in response to borrower defaults or delinquencies) rather than proactive, and is subject to quantitative limits that prevent the servicer from materially altering the risk profile of the pool. Moreover, the servicer's modifications serve the interests of all certificate holders and noteholders by maximizing recovery on defaulted or delinquent receivables — they are loss-mitigation tools, not investment decisions.
The servicer's limited modification authority does not rise to the level of a "power to vary the investment" within the meaning of Treasury Regulation §301.7701-4(c) because: (i) the modifications are reactive and curative, not proactive or discretionary in the investment sense; (ii) the modifications are subject to quantitative caps that prevent material alteration of the pool's characteristics; (iii) the modifications are exercised in accordance with customary servicing standards and are intended to maximize recovery for the benefit of all beneficial interest holders; and (iv) the servicer has no authority to acquire new assets or reinvest trust proceeds.
Conclusion: The servicer's discretion is sufficiently limited for grantor-trust purposes. The servicer's modification authority does not constitute a power to vary the investment of the certificate holders.
D. Multiple-Class Analysis — Senior/Subordinate Structure
As described in Section II.C above, SRT 2024-1 has three classes of beneficial interests: Class A Notes (senior, $170,000,000), Class B Notes (mezzanine, $22,000,000), and the Residual Certificate ($8,000,000). Under the Indenture waterfall, collections on the receivables are allocated based on a fixed priority: first, to trustee and servicing fees; second, to interest on the Class A Notes; third, to interest on the Class B Notes; fourth, to principal on the Class A Notes; fifth, to principal on the Class B Notes; sixth, to reserve account replenishment; seventh, to overcollateralization target build; and eighth, to the holder of the Residual Certificate.
The allocation of collections among the three classes is not pro rata — that is, each class does not receive the same percentage of each collection dollar. Instead, the allocation is sequential, with the senior class receiving priority over the subordinate classes. This sequential-pay feature distinguishes SRT 2024-1 from a simple pass-through trust in which all beneficial interest holders receive identical, pro rata shares of the trust's income and principal.
The question is whether this multiple-class, sequential-pay structure causes SRT 2024-1 to be classified as a business entity rather than a grantor trust. The analysis proceeds under Treasury Regulation §301.7701-4(c)(1), which provides that multiple classes of beneficial interests may cause a trust to be treated as a business entity if the arrangement is "equivalent to an entity carrying on a business and dividing the profits thereof."
We believe that the weight of authority supports the conclusion that the two-class note structure of SRT 2024-1, with a retained residual certificate, does not preclude grantor-trust classification. The following considerations support this conclusion:
First, the allocation of collections among the classes is determined by fixed, pre-established rules set forth in the Indenture. The waterfall is entirely non-discretionary: no party — including the Owner Trustee, the Indenture Trustee, the Servicer, or SBF — has the ability to alter the priority of payments or to redirect collections from one class to another. The mechanical operation of the waterfall is a function of the contractual terms of the Indenture, not of any party's business judgment.
Second, the receivables pool is fixed as of the cut-off date. As discussed in Section IV.A, no new receivables may be added to the pool (except through the limited substitution right), and no party has the power to acquire new investments or reinvest trust proceeds in long-term assets. The static nature of the pool is a critical factor distinguishing SRT 2024-1 from a business entity, which would be expected to actively manage and turn over its investment portfolio.
Third, the subordination feature — under which the Class B Notes and the Residual Certificate absorb losses before the Class A Notes — is a structural credit-enhancement mechanism, not a profit-sharing arrangement. The purpose of subordination is to provide credit support to the senior tranche, not to divide the profits of a business venture among equity and debt holders. The credit enhancement features (overcollateralization, reserve account, excess spread, and subordination) are standard features of fixed-pool securitization transactions and do not, by themselves, convert a trust into a business entity.
Fourth, published IRS guidance supports the classification of multi-class asset-backed trusts as grantor trusts where the pool is fixed and no party has the power to vary the investment. Revenue Ruling 78-149, discussed in Section III.C above, holds that multiple classes of ownership with varying rights to income and principal do not automatically disqualify a trust from grantor-trust treatment, provided that no person has the power to vary the investment of the certificate holders. Although Revenue Ruling 78-149 does not specifically address senior/subordinate structures with sequential-pay waterfalls, its reasoning is applicable to the present facts: the existence of multiple classes of beneficial interests is not, by itself, sufficient to convert a trust into a business entity.
