PRELIMINARY OFFERING MEMORANDUM — CONFIDENTIAL
PRELIMINARY — SUBJECT TO COMPLETION AND AMENDMENT
Dated April 5, 2024
SkyLend Receivables Trust 2024-1 a Delaware statutory trust
$170,000,000 Class A Floating Rate Asset-Backed Notes CUSIP Prefix: 87165Q AA0
$22,000,000 Class B Floating Rate Asset-Backed Notes CUSIP Prefix: 87165Q AB8
Expected Ratings:
Target Coupons:
Target coupons are indicative only and will be determined at the time of pricing.
The Class A Floating Rate Asset-Backed Notes (the "Class A Notes") and the Class B Floating Rate Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes") are being offered by SkyLend Receivables Trust 2024-1 (the "Trust" or the "Issuer"), a Delaware statutory trust, through Halcyon Securities LLC (the "Initial Purchaser").
The Notes are being offered and sold (i) in the United States to qualified institutional buyers ("QIBs") as defined in Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S ("Regulation S") under the Securities Act.
The Notes have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
None of the Securities and Exchange Commission (the "SEC"), any state securities commission, or any other regulatory authority has approved or disapproved of these securities or determined if this Offering Memorandum is truthful or complete. Any representation to the contrary is a criminal offense.
Initial Purchaser
Halcyon Securities LLC 200 Vesey Street, 42nd Floor New York, NY 10281 Deal Reference: HLC-ABS-2024-017
Issuer's Counsel: Calderwood & Harkness LLP, 425 Lexington Avenue, New York, NY 10017
Underwriter's Counsel: Whitfield, Drummond & Paige LLP, 51 West 52nd Street, New York, NY 10019
Information herein is preliminary and subject to completion or amendment. This Preliminary Offering Memorandum shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The Issuer may reject any offer to purchase, in whole or in part, for any reason, or may sell less than the full amount of the Notes offered by this Preliminary Offering Memorandum. It is expected that delivery of the Notes will be made in book-entry form through the facilities of The Depository Trust Company on or about the closing date.
IMPORTANT NOTICES AND DISCLAIMERS
This Preliminary Offering Memorandum (this "Offering Memorandum") has been prepared by SkyLend Receivables Trust 2024-1 (the "Trust" or the "Issuer") solely for use in connection with the proposed offering of the Notes described herein. This Offering Memorandum is preliminary in nature and is subject to completion and amendment. The information contained herein is preliminary and is subject to change, and this Offering Memorandum is not intended to and does not constitute a final offering document. A final offering memorandum, which will supersede this document in its entirety, will be prepared and made available to prospective investors prior to the closing of the offering.
No Registration Under the Securities Act. The Notes have not been and will not be registered under the Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes are being offered and sold only (i) in the United States to qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 144A thereunder, and (ii) outside the United States to non-U.S. persons (as defined in Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S under the Securities Act.
Restrictions on Distribution. This Offering Memorandum is being furnished on a confidential basis to a limited number of prospective investors who are QIBs and non-U.S. persons for the purpose of evaluating the Notes. This Offering Memorandum may not be reproduced, in whole or in part, or distributed to any person other than the recipient hereof, and may not be used for any purpose other than the evaluation of the Notes described herein without the prior written consent of the Trust and the Initial Purchaser. Each prospective investor, by accepting delivery of this Offering Memorandum, agrees to the foregoing restrictions and to return this Offering Memorandum and all documents and materials delivered herewith if the recipient does not purchase any Notes.
No Representation by Initial Purchaser or Issuer Regarding Legality of Investment. Neither the Initial Purchaser nor the Issuer makes any representation to any prospective investor regarding the legality of an investment in the Notes under applicable legal investment or similar laws or regulations. Each prospective investor should consult with its own legal, tax, and financial advisors regarding the suitability and appropriateness of an investment in the Notes and should satisfy itself that the acquisition of the Notes is not prohibited by applicable law and does not violate any investment policy or restriction to which such prospective investor is subject.
Forward-Looking Statements. This Offering Memorandum contains certain forward-looking statements within the meaning of the federal securities laws. These statements are based on the current expectations, estimates, and projections of the management of Skybridge Fintech Ltd. ("SBF"), the Depositor, and the Initial Purchaser regarding future events and are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, changes in economic conditions, consumer credit performance, prepayment rates, interest rates, regulatory developments, and other factors described under "Risk Factors" herein. Forward-looking statements speak only as of the date they are made, and none of the Issuer, SBF, the Depositor, or the Initial Purchaser undertakes any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
No Regulatory Approval. None of the SEC, any state securities commission, or any other federal, state, or foreign regulatory authority has approved or disapproved of the Notes or passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense.
Expected Ratings. The expected ratings assigned to the Notes by Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton") reflect each rating agency's preliminary assessment of the creditworthiness of the Notes based on the structural, legal, and collateral characteristics of the offering as described herein. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organization. The expected ratings are based upon information furnished to the rating agencies as of the date hereof and are contingent upon receipt by each rating agency of final transaction documents and satisfaction of certain conditions. There can be no assurance that the expected ratings will be confirmed at the time of closing or that the ratings will not be subsequently lowered, suspended, or withdrawn. Each rating should be evaluated independently of any other rating. No person is obligated to maintain any rating at its initial level. A downgrade, suspension, or withdrawal of a rating assigned to the Notes may have an adverse effect on the market value and liquidity of the Notes.
