CALDERWOOD & HARKNESS LLP 425 Lexington Avenue New York, New York 10017
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
MEMORANDUM
May 6, 2024
TO: Skybridge Fintech Ltd.
Attention: Tomás Reyes, General Counsel
Danielle Prescott, Chief Financial Officer 1400 Market Street, Suite 1210 Wilmington, Delaware 19801
FROM: Theodore Langston, Partner Linda Osei, Partner Patrick Gallagher, Associate Calderwood & Harkness LLP
RE: Termination and Wind-Down Procedures — SkyLend Receivables Trust 2024-1 Securitization (C&H Matter No. 1009-00005)
This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP ("C&H") for the exclusive use of Skybridge Fintech Ltd. ("SBF") and its officers, directors, and advisors. This memorandum is protected by the attorney-client privilege and the work-product doctrine. It should not be disclosed to any third party without the prior written consent of C&H. Disclosure to any third party may result in waiver of applicable privileges. This memorandum does not constitute a legal opinion and is intended solely to provide guidance regarding the procedures described herein.
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
This memorandum sets forth the procedures, actions, notifications, and cost reconciliation required to effectuate the formal termination of the proposed $200,000,000 consumer-receivables securitization through SkyLend Receivables Trust 2024-1 (the "Trust" or "SRT 2024-1"), and the orderly wind-down of all related transaction arrangements. This memorandum is intended to serve as a comprehensive roadmap for SBF management and in-house counsel in executing the termination efficiently, preserving all of SBF's rights and remedies against responsible counterparties, and facilitating the transition from the capital-markets phase of C&H's engagement to the litigation phase.
The termination follows a series of developments that rendered the transaction untenable. On April 22, 2024, Broadleaf Analytics Group LLC ("Broadleaf"), acting as the loan-level due-diligence provider engaged by Halcyon Securities LLC ("Halcyon"), discovered material discrepancies in the servicing data provided by Clearview Loan Servicing, Inc. ("Clearview"). The root cause of the discrepancy was a payment-waterfall logic error introduced during Clearview's June 2023 migration from its legacy LoanTrax system to the ClearCore servicing platform. This error resulted in the misapplication of partial payments to principal ahead of interest, in direct contravention of Section 4.03 of the Master Servicing Agreement between SBF and Clearview dated October 1, 2022 (the "MSA"). The impact of the error was both material and pervasive: it affected approximately 14,600 loans, representing 63.2% of the proposed receivables pool, and resulted in the understatement of 30-plus day delinquency rates by 2.26 percentage points (a 70.4% relative increase) and the understatement of cumulative net losses for the 2022 origination vintage by 2.77 percentage points (a 67.2% relative increase).
Following the discovery, Halcyon formally suspended all marketing activities on April 26, 2024, and delivered a force-majeure and material-change notice. Meridian Credit Ratings, Inc. ("Meridian") withdrew its preliminary ratings on May 1, 2024, and Carrollton Ratings Group LLC ("Carrollton") placed its expected ratings on developing watch on April 29, 2024. On May 3, 2024, the Board of Directors of SBF, with the concurrence of Pinnacle Growth Equity Partners, LP ("Pinnacle"), SBF's majority equity holder, resolved to terminate the transaction.
This memorandum addresses six principal workstreams that must be completed to effect an orderly termination and wind-down:
1. Workstream 1: Formal termination of the Preliminary Purchase Agreement with Halcyon Securities LLC, including expense-reimbursement obligations and preservation of rights;
2. Workstream 2: Notifications to all service providers and counterparties, including trustees, rating agencies, auditors, the printer, and — critically — Clearview;
3. Workstream 3: Dissolution of SkyLend Receivables Trust 2024-1 and wind-up of SkyLend Funding LLC;
4. Workstream 4: Document-retention requirements, including implementation of a formal litigation hold;
5. Workstream 5: Sunk transaction cost reconciliation, aggregating $1,779,150 in total sunk costs; and
6. Workstream 6: Transition to litigation-phase representation, encompassing the Clearview indemnification claim, defense against any Halcyon dispute, securities-law exposure monitoring, and coordination with Pinnacle.
We recommend that the formal termination date be May 8, 2024, and that all termination notices be delivered on that date. C&H is prepared to finalize and circulate the necessary documents upon authorization from SBF management.
II. BACKGROUND AND PROCEDURAL HISTORY
A. Transaction Overview
The proposed transaction was structured as a Rule 144A / Regulation S private placement of asset-backed notes secured by a pool of unsecured consumer installment-loan receivables originated by Skybridge Fintech Ltd. through its proprietary SkyLend online lending platform. The aggregate deal size was $200,000,000, with the following capital structure:
• Class A Notes: $170,000,000 (85.0% of deal size). Expected ratings of Aaa(sf) from Meridian Credit Ratings, Inc. and AA+(sf) from Carrollton Ratings Group LLC. Target coupon range of 5.45%–5.65%.
• Class B Notes: $22,000,000 (11.0% of deal size). Expected ratings of A2(sf) from Meridian and A(sf) from Carrollton. Target coupon range of 6.75%–7.00%.
• Residual Interest: $8,000,000 (4.0% of deal size). Retained by SBF through SkyLend Funding LLC (the "Depositor"). Unrated.
The issuing entity was SkyLend Receivables Trust 2024-1, a Delaware statutory trust formed on February 14, 2024, pursuant to the Delaware Statutory Trust Act, 12 Del. C. §§ 3801 et seq. The Depositor was SkyLend Funding LLC, a Delaware single-member limited liability company formed on January 30, 2024, with SBF as its sole member. The transaction was structured as a true-sale securitization in which SBF would sell receivables to the Depositor, which would in turn transfer the receivables to the Trust. The Trust would issue the Notes pursuant to an Indenture, and the proceeds of the sale of the Notes would flow back through the Depositor to SBF.