Fifth, the IRS has issued numerous private letter rulings permitting two-class (or multi-class) asset-backed structures to qualify as grantor trusts where the underlying pool is fixed and no discretionary reinvestment occurs. While private letter rulings may not be cited as precedent and may not be relied upon by taxpayers other than the recipients, they are indicative of the IRS's administrative practice and provide useful guidance on the application of the entity-classification rules to securitization structures. The consistent pattern of these rulings supports the conclusion that senior/subordinate consumer ABS structures routinely qualify as grantor trusts.
Sixth, industry practice strongly supports grantor-trust classification for structures of this type. Senior/subordinate consumer-receivables securitization trusts are among the most common securitization vehicles in the U.S. capital markets, and they are routinely structured and marketed as grantor trusts. The standard offering memorandum disclosures for such transactions describe the trusts as grantor trusts for federal income tax purposes, and the underwriters, rating agencies, and investors in such transactions generally expect and rely upon grantor-trust classification.
We note, however, that the analysis is not free from all doubt. The absence of a directly on-point published revenue ruling or Treasury regulation specifically addressing senior/subordinate consumer-receivables trusts with sequential-pay waterfalls means that the analysis must be based on the general principles of Treasury Regulation §301.7701-4(c) and the reasoning of the published rulings discussed above. We are not aware of any published authority that would preclude grantor-trust classification for a structure like SRT 2024-1, but the possibility of a contrary IRS position cannot be entirely eliminated.
Conclusion: The two-class structure, with a retained residual certificate, should not preclude grantor-trust classification for SRT 2024-1. The allocation of collections among the classes is determined by fixed, non-discretionary rules, and the pool is static. The subordination and credit-enhancement features are structural mechanisms, not indicia of a business entity.
E. Absence of Business Activity
A further factor supporting grantor-trust classification is the absence of business activity within SRT 2024-1. As described in the transaction documents, the Trust has no employees, no offices, and no business operations beyond holding the receivables and distributing collections to the noteholders and certificate holder in accordance with the payment waterfall.
The Trust Agreement dated February 14, 2024, includes separateness covenants and limited-purpose restrictions that confine the Trust's activities to the following:
(a) Owning the receivables and the related assets transferred to it under the Sale and Servicing Agreement;
(b) Issuing the Class A Notes, the Class B Notes, and the Residual Certificate under the Indenture;
(c) Performing its obligations under the transaction documents (including the Trust Agreement, the Indenture, the Sale and Servicing Agreement, and the Administration Agreement); and
(d) Engaging in such other activities as are incidental to or necessary for the performance of the foregoing.
The Trust is prohibited from engaging in any business activity, acquiring any assets other than the receivables and the Eligible Investments, incurring any indebtedness other than the Notes, or taking any action that would be inconsistent with its status as a special-purpose entity.
The Owner Trustee (Keymark Trust Company, N.A.) has only ministerial duties under the Trust Agreement. The Owner Trustee does not have the authority to manage the receivables, to make investment decisions, or to exercise business judgment on behalf of the Trust. Its role is limited to holding legal title to the Trust assets, executing documents on behalf of the Trust, and performing such other administrative functions as are specified in the Trust Agreement.
The Indenture Trustee (AFS) acts as paying agent, note registrar, and custodian in a fiduciary capacity. AFS's duties are defined by the Indenture and are limited to receiving collections from the servicer, applying collections in accordance with the payment waterfall, maintaining the accounts of the Trust, and performing its other duties under the Indenture. AFS has no business discretion and does not manage or administer the receivables.
SBF's role as administrator under the Administration Agreement (anticipated to be entered into at closing) is limited to providing administrative, reporting, and compliance support to the Trust. The administrator does not exercise business judgment or profit-seeking activity on behalf of the Trust.
Conclusion: SRT 2024-1 exhibits no indicia of a business trust. The arrangement is protective and conserving in nature — it is designed solely to hold a fixed pool of receivables, distribute collections, and wind down as the receivables amortize. There is no active management, no profit-seeking activity, and no business operations within the Trust.
F. Comparison with Taxable Mortgage Pool (TMP) Rules — IRC §7701(i)
Section 7701(i) of the Code provides that certain arrangements with multiple classes of debt obligations secured by real-property mortgages or interests therein are treated as "taxable mortgage pools" (TMPs). An entity classified as a TMP is taxed as a corporation, regardless of its classification under the general entity-classification rules or the grantor-trust provisions.