Static-Pool Data. The static-pool data and historical performance information presented in this Offering Memorandum have been sourced from servicing records maintained by Clearview Loan Servicing, Inc. ("Clearview"), the sub-servicer for the receivables. Such data has not been independently verified by the Issuer, the Depositor, the Sponsor, or the Initial Purchaser, and none of such parties makes any representation or warranty as to the accuracy, completeness, or reliability of such data. Prospective investors should not place undue reliance on the static-pool data or historical performance information presented herein as an indicator of future performance. Past performance is not necessarily indicative of future results.
No Fiduciary Duty. The Initial Purchaser is acting as an arm's-length counterparty to the Issuer and the Depositor in connection with the offering of the Notes. The Initial Purchaser is not acting as an advisor, agent, or fiduciary to any prospective investor, and no prospective investor should rely on the Initial Purchaser for advice regarding the legal, tax, accounting, regulatory, or economic aspects of an investment in the Notes.
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SUMMARY OF TERMS
The following summary highlights selected information from this Offering Memorandum and is qualified in its entirety by the more detailed information appearing elsewhere in this Offering Memorandum and in the transaction documents referenced herein. Prospective investors should read this entire Offering Memorandum carefully, including the section entitled "Risk Factors," before making an investment decision. Capitalized terms used in this summary but not otherwise defined herein have the meanings ascribed to them in the "Glossary of Defined Terms" section of this Offering Memorandum.
The Offering
The Notes
Total Capital Structure: $200,000,000
Payment Dates: Monthly, on the 15th of each month (or, if such day is not a business day, on the next succeeding business day).
Interest Accrual: Interest on the Notes will accrue on the basis of a 30/360 day count convention.
Optional Redemption: The Sponsor may direct the Trust to redeem all outstanding Notes (the "clean-up call") when the aggregate outstanding principal balance of the receivables pool declines to 10% or less of the initial pool balance as of the cut-off date. The redemption price will equal the outstanding principal amount of the Notes plus accrued and unpaid interest thereon plus any other unpaid amounts owing under the Indenture.
Credit Enhancement
The following forms of credit enhancement are available for the benefit of the Noteholders:
Subordination. The Class B Notes and the Residual Interest are subordinated to the Class A Notes with respect to the payment of interest and principal. The Residual Interest is subordinated to both the Class A Notes and the Class B Notes. On each Payment Date, available funds will be applied in accordance with the payment waterfall described herein, with Class A Note interest and principal receiving priority over Class B Note interest and principal. The Class A Notes benefit from total subordination of 15.0% of the initial pool balance (consisting of the Class B Notes at 11.0% and the Residual Interest at 4.0%). The Class B Notes benefit from subordination of 4.0% of the initial pool balance (consisting of the Residual Interest).
Overcollateralization. The initial overcollateralization ("OC") target is 3.5% of the initial pool balance, or $7,000,000. The OC amount represents the excess of the aggregate outstanding principal balance of the receivables over the aggregate outstanding principal amount of the Notes. OC is expected to be built over time from excess spread generated by the pool and will serve as an additional source of credit enhancement by absorbing losses on the receivables before such losses reduce the principal balance of the Notes.
Reserve Account. A reserve account (the "Reserve Account") will be funded at closing in an amount equal to 1.00% of the initial pool balance, or $2,000,000. Amounts on deposit in the Reserve Account will be available to cover shortfalls in interest and principal distributions to the Noteholders on any Payment Date in accordance with the payment waterfall described herein.
Excess Spread. The estimated initial excess spread is approximately 2.85% per annum, calculated as the weighted average coupon of the receivables pool (14.82%) less the weighted average note rate, the servicing fee (0.50% per annum), and estimated trustee and administrative expenses. Excess spread, to the extent available, will be used to build OC and absorb losses before subordination is utilized.
The Receivables Pool (Cut-Off Date: March 31, 2024)
The receivables pool consists of approximately 23,100 unsecured consumer installment loans originated by Skybridge Fintech Ltd. through the SkyLend platform. The following table summarizes the key characteristics of the receivables pool as of the cut-off date of March 31, 2024:
Key Dates
RISK FACTORS
Prospective investors should carefully consider the following risk factors, in addition to the other information set forth in this Offering Memorandum, before making an investment decision with respect to the Notes. The risks described below are not the only risks to which the Noteholders may be exposed. Additional risks not presently known to the Issuer, the Sponsor, or the Initial Purchaser, or that any such party currently deems immaterial, may also adversely affect the Notes, their value, or the likelihood of receiving payments thereon. Each prospective investor should consult with its own legal, tax, and financial advisors as to the risks associated with an investment in the Notes.
Risks Related to the Receivables
Credit Risk; Unsecured Obligations. The receivables in the pool are unsecured consumer installment loans. Unlike asset-backed securities collateralized by mortgage loans, automobile loans, or equipment leases, the Notes are not backed by any tangible collateral that can be repossessed or foreclosed upon in the event of obligor default. If an obligor defaults on a receivable, the Trust's sole recourse will be against the obligor in its unsecured capacity. Recovery rates on unsecured consumer obligations are generally lower than those on secured obligations, and there can be no assurance that collection efforts with respect to defaulted receivables will result in any material recovery. The creditworthiness of obligors may be affected by a range factors, including general economic conditions, levels of unemployment, personal financial circumstances, changes in housing values, healthcare costs, and other factors beyond the control of any party to the transaction. An increase in the rate of defaults on the receivables could result in shortfalls in payments to Noteholders.