The key parties to the transaction were as follows:
• Halcyon Securities LLC — Sole bookrunning manager and initial purchaser (Halcyon internal deal reference: HLC-ABS-2024-017). Contact: Rebecca Thornton, Managing Director; Jonathan Kramer, Head of ABS Origination. Address: 200 Vesey Street, 42nd Floor, New York, NY 10281.
• Keymark Trust Company, N.A. — Owner trustee of SRT 2024-1. Contact: Elaine Marchetti, Trust Officer. Address: 600 North King Street, Wilmington, DE 19801.
• Atlantic Fiduciary Services, Inc. — Designated indenture trustee, paying agent, note registrar, and custodian under the draft Indenture. Contact: David Moynihan, Corporate Trust Officer. Address: 2 Christiana Centre, Suite 1400, Wilmington, DE 19801.
• Clearview Loan Servicing, Inc. — Third-party servicer and sub-servicer. Contact: Meredith Sloane, VP Operations; Warren Pettigrew, CEO. Address: 8800 Brecksville Road, Suite 300, Cleveland, OH 44141.
• Meridian Credit Ratings, Inc. — Primary rating agency. Contact: Gregory Fontaine, Lead Analyst. Address: 7 World Trade Center, 33rd Floor, New York, NY 10007.
• Carrollton Ratings Group LLC — Secondary rating agency. Contact: Teresa Kobayashi, Lead Analyst. Address: 55 Water Street, 40th Floor, New York, NY 10041.
• Rowland & Cross LLP — Independent auditor and agreed-upon procedures ("AUP") engagement provider. Contact: Nathan Delacroix, Engagement Partner. Address: 1250 Avenue of the Americas, 22nd Floor, New York, NY 10020.
• Donnovan Press LLC — Printer and EDGAR filing agent.
• Whitfield, Drummond & Paige LLP — Underwriter's counsel (representing Halcyon). Contact: Harrison Whitfield III; Priya Subramanian. Address: 51 West 52nd Street, New York, NY 10019.
• Broadleaf Analytics Group LLC — Loan-level due-diligence provider (engaged by Halcyon). Contact: Sanjay Rajan, Managing Director. Address: 110 William Street, 14th Floor, New York, NY 10038.
A CUSIP prefix of 87165Q was allocated for the Notes but was never used, as the Notes were never priced, sold, or issued. The proposed cut-off date for the receivables pool was March 31, 2024, at which time the pool consisted of approximately 23,100 loans with an aggregate outstanding principal balance of approximately $213,750,000 (gross, before application of the pool selection criteria set forth in the Preliminary Offering Memorandum).
B. Chronology of Events Leading to Termination
The following timeline summarizes the key events from the inception of C&H's engagement through the Board's resolution to terminate:
January 25, 2024: C&H engagement letter executed by SBF (Tomás Reyes). Matter number 1009-00005 opened. Theodore Langston designated as billing partner; Patrick Gallagher designated as lead associate for the capital-markets phase.
January 30, 2024: SkyLend Funding LLC formed as a Delaware single-member LLC. Certificate of formation filed with the Delaware Secretary of State.
February 14, 2024: SkyLend Receivables Trust 2024-1 formed as a Delaware statutory trust. Certificate of trust filed with the Delaware Secretary of State. Keymark Trust Company, N.A. appointed as owner trustee. Trust Agreement executed by SkyLend Funding LLC, as depositor, and Keymark Trust Company, N.A., as owner trustee.
February 20, 2024: Halcyon Securities LLC underwriting engagement letter executed. Halcyon designated as sole bookrunning manager and initial purchaser. Engagement terms included a 1.00% underwriting discount ($2,000,000) and an expense-reimbursement provision at Section 7(b) of the Preliminary Purchase Agreement.
February 28, 2024: Rating-agency engagement letters executed with Meridian Credit Ratings, Inc. (engagement fee: $185,000, non-refundable) and Carrollton Ratings Group LLC (engagement fee: $160,000, non-refundable).
March 4, 2024: First draft of the Indenture circulated by C&H to all parties and counsel.
March 11, 2024: First drafts of the Receivables Purchase Agreement and the Sale and Servicing Agreement circulated.
March 18, 2024: Amendment No. 1 to the Master Servicing Agreement between SBF and Clearview Loan Servicing, Inc., dated October 1, 2022 (Servicing Account No. CLS-SBF-2022-0041), was executed. The amendment addressed the servicing obligations specific to the receivables to be conveyed to the Trust and incorporated supplemental reporting and payment-waterfall requirements for the securitized pool.
March 25, 2024: Broadleaf Analytics Group LLC engaged by Halcyon to perform loan-level due diligence, including a stratified random sample re-underwriting of the proposed pool.
March 31, 2024: Cut-off date for the receivables pool. Pool statistics as reported by Clearview at that time: approximately 23,100 loans; aggregate outstanding principal balance of approximately $213,750,000 (gross).
April 5, 2024: Preliminary Offering Memorandum (the "Preliminary OM") prepared by C&H and distributed to Halcyon for use in marketing.
April 8, 2024: Rating-agency presentations conducted. C&H, SBF management (Arun Mehta, Danielle Prescott), and Halcyon (Rebecca Thornton) presented to Meridian (Gregory Fontaine, lead analyst) and, separately, to Carrollton (Teresa Kobayashi, lead analyst). Presentations included static-pool performance data based on the servicing data provided by Clearview.