Specifically, Section 7701(i)(2) defines a "taxable mortgage pool" as any entity (other than a REMIC) if: (i) substantially all of the assets of such entity consist of debt obligations (or interests therein) and more than 50% of such debt obligations (or interests therein) consist of real estate mortgages (or interests therein); (ii) such entity is the obligor under debt obligations with two or more maturities; and (iii) under the terms of the debt obligations referred to in clause (ii), payments on such debt obligations bear a relationship to payments on the debt obligations (or interests therein) referred to in clause (i).
The TMP classification is designed to prevent taxpayers from issuing multiple classes of debt obligations secured by real-property mortgages without either (a) electing REMIC status and complying with the REMIC requirements or (b) being taxed as a corporation.
SRT 2024-1 is secured by unsecured consumer installment-loan receivables originated through the SkyLend platform. The receivables are not secured by real property, and they do not constitute "real estate mortgages" or "interests therein" within the meaning of Section 7701(i). Therefore, the TMP classification rules of Section 7701(i) are inapplicable to SRT 2024-1.
This section is included for completeness because the multi-class note structure of SRT 2024-1 (Class A Notes and Class B Notes with different maturities) could raise TMP concerns if the underlying collateral were real-estate-related. For consumer-receivables securitizations backed by unsecured personal loans, TMP classification is not a risk.
Conclusion: Section 7701(i) TMP classification is not applicable to SRT 2024-1.
G. REMIC Analysis — IRC §§860A–860G
Sections 860A through 860G of the Code provide a special tax regime for "real estate mortgage investment conduits" (REMICs). A REMIC is a tax-transparent entity that may issue multiple classes of interests (regular interests and residual interests) backed by real estate mortgages and is not subject to entity-level federal income tax, subject to certain exceptions.
A REMIC election is available only for an entity or arrangement substantially all of whose assets consist of "qualified mortgages" and "permitted investments." Section 860G(a)(3) defines "qualified mortgage" to include, among other things, any obligation principally secured by an interest in real property. The receivables in SRT 2024-1 are unsecured consumer installment loans originated through the SkyLend platform. These receivables are not secured by real property and do not qualify as "qualified mortgages" within the meaning of Section 860G(a)(3).
Because the receivables do not qualify as qualified mortgages, SRT 2024-1 is not eligible for a REMIC election under Sections 860A through 860G. REMIC classification is therefore not available and not relevant to the analysis.
This section is included for completeness to confirm that the alternative pass-through structure available for real-estate-backed securitizations is not available for SRT 2024-1 and to rule out any mischaracterization of the Trust as a REMIC.
Conclusion: REMIC classification under IRC §§860A–860G is inapplicable to SRT 2024-1.
V. Tax Reporting and Compliance Considerations
A. Grantor Trust Reporting
If SRT 2024-1 is treated as a grantor trust for federal income tax purposes, the Trust is not required to compute or pay federal income tax at the entity level. Instead, the Trust files on a "reporting" basis only. The specific reporting requirements are as follows:
The Trust will file an annual federal income tax return on Form 1041 (U.S. Income Tax Return for Estates and Trusts) with the Internal Revenue Service. However, the Form 1041 will not report any income, deductions, or credits at the trust level. Instead, the Form 1041 will include a statement pursuant to Treasury Regulation §1.671-4 identifying SRT 2024-1 as a grantor trust and providing the name, address, and taxpayer identification number (TIN) of each person treated as the owner of a portion of the Trust.
Each noteholder and the holder of the Residual Certificate will receive information reporting reflecting its allocable share of the Trust's interest income, fees, expenses, and losses. For noteholders, this information will typically be provided on Form 1099-INT (Interest Income) or Form 1099-OID (Original Issue discount), as applicable. For the holder of the Residual Certificate (SBF, through SkyLend Funding LLC), the information may be provided on a Schedule K-1 equivalent or through a grantor-trust reporting statement attached to the Form 1041.
The Trust's reporting obligations will be the responsibility of SBF, acting in its capacity as administrator under the Administration Agreement. SBF will be responsible for arranging for the preparation and filing of the Trust's Form 1041, the preparation and distribution of Forms 1099 (or equivalent information statements) to noteholders, and compliance with all other applicable federal tax-reporting requirements.
B. FATCA and Withholding Considerations
The Notes will be placed with institutional investors under Rule 144A (for domestic investors) and Regulation S (for non-U.S. investors). Payments of interest on the Notes to non-U.S. holders are subject to withholding obligations under Sections 1441 and 1442 of the Code (imposing a 30% withholding tax on certain U.S.-source payments to non-resident aliens and foreign corporations, respectively) and the Foreign Account Tax Compliance Act ("FATCA"), codified in Sections 1471 through 1474 of the Code.