Delinquency and Default Rates May Exceed Historical Levels. The static-pool data and historical performance information presented in this Offering Memorandum reflect the historical experience of SBF's consumer loan portfolio as reported by Clearview. Such data is not a guarantee or prediction of future performance. A number of factors could cause actual delinquency and default rates on the receivables to exceed the levels reflected in the historical data, including, without limitation, deterioration in general economic conditions, rising interest rates, increases in unemployment, changes in borrower behavior, or changes in the regulatory environment applicable to consumer lending. Delinquency and default rates on the receivables in the pool may differ materially from the historical experience of SBF's overall portfolio due to differences in pool composition, geographic concentration, borrower credit profiles, origination vintage, and other factors.
Geographic and Obligor Concentration Risks. Although the eligibility criteria for the receivables pool provide that no single state may represent more than 20% of the aggregate pool balance and no single obligor may represent more than 0.15% of the aggregate pool balance ($300,000), the pool may nonetheless exhibit material geographic concentration in certain states or regions. Economic downturns, natural disasters, regulatory changes, or other events affecting a particular geographic area could disproportionately impact the performance of receivables originated in that area. Similarly, while the pool is diversified across a large number of obligors, the performance of any individual obligor's receivable may affect the overall pool performance, particularly if such obligor has a relatively large outstanding balance.
Prepayment and Extension Risk. The receivables in the pool are consumer installment loans that may be prepaid by the obligors at any time, in whole or in part, without penalty. Prepayments on the receivables will be passed through to Noteholders in accordance with the payment waterfall described herein. Higher-than-expected prepayment rates could shorten the weighted average life of the Notes, reduce the amount of interest received by Noteholders, and diminish the benefit of excess spread as a form of credit enhancement. Conversely, lower-than-expected prepayment rates could extend the weighted average life of the Notes beyond the expected levels. The actual weighted average life of the Notes may differ from the expected weighted average life set forth herein, and investors should be prepared for the possibility that their investment may be repaid earlier or later than anticipated.
Consumer Lending Regulatory Risks. The receivables were originated by SBF in compliance with applicable federal and state consumer lending laws and regulations, including the Truth in Lending Act ("TILA"), the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act ("FCRA"), and applicable state usury and licensing laws. However, there can be no assurance that all receivables in the pool comply in all respects with applicable laws, or that future changes in consumer lending laws or regulations, or judicial interpretations thereof, will not adversely affect the enforceability, collectability, or servicing of the receivables. In particular, certain states impose usury limits on the interest rates that may be charged on consumer loans, and the enforceability of interest rates on the receivables may be subject to challenge under applicable state law. The Consumer Financial Protection Bureau ("CFPB") or state attorneys general may bring enforcement actions or promulgate new rules that could affect the origination, servicing, or collection of consumer loans of the type included in the pool.
Platform Lending Model Risk. SBF operates as a financial technology company that originates consumer loans through a digital lending platform. SBF originated approximately $1.4 billion in consumer loans in fiscal year 2023 and had approximately 312,000 active borrowers as of December 31, 2023. However, the SkyLend platform was launched only approximately in 2019, and SBF therefore has a limited operating history relative to traditional consumer lending institutions. The performance of loans originated through online platforms may differ from the performance of loans originated through traditional channels due to differences in borrower demographics, application processes, identity verification procedures, and underwriting methodologies. There can be no assurance that SBF's proprietary underwriting models will accurately predict borrower creditworthiness or that loans originated through the SkyLend platform will perform consistently with historical experience.
Risks Related to the Sponsor and Servicer
Dependence on Sponsor. SBF is a relatively young fintech company with a limited track record. The ongoing performance of the receivables and the viability of the transaction are dependent, in part, on the continued operation of SBF's SkyLend platform and SBF's ability to fulfill its obligations as originator, master servicer, and administrator under the transaction documents. If SBF were to experience financial difficulties, a disruption in its operations, or a loss of key personnel, such events could adversely affect the servicing and administration of the receivables and the performance of the Notes. While the transaction documents include provisions for the appointment of a successor servicer in the event of a servicer termination event, there can be no assurance that a qualified successor servicer could be appointed on a timely basis or at a reasonable cost, and any transition to a successor servicer could result in disruptions to the collection and administration of the receivables.
Sub-Servicer Risk. Clearview Loan Servicing, Inc. serves as the sub-servicer for the receivables under the terms of the Master Servicing Agreement and is responsible for the day-to-day collection, payment application, delinquency management, and reporting functions with respect to the receivables. As of December 31, 2023, Clearview had approximately $640 million in SBF receivables under management. The performance of the receivables and the accuracy of the information provided to the Trust, the Indenture Trustee, the rating agencies, and investors are dependent upon the effectiveness of Clearview's systems, processes, and personnel. Any failure by Clearview to perform its servicing obligations in accordance with applicable standards could adversely affect the collection of payments on the receivables, the accuracy of investor reporting, and the performance of the Notes.