April 10, 2024: Broadleaf commenced its loan-tape sampling, selecting a stratified random sample of 1,500 loans (approximately 6.5% of the pool by count) for file-level re-underwriting and data-integrity verification.
April 15–19, 2024: Investor roadshow conducted. The Preliminary OM was distributed to 28 institutional investors during the roadshow period. Marketing materials, including the Preliminary OM and investor presentation, incorporated the static-pool performance data supplied by Clearview.
April 22, 2024: Broadleaf discovers the servicing-data discrepancy. Broadleaf's re-underwriting analysis revealed that Clearview had been applying partial payments to principal before interest, in contravention of Section 4.03 of the MSA, which prescribes a payment waterfall in the following priority: interest, then fees, then principal. The error was traced to the June 2023 migration from Clearview's legacy LoanTrax servicing platform to the ClearCore platform (the "ClearCore Migration"). The impact of the error was as follows:
• 30+ Day Delinquency Rate: Reported at 3.21%; actual rate upon correction was 5.47% — an understatement of 2.26 percentage points, representing a 70.4% relative increase.
• Cumulative Net Losses (2022 Vintage): Reported at 4.12%; actual rate upon correction was 6.89% — an understatement of 2.77 percentage points, representing a 67.2% relative increase.
• Scope of Impact: Approximately 14,600 loans were affected by the error, representing 63.2% of the proposed securitization pool.
April 23, 2024: Halcyon notified SBF (through C&H) of Broadleaf's findings. C&H issued an internal client memorandum to SBF management (Arun Mehta, Tomás Reyes, Danielle Prescott) summarizing the discrepancy and its potential implications.
April 24, 2024: SBF commenced an internal investigation into the servicing-data discrepancy. Clearview issued a preliminary response acknowledging the ClearCore Migration as a potential cause of the error but disputing the magnitude of the impact.
April 26, 2024: Halcyon formally suspended all marketing activities for the transaction. Halcyon delivered a force-majeure and material-change notice to SBF (through C&H) and to Whitfield, Drummond & Paige LLP ("WDP"), citing the Broadleaf findings as a material adverse change in the quality and accuracy of the receivables data.
April 29, 2024: Carrollton Ratings Group LLC placed its expected ratings for SRT 2024-1 on developing watch, citing the servicing-data discrepancy and the suspension of marketing.
May 1, 2024: Meridian Credit Ratings, Inc. withdrew its preliminary ratings for SRT 2024-1. Meridian issued a formal notice to SBF and C&H confirming the withdrawal.
May 3, 2024: Meeting of the Board of Directors of Skybridge Fintech Ltd. In attendance: Arun Mehta (CEO), Danielle Prescott (CFO), Tomás Reyes (General Counsel), Marcus Yoon (Pinnacle-appointed director), and Catherine Drexler (Pinnacle Managing Partner, attending as observer). After extensive discussion, the Board unanimously resolved to terminate the SRT 2024-1 transaction and to authorize Arun Mehta, Danielle Prescott, and Tomás Reyes to execute all documents and take all actions necessary to effectuate the termination and wind-down.
C. Board Resolution
By unanimous written consent adopted at the May 3, 2024 meeting, the Board of Directors of Skybridge Fintech Ltd. resolved as follows:
RESOLVED, that the proposed securitization of consumer installment-loan receivables through SkyLend Receivables Trust 2024-1, including the issuance of Class A Notes, Class B Notes, and the Residual Interest, be and hereby is terminated;
RESOLVED FURTHER, that each of Arun Mehta, in his capacity as Chief Executive Officer, Danielle Prescott, in her capacity as Chief Financial Officer, and Tomás Reyes, in his capacity as General Counsel, is authorized and directed, individually and collectively, to execute and deliver all documents, instruments, notices, certificates, and agreements, and to take all actions, as they may determine to be necessary or appropriate to effectuate the termination of the transaction and the orderly wind-down of all related transaction arrangements, including without limitation the dissolution of SkyLend Receivables Trust 2024-1 and the wind-up (or maintenance, as management shall determine) of SkyLend Funding LLC; and
RESOLVED FURTHER, that Calderwood & Harkness LLP is authorized and directed to take all actions on behalf of the Company as counsel may determine to be necessary or appropriate in connection with the foregoing.
The foregoing resolutions provide the requisite corporate authority for all actions described in this memorandum.
III. WORKSTREAM 1: FORMAL TERMINATION OF THE PRELIMINARY PURCHASE AGREEMENT WITH HALCYON SECURITIES LLC
A. Termination Mechanics Under the PPA
The proposed transaction was to be effected pursuant to a Preliminary Purchase Agreement (the "PPA") among SkyLend Receivables Trust 2024-1, as issuer, Skybridge Fintech Ltd., as originator and administrator, SkyLend Funding LLC, as depositor, and Halcyon Securities LLC, as initial purchaser. Although the PPA was drafted and substantially negotiated, it was executed in preliminary form, with the final Receivables Purchase Agreement to be executed at closing. The PPA, however, contained binding provisions governing the pre-closing relationship between the parties, including provisions relating to expense reimbursement, representations and warranties, and termination rights.
SBF has the right to terminate the PPA under two independent bases. First, the material-change provisions of the PPA permit either party to terminate in the event of a material adverse change in the quality, composition, or characteristics of the receivables pool or in the accuracy of the data or information provided in connection with the transaction. The discovery of the Clearview servicing-data discrepancy — which affected 63.2% of the proposed pool and resulted in a 70.4% relative increase in reported delinquency and a 67.2% relative increase in reported cumulative net losses — clearly constitutes such a material adverse change. Second, and alternatively, SBF may terminate by mutual consent. Halcyon's own suspension of marketing on April 26, 2024, and its delivery of a force-majeure and material-change notice, are consistent with — and in practical effect presuppose — a mutual agreement that the transaction cannot proceed. C&H recommends that the termination notice reference both bases.