AFS, as paying agent for the Trust, will be responsible for withholding applicable taxes on interest payments to non-U.S. holders. A non-U.S. holder may establish eligibility for an exemption from, or a reduced rate of, withholding tax by providing AFS with a valid Form W-8BEN (for individuals) or Form W-8BEN-E (for entities) establishing the holder's status as a resident of a country with which the United States has an income-tax treaty that provides for a reduced rate of withholding on interest income, or establishing the holder's eligibility for the portfolio-interest exemption under Section 871(h) or Section 881(c) of the Code.
With respect to FATCA compliance, SRT 2024-1 will be required to either (a) register with the IRS as a "reporting financial institution" and comply with the due-diligence, reporting, and withholding obligations imposed on financial institutions under the FATCA regime, or (b) establish that it qualifies for an exemption from such obligations (e.g., as a "deemed-compliant" financial institution under the applicable Treasury Regulations or an applicable intergovernmental agreement). SBF, as administrator, will be responsible for ensuring the Trust's compliance with FATCA.
C. State and Local Tax Considerations
This memorandum addresses only the federal income tax treatment of SRT 2024-1. State and local tax treatment of the Trust may vary significantly by jurisdiction.
SBF should consult with its state and local tax advisors regarding potential state income, franchise, or excise tax obligations of the Trust in the State of Delaware (as the jurisdiction of organization) and in any other jurisdiction in which the Trust may be deemed to have a taxable nexus (e.g., by reason of the location of the receivables, the borrowers, the servicer, or the paying agent).
As a general matter, Delaware statutory trusts are exempt from Delaware state income tax. However, Delaware imposes an annual franchise tax on Delaware statutory trusts in the amount of $300 per year, payable on or before June 1 of each year. The Trust will be subject to this franchise tax obligation for so long as it remains a Delaware statutory trust in good standing.
Other states may impose income, franchise, or excise taxes on the Trust or on the income derived from receivables originated in, or payable by borrowers located in, such states. The state tax treatment of securitization trusts is a complex and evolving area of law, and a separate state tax analysis would be required to fully assess the Trust's state and local tax obligations.
VI. Assumptions and Qualifications
The analysis set forth in this memorandum is subject to the following assumptions and qualifications:
1. Transaction documents. The analysis is based on our review of the following draft and executed transaction documents: (i) the Trust Agreement — SkyLend Receivables Trust 2024-1 (dated February 14, 2024); (ii) the draft Indenture — SRT 2024-1 and AFS (draft dated March 4, 2024); (iii) the draft Sale and Servicing Agreement (draft dated March 11, 2024); and (iv) the draft Receivables Purchase Agreement (draft dated March 11, 2024). The execution version of the Indenture was never finalized due to the termination of the transaction. We have also reviewed the LLC Agreement of SkyLend Funding LLC and the Master Servicing Agreement between SBF and Clearview (dated October 1, 2022), as amended by Amendment No. 1 (executed March 18, 2024).
2. Final documents. We have assumed that the final transaction documents, had they been executed, would not have materially deviated from the drafts reviewed. To the extent that the final documents would have included terms or provisions materially different from those set forth in the drafts, the analysis set forth herein may need to be revised.
3. Conduct of the parties. We have assumed that no party will exercise any power or take any action inconsistent with the limited-purpose nature of the Trust as described in the transaction documents. If any party were to act in a manner inconsistent with the Trust's limited-purpose restrictions — for example, by directing the Trust to acquire new receivables, by exercising the substitution right in a manner that exceeds the contractual limitations, or by granting the servicer broader modification authority than contemplated by the Sale and Servicing Agreement — the grantor-trust classification could be jeopardized.
4. Current law. The analysis is based on federal income tax law in effect as of the date of this memorandum (March 28, 2024), including the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published revenue rulings, revenue procedures, IRS notices, and relevant case law. Federal income tax law is subject to change, and any change in the applicable statutes, regulations, or administrative or judicial interpretations after the date of this memorandum could affect the conclusions expressed herein.
5. Matters not addressed. This memorandum does not address the following matters, which are outside the scope of this analysis:
(a) The tax characterization of the transfer of receivables from SBF to SkyLend Funding LLC (i.e., whether the transfer constitutes a "true sale" or a "secured financing" for federal income tax purposes). This issue is addressed separately in the Draft True-Sal

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