System Migration Risk. Clearview completed a migration from its legacy "LoanTrax" platform to a new "ClearCore" platform in June 2023. System migrations of this nature are complex undertakings that may introduce errors in payment processing, data reporting, payment-application methodologies, and operational workflows. While Clearview has represented that the ClearCore migration was completed successfully, there can be no assurance that all data was accurately migrated, that the ClearCore platform applies payments and processes servicing functions in a manner consistent with the former LoanTrax platform, or that the migration has not introduced errors or discrepancies that have not yet been identified. Any such errors or discrepancies could affect the accuracy of the static-pool data, delinquency reporting, loss data, and other servicing information presented in this Offering Memorandum and relied upon by the rating agencies and investors.
Servicer Termination Events and Backup Servicing. The Sale and Servicing Agreement and the Master Servicing Agreement set forth certain events that constitute servicer termination events, upon the occurrence of which the Indenture Trustee or a specified percentage of Noteholders may terminate the servicer's rights and obligations and appoint a successor servicer. While the transaction documents contain provisions for such appointment, the transition to a successor servicer could result in disruptions to collections and reporting, and there can be no assurance that a qualified successor servicer would be available on acceptable terms.
Conflicts of Interest. SBF serves as both the originator of the receivables and the master servicer with respect to the receivables. This dual role creates potential conflicts of interest. For example, SBF's interest in originating receivables and receiving the purchase price therefor may conflict with its obligation to originate receivables in compliance with its underwriting guidelines and to exercise appropriate care in the servicing and administration of the receivables. Additionally, SBF's role as administrator of the Trust may create conflicts between its obligations to the Trust and its interests as the indirect holder of the Residual Interest.
Risks Related to the Notes
Limited Liquidity; No Established Trading Market. The Notes have not been and will not be registered under the Securities Act and are subject to significant restrictions on transfer as described under "Plan of Distribution" and "Description of the Notes—Transfer Restrictions" herein. There is no existing trading market for the Notes, and there can be no assurance that a secondary market for the Notes will develop or, if one does develop, that it will provide sufficient liquidity to permit Noteholders to sell their Notes in a timely manner at a favorable price. The Initial Purchaser has not made any commitment to make a market in the Notes, and any market-making activity, if commenced, may be discontinued at any time. The price at which Notes may be sold in the secondary market, if at all, will depend upon prevailing market conditions, interest rates, credit conditions, and other factors, and may be at a discount from the original purchase price.
Subordination May Be Insufficient. The credit enhancement for the Class A Notes includes the subordination of the Class B Notes and the Residual Interest, overcollateralization, the Reserve Account, and excess spread. The credit enhancement for the Class B Notes includes the subordination of the Residual Interest, overcollateralization, the Reserve Account, and excess spread. However, there can be no assurance that the available credit enhancement will be sufficient to protect the Noteholders against losses on the receivables. If cumulative net losses on the receivables exceed the levels of credit enhancement available, Noteholders may experience shortfalls in the payment of interest and/or principal.
Rating Agency Actions. The expected ratings assigned to the Notes are preliminary in nature and reflect the preliminary assessment of each rating agency based on the information available as of the date hereof. The expected ratings are not final and are subject to change prior to the closing date. Following the closing date, the ratings assigned to the Notes may be revised, suspended, or withdrawn at any time by the assigning rating organization if, in such organization's judgment, circumstances so warrant. A downgrade, suspension, or withdrawal of a rating could adversely affect the market value of the Notes and the ability of Noteholders to sell the Notes in the secondary market. Ratings do not address the likelihood of timely receipt of principal or the market value of the Notes. A rating is not a recommendation to purchase, hold, or sell the Notes.
Interest-Rate Risk. Changes in prevailing interest rates may adversely affect the market value of the Notes. If prevailing interest rates rise, the market value of the Notes may decline. In addition, if the Notes bear a floating rate of interest, the amount of interest paid to Noteholders may fluctuate with changes in the applicable benchmark rate, and any decrease in the benchmark rate could reduce the interest income received by Noteholders.
Early-Amortization Triggers. The transaction documents contain certain early-amortization events, the occurrence of which may result in the acceleration of principal payments on the Notes and a modification of the payment waterfall. Upon the occurrence of an early-amortization event, the expected weighted average life of the Notes may be shortened, and the amount of interest received by Noteholders over the life of the transaction may be reduced.
Risks Related to the Structure
True-Sale and Non-Consolidation Risk. The transfer of the receivables from SBF to SkyLend Funding LLC under the Receivables Purchase Agreement and the subsequent transfer from SkyLend Funding LLC to the Trust under the Sale and Servicing Agreement are each intended to constitute a "true sale" of the receivables and not a secured financing. If a court were to determine that either transfer did not constitute a true sale, and instead characterized the transfer as a secured financing, the receivables could be treated as property of SBF's or the Depositor's bankruptcy estate, and the Trust's interest in the receivables could be subject to the claims of SBF's or the Depositor's creditors, the automatic stay in bankruptcy, and other limitations. Similarly, if a court were to disregard the separate legal existence of the Depositor or the Trust and substantively consolidate their assets and liabilities with those of SBF, the Trust's assets could become available to satisfy the claims of SBF's creditors. Calderwood & Harkness LLP will deliver customary true-sale and non-consolidation opinions at closing, subject to customary assumptions, qualifications, and limitations. There can be no assurance that a court would accept the conclusions expressed in such opinions.
Commingling Risk. Prior to their remittance to the Collection Account, collections on the receivables may be temporarily held in accounts maintained by Clearview in its capacity as sub-servicer. If Clearview were to become insolvent during any period in which collections had not yet been remitted to the Collection Account, such collections could be at risk of commingling with Clearview's own funds and could be subject to claims by Clearview's creditors.