We recommend that SBF deliver formal written termination notice to Halcyon Securities LLC, addressed as follows:
Rebecca Thornton, Managing Director Jonathan Kramer, Head of ABS Origination Halcyon Securities LLC 200 Vesey Street, 42nd Floor New York, NY 10281
A copy of the termination notice should be sent simultaneously to Halcyon's outside counsel:
Harrison Whitfield III Whitfield, Drummond & Paige LLP 51 West 52nd Street New York, NY 10019
C&H will prepare the termination notice in final form for execution by Tomás Reyes or Danielle Prescott on behalf of SBF and the other SBF-side parties. A draft of the termination notice is attached hereto as Exhibit A. We recommend that the notice be executed and delivered on or before May 8, 2024, which is the proposed formal termination date.
B. Expense-Reimbursement Obligation Under §7(b) of the PPA
Pursuant to Section 7(b) of the PPA, upon termination of the PPA by the issuer or the originator, SBF is responsible for the reimbursement of Halcyon's reasonable and documented out-of-pocket expenses incurred in connection with the transaction. The reimbursement obligation extends to expenses actually incurred by Halcyon, including fees paid to its outside counsel (WDP), travel expenses, and due-diligence costs, to the extent that such expenses are reasonable and customary for a transaction of this nature and are supported by appropriate documentation.
Halcyon has communicated, through informal channels, that its claimed expenses total $387,500. C&H has not yet received an itemized breakdown of this amount. We recommend that, concurrently with the delivery of the termination notice, SBF request from Halcyon (or from WDP on Halcyon's behalf) a detailed itemization of the $387,500 in claimed expenses, together with supporting invoices and receipts, so that SBF may verify the reasonableness of each component prior to payment.
Importantly, the PPA does not contain a break-up fee or termination fee of any kind. The underwriting discount of $2,000,000, calculated at 1.00% of the $200,000,000 aggregate deal size, was contingent upon the successful closing of the transaction and the purchase of the Notes by Halcyon. Because the transaction did not close and no Notes were issued or purchased, the underwriting discount is not payable. SBF's sole financial obligation to Halcyon under the PPA is the expense-reimbursement obligation described above, subject to verification.
C. Preservation of Rights re: Halcyon Dispute
Notwithstanding the foregoing, C&H wishes to alert SBF management that Halcyon may seek to assert claims for damages beyond the $387,500 expense reimbursement. Such claims could include allegations of lost revenue opportunity (referencing the $2,000,000 underwriting discount that would have been earned upon closing) and reputational harm arising from the failed transaction. We anticipate that WDP, on behalf of Halcyon, will send a reservation-of-rights letter in the near term. (We note that such a letter was, in fact, subsequently received on May 10, 2024, following the preparation of this memorandum.)
In light of the foregoing, C&H recommends that the termination notice to Halcyon include a broad reservation of all of SBF's rights and remedies, whether arising under the PPA, at law, or in equity. The reservation should expressly preserve SBF's potential counterclaims against Halcyon, including claims relating to Halcyon's own diligence obligations as initial purchaser and underwriter and Halcyon's potential failure to conduct adequate pre-engagement assessment of servicer data quality. The termination notice should make clear that the expense-reimbursement payment, if and when made, is without prejudice to any defenses or counterclaims that SBF may assert.
A more detailed analysis of the Halcyon dispute, including SBF's defensive posture and counterclaim strategy, is set forth in Section VIII.C of this memorandum (Workstream 6).
IV. WORKSTREAM 2: NOTIFICATIONS TO SERVICE PROVIDERS AND COUNTERPARTIES
A. Overview
Formal written termination notices must be sent to each of the transaction counterparties and service providers on May 8, 2024, confirming the termination of the SRT 2024-1 securitization and requesting final invoicing and closeout of all engagement arrangements. The notices should be sent by overnight courier with signature confirmation, with copies sent by email to the designated contacts at each entity. Form notices for each counterparty are attached hereto as Exhibit B. The specific requirements and considerations for each party are addressed below.
B. Keymark Trust Company, N.A. (Owner Trustee)
Contact: Elaine Marchetti, Trust Officer Address: 600 North King Street, Wilmington, DE 19801
The notice to Keymark should confirm the termination of the Trust Agreement dated February 14, 2024, pursuant to the Board's resolution of May 3, 2024. The notice should request that Keymark cooperate in the dissolution of SkyLend Receivables Trust 2024-1 as described in Workstream 3 (Section V below), including the execution of a certificate of cancellation to be filed with the Delaware Secretary of State.
The owner trustee fee under the Trust Agreement is $7,500 per annum. On a prorated basis for the approximately six months from formation (February 14, 2024) through the expected filing of the certificate of cancellation (target: June 7, 2024), the fee owed to Keymark is $3,750. The termination notice should request a final invoice from Keymark reflecting this prorated amount and any other out-of-pocket expenses incurred by Keymark in its capacity as owner trustee.
C. Atlantic Fiduciary Services, Inc. (Indenture Trustee)
Contact: David Moynihan, Corporate Trust Officer Address: 2 Christiana Centre, Suite 1400, Wilmington, DE 19801
The notice to Atlantic Fiduciary Services ("AFS") should confirm that the draft Indenture was never executed, no Notes were issued, and the proposed engagement of AFS as indenture trustee, paying agent, note registrar, and custodian is terminated. Because the Indenture was never signed and no Notes were issued, AFS's role in the transaction never formally commenced, and no ongoing trustee obligations arose.