Bankruptcy Remoteness of Trust and Depositor. The Trust and the Depositor are each structured as limited-purpose entities with separateness covenants and other structural features designed to minimize the risk of a voluntary or involuntary bankruptcy filing. However, there can be no assurance that a bankruptcy court would enforce such provisions or that the Trust or the Depositor would not be drawn into a bankruptcy proceeding involving SBF or any of its affiliates.
Tax Treatment. The Trust is intended to be classified as a grantor trust under Subpart E of Subchapter J of the Internal Revenue Code of 1986, as amended. If the Internal Revenue Service or a court were to determine that the Trust should be classified as a partnership or a taxable entity rather than as a grantor trust, the tax consequences to Noteholders could differ materially from those described under "Material Federal Income Tax Considerations" herein.
Governing Law. The transaction documents are governed by the laws of the State of New York, and the creation and perfection of security interests in the receivables are governed by Article 9 of the Uniform Commercial Code as in effect in the applicable states. The enforceability of the Trust's and the Indenture Trustee's interests in the receivables may depend on compliance with the applicable provisions of the UCC.
Risks Related to Legal and Regulatory Matters
Federal and State Consumer Lending Laws. The receivables are consumer installment loans subject to extensive federal and state regulation. Failure by SBF to comply with applicable consumer lending laws in the origination of the receivables could give rise to obligor defenses, counterclaims, or rights of rescission that could reduce or eliminate the Trust's ability to collect on such receivables. In addition, changes in federal or state consumer lending laws or regulations could impose additional obligations on the Servicer or Sub-Servicer with respect to the servicing of the receivables, potentially increasing servicing costs and affecting the performance of the pool.
SEC and Securities-Law Considerations. The Notes are being offered and sold in reliance on exemptions from registration under the Securities Act. Any failure to maintain compliance with the conditions of such exemptions could expose the Trust, the Depositor, the Sponsor, or the Initial Purchaser to liability under the federal securities laws. In addition, the SEC may adopt new rules or regulations, or modify existing rules or regulations, that affect the structuring, disclosure, or offering of asset-backed securities.
Dodd-Frank Risk-Retention Requirements. Section 15G of the Securities Exchange Act of 1934 and the rules adopted thereunder require sponsors of securitization transactions to retain not less than 5% of the credit risk of the assets being securitized, subject to certain exceptions and conditions. SBF, as the sponsor of the transaction, intends to comply with the risk-retention requirements by retaining the Residual Interest, which represents at least 5% of the fair value of all ABS interests issued by the Trust. There can be no assurance that SBF's retention of the Residual Interest will satisfy the risk-retention requirements in all respects or that the risk-retention rules will not be modified in a manner that requires additional retention or different compliance measures.
THE SPONSOR — SKYBRIDGE FINTECH LTD.
Overview
Skybridge Fintech Ltd. ("SBF" or the "Sponsor") is a Delaware corporation (EIN: 84-3291076) headquartered at 1400 Market Street, Suite 1210, Wilmington, DE 19801. SBF's registered agent is Cascade Systems, located at 160 Greentree Drive, Suite 101, Dover, DE 19904.
SBF operates the SkyLend direct-to-consumer digital lending platform, through which it originates unsecured consumer installment loans to borrowers throughout the United States. Loans originated through the SkyLend platform range from $1,000 to $25,000 in principal amount and have original terms of 12 to 60 months. The SkyLend platform provides a fully digital application experience, offering borrowers the ability to apply for, receive approval for, and accept loan proceeds through an online and mobile interface.
The SkyLend platform was launched approximately in 2019. Since its inception, SBF has grown its origination volume significantly, and in fiscal year 2023 originated approximately $1.4 billion in consumer loans. As of December 31, 2023, SBF had approximately 312,000 active borrowers across its portfolio.
SBF acts as the originator and master servicer of the receivables in the pool and as the administrator of the Trust. SBF has engaged Clearview Loan Servicing, Inc. as sub-servicer to perform the day-to-day servicing functions with respect to the receivables. SBF retains overall oversight and administrative responsibility for the servicing of the receivables.
Management
The following individuals serve as the senior officers of SBF:
Arun Mehta — Chief Executive Officer and Co-Founder. Mr. Mehta co-founded SBF and has served as its Chief Executive Officer since the company's inception. Prior to founding SBF, Mr. Mehta held senior roles at several financial technology companies and financial institutions. Mr. Mehta is responsible for overall strategic direction, business development, and corporate governance of SBF.
Danielle Prescott — Chief Financial Officer. Ms. Prescott joined SBF as Chief Financial Officer and is responsible for SBF's financial planning, accounting, capital markets activities, and treasury functions. Ms. Prescott also serves as the Manager of SkyLend Funding LLC, the Depositor. Ms. Prescott oversees SBF's securitization and warehouse lending programs.
Tomás Reyes — General Counsel. Mr. Reyes serves as SBF's General Counsel and is responsible for all legal, compliance, and regulatory matters affecting the company. Mr. Reyes oversees SBF's licensing and regulatory compliance program, including compliance with applicable consumer lending laws and regulations.
Equity Ownership
Pinnacle Growth Equity Partners, LP ("Pinnacle"), a Delaware limited partnership with its principal office at 399 Park Avenue, 28th Floor, New York, NY 10022, is the largest equity holder of SBF. Pinnacle's Managing Partner is Catherine Drexler. Pinnacle invested $95 million as the lead investor in SBF's Series C equity financing round in 2021 and currently owns 62.4% of SBF's fully diluted equity. Pinnacle has a representative on SBF's Board of Directors: Marcus Yoon, a Principal at Pinnacle.
The remaining equity of SBF is held by the company's founders, management team, and other earlier-stage investors. No other single investor holds more than 10% of SBF's fully diluted equity.
Selected Financial Information (FY 2023)
The following selected financial information for SBF is derived from SBF's audited financial statements for the fiscal year ended December 31, 2023, which were audited by Rowland & Cross LLP. This summary is qualified in its entirety by reference to SBF's complete financial statements, which are not included in this Offering Memorandum.
SBF's revenues are derived primarily from interest income earned on its loan portfolio, origination fees, and platform service fees. SBF's total gross receivables portfolio reflects all outstanding consumer loans on SBF's balance sheet as of December 31, 2023, prior to deductions for the allowance for credit losses. The allowance for credit losses reflects SBF management's estimate of expected credit losses in the portfolio under the current expected credit loss ("CECL") methodology and was $35.1 million as of December 31, 2023.
Origination Process and Underwriting Guidelines
Digital Origination Platform. SBF originates consumer loans exclusively through the SkyLend digital lending platform. Prospective borrowers access the SkyLend platform through SBF's website or mobile application. The application process is designed to provide a streamlined, fully digital experience, allowing borrowers to complete the application, receive a credit decision, and, upon approval, accept loan proceeds electronically.
Application Process. The origination process begins with the prospective borrower submitting a loan application through the SkyLend platform. The application requires the prospective borrower to provide personal identifying information, income and employment information, the requested loan amount, and the intended loan purpose. Upon submission, SBF's systems perform automated identity verification checks using third-party identity verification services, including cross-referencing the applicant's information against public records, credit bureau databases, and other data sources. SBF also conducts automated fraud screening, including device fingerprinting, IP address analysis, and velocity checks, to detect and prevent fraudulent applications.
Credit Decisioning. SBF employs a multi-factor credit decisioning process that combines traditional FICO-based credit scoring with proprietary machine-learning models. Upon receipt of a completed application, SBF obtains a credit report and FICO score for the applicant from one or more of the three major consumer credit bureaus. SBF's proprietary models analyze a broad array of data inputs, including the applicant's credit history, current indebtedness, payment patterns, income and employment information, and other factors, to generate a risk assessment for the prospective borrower. Based on this assessment, SBF determines whether to approve or decline the application and, if approved, the loan terms to be offered to the borrower.
Underwriting Criteria. SBF's underwriting guidelines establish minimum criteria for loan approval. Key underwriting criteria include, but are not limited to:
• Minimum FICO Score: A minimum FICO score at origination of 620 is required for all loans.
• Debt-to-Income Ratio: SBF evaluates the applicant's debt-to-income ratio, taking into account the applicant's existing debt obligations and the proposed new loan payment. SBF generally requires a debt-to-income ratio not exceeding 40%, although exceptions may be made in limited circumstances based on the applicant's overall credit profile.
• Employment and Income Verification: SBF verifies the applicant's employment status and income through electronic income verification tools, pay stubs, tax returns, or bank statements. SBF may also use third-party data aggregators to validate income information provided by the applicant.
• Loan Amount and Term: Loans are originated in amounts ranging from $1,000 to $25,000, with original terms of 12 to 60 months.
• Residency: The applicant must be a resident of a state in which SBF is licensed to originate loans.
Loan Pricing and APR Determination. Loan pricing is determined on a risk-adjusted basis, with interest rates reflecting the credit risk profile of the individual borrower. SBF's pricing models take into account the borrower's FICO score, debt-to-income ratio, loan term, and other risk factors. The annual percentage rate ("APR") offered to the borrower includes the stated interest rate on the loan and any applicable origination fee. APRs on loans originated by SBF through the SkyLend platform generally range from 7.99% to 29.99%, depending on the borrower's credit profile and loan characteristics.
Regulatory Compliance. SBF holds state lending licenses in all states in which it originates loans and operates in compliance with applicable federal and state consumer lending laws and regulations. SBF's compliance program is overseen by its General Counsel, Tomás Reyes, and includes policies and procedures designed to ensure compliance with the Truth in Lending Act ("TILA") and Regulation Z, the Equal Credit Opportunity Act ("ECOA") and Regulation B, the Fair Credit Reporting Act ("FCRA"), the Electronic Signatures in Global and National Commerce Act ("E-SIGN"), applicable state usury and licensing laws, and other relevant consumer protection regulations. SBF provides borrowers with all required disclosures in connection with the origination of each loan, including TILA disclosures, adverse action notices (where applicable), and privacy notices.
THE DEPOSITOR — SKYLEND FUNDING LLC
SkyLend Funding LLC (the "Depositor") is a Delaware limited liability company formed on January 30, 2024, for the sole purpose of purchasing receivables from SBF and transferring such receivables to the Trust or other special-purpose entities in connection with securitization transactions. The Depositor's employer identification number is 93-4187620. The Depositor's registered office is located at 1400 Market Street, Suite 1210, Wilmington, DE 19801.