AFS's acceptance fee of $15,000 was paid upon engagement and is non-refundable. The annual trustee fee of $12,500 was contingent upon the execution of the Indenture and the issuance of the Notes, and therefore is not owed. No custodial materials should be in AFS's possession, as no receivables files or documents were transferred to AFS. However, out of an abundance of caution, the termination notice should request that AFS confirm whether it received any custodial materials and, if so, return or destroy such materials in accordance with SBF's instructions.
D. Meridian Credit Ratings, Inc. (Primary Rating Agency)
Contact: Gregory Fontaine, Lead Analyst Address: 7 World Trade Center, 33rd Floor, New York, NY 10007
The notice to Meridian should confirm the termination of the transaction. C&H notes that Meridian has already withdrawn its preliminary ratings for the SRT 2024-1 Notes, effective May 1, 2024. The engagement fee of $185,000, paid upon the execution of the rating-agency engagement letter on February 28, 2024, is non-refundable per the terms of that letter. The annual surveillance fee of $25,000 was contingent upon the issuance of rated Notes and the commencement of the surveillance period, and therefore is not owed.
The termination notice should request that Meridian provide a formal written confirmation of the withdrawal of its preliminary ratings and the closure of its rating file for SRT 2024-1. This confirmation will be important for SBF's records and may be relevant in the context of any future securitization if SBF seeks to re-engage Meridian.
E. Carrollton Ratings Group LLC (Secondary Rating Agency)
Contact: Teresa Kobayashi, Lead Analyst Address: 55 Water Street, 40th Floor, New York, NY 10041
The notice to Carrollton should confirm the termination of the transaction. C&H notes that Carrollton placed its expected ratings on developing watch on April 29, 2024, but has not formally withdrawn its expected ratings as of the date of this memorandum. The engagement fee of $160,000, paid upon the execution of the rating-agency engagement letter on February 28, 2024, is non-refundable. The annual surveillance fee of $20,000 is not owed, as no rated Notes were ever outstanding.
The termination notice should request that Carrollton formally withdraw its expected ratings and close its rating file for SRT 2024-1. C&H will follow up with Teresa Kobayashi's team to ensure that the developing-watch designation is removed and the file is closed.
F. Rowland & Cross LLP (Independent Auditor / AUP Provider)
Contact: Nathan Delacroix, Engagement Partner Address: 1250 Avenue of the Americas, 22nd Floor, New York, NY 10020
The notice to Rowland & Cross ("R&C") should confirm the termination of the AUP and comfort-letter engagement. Work was completed through the draft AUP stage only; the comfort letter was never finalized or delivered. No audit opinion was issued.
Partial fees of $137,500 are owed to R&C, representing 50% of the total engagement fee of $275,000, reflecting the work performed through the draft stage. The termination notice should request a final invoice from R&C for this amount, together with confirmation that R&C will preserve all working papers related to the engagement in accordance with its professional obligations and the preservation request discussed in Workstream 4. In addition, the notice should request the return of any SBF proprietary data, including loan tapes, servicing data, and financial information, that were provided to R&C in connection with the engagement.
G. Donnovan Press LLC (Printer / EDGAR Filing Agent)
The notice to Donnovan Press should confirm the termination of the printing and EDGAR preparation engagement. Printing and EDGAR preparation fees of $42,000 are owed for work performed in preparing the Preliminary OM and related EDGAR-formatted filings. No EDGAR filing was actually made, and no documents were filed with the Securities and Exchange Commission.
The termination notice should confirm that Donnovan Press did not file any documents with the SEC in connection with SRT 2024-1, and should request that Donnovan Press destroy any prepared filings and retained copies of the Preliminary OM (other than copies retained pursuant to Donnovan Press's own record-retention obligations). If Donnovan Press retains copies for its own files, such copies should be marked as terminated and should not be distributed.
H. Clearview Loan Servicing, Inc. (Third-Party Servicer)
Contact: Meredith Sloane, VP Operations; Warren Pettigrew, CEO Address: 8800 Brecksville Road, Suite 300, Cleveland, OH 44141
The termination notice to Clearview requires particular care and precision. Clearview's ongoing servicing relationship with SBF under the Master Servicing Agreement dated October 1, 2022 (the "MSA") is a separate contractual arrangement that predates and survives the proposed securitization. The purpose of the termination notice is to confirm that Amendment No. 1 to the MSA, executed on March 18, 2024, which specifically addressed Clearview's obligations in connection with the Trust securitization — including supplemental reporting requirements, pool-specific waterfall mechanics, and securitization-related data deliverables — is to be treated as terminated, effective as of the formal termination date of May 8, 2024.
The termination notice must be drafted to achieve two simultaneous objectives: (i) to terminate Amendment No. 1 and relieve both parties of their respective obligations thereunder; and (ii) to expressly and unambiguously preserve SBF's indemnification and damages claims against Clearview under Section 9.02 of the MSA and any other applicable provisions. To that end, the termination notice should include the following express language:
"The termination of Amendment No. 1 to the Master Servicing Agreement does not constitute, and shall not be construed as, a waiver, release, or relinquishment of any claims, rights, or remedies that Skybridge Fintech Ltd. may have against Clearview Loan Servicing, Inc. arising from or relating to the servicing-data discrepancies identified by Broadleaf Analytics Group LLC on or about April 22, 2024, or any other breach of the Master Servicing Agreement, Amendment No. 1 thereto, or any other agreement between the parties. All such claims, rights, and remedies are expressly reserved."
C&H strongly recommends that the Clearview termination notice be reviewed by both Theodore Langston (capital markets) and Linda Osei (litigation) prior to delivery, to ensure that it is consistent with SBF's litigation strategy. The Clearview indemnification claim is discussed in detail in Section VIII.B of this memorandum (Workstream 6).
I. Broadleaf Analytics Group LLC
Contact: Sanjay Rajan, Managing Director Address: 110 William Street, 14th Floor, New York, NY 10038
Broadleaf was engaged by Halcyon, not directly by SBF, and accordingly SBF is not in a direct contractual relationship with Broadleaf for purposes of the SRT 2024-1 due-diligence engagement. However, Broadleaf's work product — including its re-underwriting findings, sample-selection methodology, loan-level data analysis, and findings reports related to the 1,500-loan stratified random sample — will be critical evidence in connection with the Clearview indemnification claim and any Halcyon dispute.
C&H recommends that SBF request, either through Halcyon or directly, that Broadleaf preserve all work papers, sample data, and findings reports related to the SRT 2024-1 engagement. If Broadleaf is unwilling to engage directly with SBF on this issue, the request should be channeled through Halcyon (with whom Broadleaf has a direct contractual relationship) or, alternatively, through a formal third-party preservation-of-evidence letter as described in Workstream 4.
Broadleaf's fees of $225,000 were incurred by Halcyon pursuant to its engagement of Broadleaf for the due-diligence review. Under the terms of the PPA and the engagement arrangements, these fees are ultimately payable by SBF as part of the transaction expenses. The $225,000 is reflected in the sunk-cost reconciliation in Workstream 5.
V. WORKSTREAM 3: DISSOLUTION OF SKYLEND RECEIVABLES TRUST 2024-1 AND WIND-UP OF SKYLEND FUNDING LLC
A. Dissolution of SkyLend Receivables Trust 2024-1
SkyLend Receivables Trust 2024-1 was formed as a Delaware statutory trust on February 14, 2024, pursuant to the Delaware Statutory Trust Act, 12 Del. C. §§ 3801 et seq. Keymark Trust Company, N.A. serves as the owner trustee, and SkyLend Funding LLC is the depositor and sole beneficial owner of the Trust. The Trust was assigned Employer Identification Number (EIN) 93-4201855 by the Internal Revenue Service.
No receivables were ever transferred to the Trust. No Notes were issued by the Trust. The Trust holds no assets, has no liabilities, and has not conducted any business other than the organizational activities incident to its formation and the negotiation of the transaction documents. Because the Trust is essentially an empty shell, the dissolution process should be straightforward.
The dissolution procedure is governed by the Trust Agreement and, to the extent not addressed therein, by Section 3810 of the Delaware Statutory Trust Act (12 Del. C. § 3810). The following steps are required:
1. Determination to Dissolve. The depositor (SkyLend Funding LLC) and the owner trustee (Keymark) should determine that the Trust's business and affairs have been wound up, which in this case requires no substantive action given the absence of assets, liabilities, or operations.
2. Execution of Certificate of Cancellation. A certificate of cancellation must be prepared and executed, in accordance with Section 3810 of the Act, for filing with the Delaware Secretary of State. The certificate must be signed by the owner trustee (Keymark) or, alternatively, by an authorized person as defined in the Trust Agreement.
3. Filing with the Delaware Secretary of State. The executed certificate of cancellation must be filed with the Office of the Secretary of State of the State of Delaware. The filing fee is nominal (currently $200).
4. Trustee Resignation. Keymark should execute a resignation as owner trustee, effective upon the filing of the certificate of cancellation. The form and timing of the resignation should be coordinated with Elaine Marchetti.
C&H will prepare the certificate of cancellation and all ancillary documents and will coordinate with Keymark to complete the filing. We recommend a target completion date of June 7, 2024 — thirty days from the formal termination date — to allow for coordination with Keymark and processing by the Delaware Secretary of State.
B. Wind-Up of SkyLend Funding LLC
SkyLend Funding LLC was formed as a Delaware single-member limited liability company on January 30, 2024, pursuant to the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq. The sole member of SkyLend Funding LLC is Skybridge Fintech Ltd. The manager of the LLC is Danielle Prescott, CFO of SBF. The LLC was assigned EIN 93-4187620. Its registered office is 1400 Market Street, Suite 1210, Wilmington, Delaware 19801.
No receivables were purchased by SkyLend Funding LLC in its capacity as depositor. The entity holds no assets other than nominal cash relating to formation costs and has no liabilities. It has not conducted any business other than organizational activities and the negotiation of the transaction documents in its capacity as the proposed depositor for SRT 2024-1.
If SBF elects to dissolve SkyLend Funding LLC, the wind-up procedure is as follows:
1. Written Consent of Sole Member. The sole member (SBF) should adopt a written consent authorizing the dissolution and wind-up of SkyLend Funding LLC and the filing of a certificate of cancellation with the Delaware Secretary of State.
2. Certificate of Cancellation. A certificate of cancellation must be prepared and filed with the Delaware Secretary of State pursuant to Section 18-203 of the Delaware Limited Liability Company Act (6 Del. C. § 18-203). The certificate must be signed by an authorized person (Danielle Prescott, as manager, or such other person as SBF may designate).
3. Final Settlement of Liabilities. To the extent SkyLend Funding LLC has any outstanding liabilities (which we believe to be limited to nominal formation costs), such liabilities should be satisfied prior to the filing of the certificate of cancellation.
C&H will prepare the written consent and certificate of cancellation.