The Depositor is a single-member limited liability company. Its sole member is Skybridge Fintech Ltd. The Manager of the Depositor is Danielle Prescott, Chief Financial Officer of SBF.
The Depositor serves as an intermediate entity between SBF and the Trust. In connection with the offering described in this Offering Memorandum, the Depositor will purchase the receivables from SBF under the Receivables Purchase Agreement and will transfer such receivables to the Trust under the Sale and Servicing Agreement. Each such transfer is intended to constitute a true sale of the receivables and not a secured financing.
The Depositor is a limited-purpose entity organized solely for the purpose of engaging in activities related to the securitization of receivables. The Depositor's limited liability company agreement contains separateness covenants and bankruptcy-remoteness provisions designed to minimize the risk that the Depositor would become subject to voluntary or involuntary bankruptcy proceedings or that its assets and liabilities would be substantively consolidated with those of SBF or any of its affiliates. Among other things, the Depositor's limited liability company agreement requires the Depositor to (i) maintain its own separate books and records and bank accounts, (ii) not commingle its assets with those of SBF or any other entity, (iii) conduct its business in its own name and hold itself out as a separate entity, (iv) pay its own liabilities and expenses from its own funds, (v) observe all limited liability company formalities, (vi) maintain adequate capitalization, and (vii) appoint at least one independent director whose consent is required for the filing of a voluntary bankruptcy petition. The independent director requirement is a key structural feature designed to enhance the Depositor's bankruptcy remoteness.
The Depositor has no significant assets other than the receivables purchased from SBF in connection with the offering and the related rights and interests arising under the transaction documents. The Depositor has not previously been involved in any securitization transaction.
THE ISSUING ENTITY — SKYLEND RECEIVABLES TRUST 2024-1
SkyLend Receivables Trust 2024-1 (the "Trust" or the "Issuer") is a Delaware statutory trust formed on February 14, 2024, pursuant to a trust agreement (the "Trust Agreement") between SkyLend Funding LLC, as depositor, and Keymark Trust Company, National Association ("Keymark"), as owner trustee. The Trust's employer identification number is 93-4201855.
The Trust was formed for the sole purpose of (i) acquiring the receivables and the related property from the Depositor, (ii) issuing the Notes and the Residual Interest, (iii) making payments on the Notes and the Residual Interest in accordance with the terms of the Indenture and the Trust Agreement, and (iv) engaging in activities incidental or related to the foregoing. The Trust has no assets other than the receivables, the related property, and amounts on deposit in the Collection Account, the Reserve Account, and any other Trust accounts established pursuant to the Indenture and the Trust Agreement.
The Trust is a limited-purpose entity subject to separateness covenants set forth in the Trust Agreement. Among other things, the Trust Agreement provides that the Trust will (i) not engage in any business or activity unrelated to the foregoing purposes, (ii) maintain its own separate books and records, (iii) not commingle its assets with those of any other entity, and (iv) observe all statutory trust formalities.
Owner Trustee. Keymark Trust Company, National Association serves as the owner trustee of the Trust under the Trust Agreement. Keymark's principal office is located at 600 North King Street, Wilmington, DE 19801. The Trust Officer responsible for the Trust is Elaine Marchetti. Keymark's annual fee for serving as owner trustee of the Trust is $7,500.
Keymark's duties and responsibilities as owner trustee are limited to those expressly set forth in the Trust Agreement. Keymark acts in a fiduciary capacity solely for the benefit of the certificateholder (the holder of the Residual Interest) and has no fiduciary duty to the Noteholders. Keymark has not independently verified any of the information contained in this Offering Memorandum and makes no representation or warranty as to the accuracy or completeness of such information.
THE SERVICER AND SUB-SERVICER
Skybridge Fintech Ltd. as Servicer
Skybridge Fintech Ltd. ("SBF") will act as the master servicer of the receivables under the terms of the Sale and Servicing Agreement (the "SSA") to be entered into among SkyLend Funding LLC (as depositor), SkyLend Receivables Trust 2024-1 (as issuer), SBF (as servicer), and Clearview Loan Servicing, Inc. (as sub-servicer) on or prior to the closing date. As master servicer, SBF will have overall oversight and administrative responsibility for the servicing and administration of the receivables, including supervision of the sub-servicer, communication with the Indenture Trustee, and delivery of compliance certifications and reporting required under the SSA.
SBF's responsibilities as master servicer include, but are not limited to, (i) oversight and monitoring of Clearview's performance of its sub-servicing obligations, (ii) coordination of reporting to the Indenture Trustee, the rating agencies, and the certificateholder, (iii) delivery of servicer compliance certifications to the Indenture Trustee on an annual basis, (iv) ensuring that collections are remitted to the Collection Account in accordance with the terms of the SSA, and (v) administration of the Trust's accounts as described under "The Administration Agreement" herein.
Clearview Loan Servicing, Inc. as Sub-Servicer
Clearview Loan Servicing, Inc. ("Clearview") is an Ohio corporation engaged in the business of servicing consumer and commercial loan portfolios. Clearview's principal office is located at 8800 Brecksville Road, Suite 300, Cleveland, OH 44141. Clearview's Chief Executive Officer is Warren Pettigrew, and its VP Operations and deal contact for this transaction is Meredith Sloane. Clearview's servicing account number for SBF receivables is CLS-SBF-2022-0041.