Management Decision Required: C&H notes that SBF may elect to keep SkyLend Funding LLC in existence as a shelf entity for a potential future securitization, should SBF determine to re-enter the capital markets once the Clearview data-integrity issues have been remediated and a credible path to market has been re-established. The advantages of maintaining the entity include the avoidance of the need to form a new depositor entity in the future, and the preservation of the EIN and any Delaware authority already obtained. The disadvantages include the ongoing maintenance costs (Delaware annual franchise tax, registered agent fees, and administrative burden), albeit modest.
C&H's recommendation is to dissolve SkyLend Funding LLC at this time. Dissolution avoids ongoing maintenance costs, cleanly closes the matter for accounting and administrative purposes, and eliminates the risk that the entity could inadvertently be used in an unauthorized manner. Should SBF determine to pursue a future securitization, the formation of a new depositor entity is a straightforward and inexpensive process that can be completed within a matter of days. However, this is ultimately a business decision for SBF management. We request that Tomás Reyes and Danielle Prescott confirm SBF's election on this point.
C. Tax Filings
Final short-period tax returns, if any, will need to be filed for SRT 2024-1 and SkyLend Funding LLC. Given that neither entity received any assets, earned any income, or incurred any material liabilities, the tax filing obligations should be minimal. For SRT 2024-1, the Trust was intended to qualify as a grantor trust for federal income tax purposes, and given that no assets were transferred to the Trust, no Form 1041 should be required. For SkyLend Funding LLC, as a single-member LLC disregarded for federal income tax purposes, no separate tax return is required; any activity (if any) would be reported on SBF's own return.
C&H recommends that SBF coordinate with Rowland & Cross LLP (Nathan Delacroix) or SBF's internal or external tax advisors to confirm these conclusions and to determine whether any state or local tax filings are required. Given the absence of substantive activity, we do not anticipate any material tax obligations, but the analysis should be documented for the record.
VI. WORKSTREAM 4: DOCUMENT RETENTION REQUIREMENTS
A. General Retention Obligations
All transaction documents — including drafts, execution versions, correspondence, due-diligence materials, servicing data, financial models, internal memoranda, and board materials — must be preserved and retained in accordance with SBF's document-retention policy and applicable legal-hold requirements. The importance of comprehensive document preservation cannot be overstated. In light of the pending Clearview indemnification claim (Workstream 6, Section VIII.B), the potential Halcyon dispute (Workstream 6, Section VIII.C), and the need to monitor potential securities-law exposure arising from the distribution of the Preliminary OM (Workstream 6, Section VIII.D), SBF faces a heightened obligation to preserve all potentially relevant documents.
A formal litigation hold should be implemented immediately across SBF and SkyLend Funding LLC — if not already in place — covering all custodians who may possess responsive documents. The litigation hold should apply to all documents in any format, including electronic files, emails, text messages, voicemail recordings, hard-copy files, and any documents stored on third-party platforms or cloud-based systems. C&H has prepared a template litigation-hold notice for SBF's internal distribution, which is attached hereto as Exhibit D. We recommend that the litigation hold be communicated by Tomás Reyes to all relevant SBF personnel no later than May 8, 2024.
B. Categories of Documents to Be Preserved
The following categories of documents must be preserved in their entirety, without modification, deletion, or destruction:
1. Transaction Documents: All drafts and execution versions of the Indenture, Receivables Purchase Agreement, Sale and Servicing Agreement, Preliminary Purchase Agreement, Trust Agreement, LLC Agreement for SkyLend Funding LLC, Administration Agreement, Account Control Agreement, and the Sub-Servicing Agreement Amendment (Amendment No. 1 to the MSA dated March 18, 2024).
2. Offering Materials: The Preliminary Offering Memorandum dated April 5, 2024, and all prior drafts thereof, including blackline comparisons. All investor presentation materials and roadshow scripts used during the April 15–19, 2024 investor roadshow.
3. Servicing Data: All Clearview servicing tapes, monthly servicing reports, static-pool performance data (both the originally reported data and the corrected data), and any reconciliation analyses. This category includes both the data as reported by Clearview and the data as recomputed by Broadleaf or SBF following the discovery of the discrepancy.
4. Due-Diligence Materials: All Broadleaf Analytics due-diligence reports, sample-selection methodology documentation, re-underwriting findings, exception reports, and any correspondence between Broadleaf and Halcyon (to the extent in SBF's possession or obtainable through Halcyon).
5. Rating-Agency Materials: Rating-agency engagement letters dated February 28, 2024; rating-agency presentations (April 8, 2024); all rating committee materials, correspondence, and questions-and-answers; preliminary ratings and expected ratings; the Meridian withdrawal notice (May 1, 2024); the Carrollton developing-watch notice (April 29, 2024); and any subsequent communications from either agency.
6. Auditor Materials: Rowland & Cross AUP working papers, draft comfort letter, and all related correspondence and data provided to R&C.
7. Internal and External Correspondence: All internal and external correspondence (emails, letters, memoranda, and instant messages) regarding: (a) the servicing-data discrepancy and its discovery on April 22, 2024; (b) Halcyon's force-majeure and material-change notice (April 26, 2024); (c) the internal investigation commenced on April 24, 2024; (d) the termination decision; and (e) any communications with Clearview regarding the ClearCore Migration or the payment-waterfall error.
8. Board Materials: Board resolutions, minutes, and supporting materials for the May 3, 2024 board meeting, as well as any prior board discussions or informal communications regarding the transaction or the data discrepancy.
9. Legal Materials: All C&H legal memoranda, opinion drafts, research files, and work product related to the transaction, including the internal litigation memorandum dated April 30, 2024 and the Securities-Law Exposure Memorandum dated May 2, 2024. (Note: These materials are subject to attorney-client privilege and work-product protection and should be maintained in a separate, privilege-protected file.)
10. Investor Information: The list of the 28 institutional investors who received the Preliminary OM during the April 15–19, 2024 roadshow, together with all correspondence and communications with such investors.
C. Retention Period
C&H recommends a minimum retention period of seven (7) years from the date of transaction termination (i.e., from May 8, 2024), or, if litigation ensues, until the final resolution of all disputes — including any appeals — plus an additional period equal to any applicable statute-of-limitations run-off. This retention period is consistent with customary market practice for structured-finance transactions and with the requirements of SBF's existing document-retention policy as we understand it. If SBF's policy provides for a longer retention period, the longer period should apply.
D. Third-Party Preservation Requests
C&H will prepare and send formal preservation-of-evidence letters to the following third parties, requesting that each party preserve all documents related to the SRT 2024-1 transaction:
• Clearview Loan Servicing, Inc.
• Halcyon Securities LLC
• Whitfield, Drummond & Paige LLP
• Broadleaf Analytics Group LLC
• Meridian Credit Ratings, Inc.
• Carrollton Ratings Group LLC
• Rowland & Cross LLP
• Donnovan Press LLC
A form preservation letter is attached hereto as Exhibit E. The letters will be tailored to each recipient and will identify the categories of documents to be preserved. The letters should be sent on or promptly after May 8, 2024.
VII. WORKSTREAM 5: SUNK TRANSACTION COST RECONCILIATION
A. Summary Table
The following table sets forth an itemized reconciliation of all sunk costs incurred by SBF in connection with the SRT 2024-1 transaction through the termination date of May 8, 2024:
B. Notes on Cost Items
The following notes provide additional context regarding the individual cost items:
Halcyon Expense Reimbursement — $387,500. As discussed in Section III.B, this amount represents Halcyon's claimed out-of-pocket expenses. C&H recommends that SBF request itemized documentation from Halcyon and WDP to verify the reasonableness of the claimed expenses prior to payment. This is the only amount owed to Halcyon under the PPA; the underwriting discount of $2,000,000 (1.00% × $200,000,000) was contingent on closing and is therefore not payable.
Rating Agency Engagement Fees — $345,000 Combined. The Meridian engagement fee of $185,000 and the Carrollton engagement fee of $160,000 are both non-refundable pursuant to the terms of the respective engagement letters executed on February 28, 2024. Annual surveillance fees ($25,000 for Meridian and $20,000 for Carrollton) are not owed, as no rated Notes were ever outstanding and the surveillance period never commenced.
Broadleaf Due-Diligence Fees — $225,000. Broadleaf was engaged by Halcyon, not directly by SBF. However, under the terms of the engagement arrangements, the cost of the loan-level due diligence is a transaction expense ultimately payable by SBF. We note that Broadleaf's work product — in particular, its findings regarding the servicing-data discrepancy — is critical evidence in support of the Clearview indemnification claim. The recoverable value of Broadleaf's work product in the context of that claim should be considered as an offset to the cost.
Rowland & Cross Partial Fee — $137,500. This amount represents 50% of the total engagement fee of $275,000, reflecting the work performed by R&C through the draft AUP stage. The comfort letter was never finalized or delivered. R&C's work product, while incomplete, may have some residual value in the context of any future securitization that SBF may undertake once data-integrity issues are remediated.
C&H Capital Markets Phase Fees — $623,400. This amount represents the actual fees billed by C&H for the capital-markets phase of the engagement through May 8, 2024. The original fee estimate for the full transaction (through closing) was $850,000. C&H's applicable billing rates during the engagement were as follows: Partners at $1,250–$1,575 per hour, and Associates at $725–$925 per hour. A detailed breakdown of C&H's fees by timekeeper and phase is available upon request.
Keymark Owner Trustee Fee — $3,750. This represents a prorated portion of the $7,500 annual owner trustee fee, covering approximately six months from the formation of the Trust on February 14, 2024, through the expected dissolution.
AFS Acceptance Fee — $15,000. This non-refundable acceptance fee was paid upon AFS's engagement as the designated indenture trustee. The annual trustee fee of $12,500 is not owed because the Indenture was never executed and the trusteeship never activated.
Donnovan Press — $42,000. Fees for printing and EDGAR preparation work performed through the date of termination. No EDGAR filing was made.
C. Potential Recovery
The aggregate sunk transaction costs of $1,779,150 form a significant component of SBF's estimated indemnification claim against Clearview under Section 9.02 of the MSA. As discussed in Workstream 6 (Section VIII.B below), SBF's total estimated claim range is $1,500,000–$3,000,000, inclusive of the sunk transaction costs documented above plus consequential damages (including reputational harm, lost market opportunity, and the costs of any remediation efforts), subject to the indemnification cap and limitation-of-liability provisions, if any, in the MSA. The sunk costs represent the most readily quantifiable component of SBF's damages and should form the floor of any demand or recovery effort.
VIII. WORKSTREAM 6: TRANSITION TO LITIGATION-PHASE REPRESENTATION
A. Scope of Post-Termination Representation
Effective upon the formal termination of the SRT 2024-1 transaction on May 8, 2024, C&H's engagement will transition from capital-markets representation to litigation-side representation. The litigation-phase engagement will encompass two principal matters:
(i) Clearview Indemnification and Damages Claim. Assertion and prosecution of SBF's claims against Clearview Loan Servicing, Inc. for breach of the MSA and Amendment No. 1, including claims for indemnification under Section 9.02 of the MSA.
(ii) Halcyon Dispute. Defense against and resolution of any claims asserted by Halcyon Securities LLC (through WDP) for damages beyond the $387,500 expense reimbursement, and assertion of any counterclaims that SBF may elect to pursue.