Clearview has served as the sub-servicer for SBF's securitized and warehouse portfolios since the third quarter of 2022 and had approximately $640 million in SBF receivables under management as of December 31, 2023. Clearview's sub-servicing relationship with SBF is governed by the Master Servicing Agreement dated October 1, 2022 (the "Master Servicing Agreement"), as amended by Amendment No. 1 thereto, executed on March 18, 2024, which adapts certain servicing obligations for the Trust.
Servicing Fee. Clearview is entitled to a servicing fee equal to 0.50% per annum of the outstanding pool balance, calculated on each Payment Date based on the outstanding pool balance as of the last day of the related collection period. The estimated first-year servicing fee, based on the initial pool balance of $200,000,000, is approximately $1,000,000.
Servicing Functions. Clearview's servicing responsibilities include the following:
• Collection of Payments. Clearview is responsible for the collection of all payments from obligors on the receivables, including scheduled monthly payments, prepayments, and late fees. Clearview processes payments received via automated clearing house ("ACH") debit, online payments through the SkyLend borrower portal, and telephone payments.
• Application of Payments. Clearview applies payments received from obligors in accordance with the payment-application waterfall set forth in Section 4.03 of the Master Servicing Agreement. Under this waterfall, payments are applied in the following order of priority: (1) accrued interest, (2) fees (including late charges), and (3) outstanding principal balance.
• Delinquency Management. Clearview performs delinquency management and collection activities with respect to delinquent receivables, including automated payment reminders, outbound telephone calls, email and text message communications, and, where appropriate, referral of accounts to third-party collection agencies.
• Loss Mitigation. Clearview employs loss mitigation strategies designed to maximize recoveries on delinquent and defaulted receivables, which may include hardship programs, payment deferral arrangements, and settlement negotiations with obligors.
• Monthly Reporting. Clearview prepares and delivers monthly servicer reports (each, a "Monthly Servicer Report") to the Indenture Trustee, the rating agencies, and the certificateholder. Each Monthly Servicer Report is required to be delivered within 15 business days following the end of each collection period and contains information regarding collections, delinquencies, defaults, losses, recoveries, and other pool performance metrics.
• Static-Pool Data Compilation. Clearview compiles and provides static-pool data based on its servicing records, which data is used in connection with the offering of the Notes as described under "Static-Pool Data and Historical Performance" herein.
System Platform. Clearview processes all servicing functions through its proprietary loan servicing system. In June 2023, Clearview completed a migration from its legacy "LoanTrax" system to a new, internally developed system known as "ClearCore." The ClearCore platform is designed to provide enhanced functionality for payment processing, portfolio management, reporting, and investor administration. The migration to ClearCore involved the transfer of all loan-level data, payment histories, and borrower records from the LoanTrax system to the new platform. See "Risk Factors—Risks Related to the Sponsor and Servicer—System Migration Risk" for a discussion of risks associated with this system migration.
Servicing Procedures
Collection Methodologies. Clearview utilizes multiple collection channels to facilitate the collection of payments from obligors on the receivables. The primary payment method is ACH debit, whereby borrowers authorize Clearview to initiate monthly ACH debit transactions from their designated bank accounts. Borrowers may also make payments through the SkyLend borrower portal via their bank account or debit card or by contacting Clearview's customer service center by telephone. Clearview does not accept payments by physical check or money order.
Delinquency Management and Cure Procedures. Clearview's delinquency management process is designed to identify delinquent accounts at an early stage and to implement appropriate collection strategies to maximize the likelihood of cure. Clearview's delinquency management process includes the following stages:
• 1–15 Days Past Due: Automated payment reminders are sent to the borrower via email and text message. If the scheduled ACH debit is returned for insufficient funds, Clearview will attempt a re-presentment within 3 business days.
• 16–30 Days Past Due: Outbound telephone calls are initiated by Clearview's collections team. Borrowers are contacted to discuss payment arrangements and to identify potential hardship situations.
• 31–60 Days Past Due: Increased frequency of outbound collection calls. Borrowers may be offered hardship programs, including temporary payment deferrals or reduced payment plans, subject to SBF's approval. Late fees may be assessed in accordance with the terms of the applicable loan agreement and applicable state law.
• 61–90 Days Past Due: Accounts are escalated to senior collection specialists. Demand letters are issued. Borrowers are offered settlement options where appropriate.
• 91–120 Days Past Due: Accounts are reviewed for potential charge-off. Third-party collection agencies may be engaged.
Charge-Off Policy. Receivables are charged off at 120 days delinquent, or earlier if the borrower files for bankruptcy protection. Upon charge-off, the outstanding principal balance of the receivable is recognized as a loss for purposes of the Trust's accounting and reporting. Recovery efforts continue following charge-off, and any amounts recovered are applied as recoveries and reduce cumulative net losses.
Reporting. Monthly Servicer Reports are delivered by Clearview to the Indenture Trustee, the rating agencies, and the certificateholder within 15 business days following the end of each collection period. Each Monthly Servicer Report includes, among other things, a summary of collections received during the collection period, the outstanding pool balance as of the end of the collection period, delinquency and default statistics, loss and recovery data, and the payment waterfall allocation for the related Payment Date.
Servicer Termination Events
The SSA and the Master Servicing Agreement set forth certain events that constitute servicer termination events, including but not limited to:
• Failure by the Servicer or Sub-Servicer to make any required deposit or remittance to the Collection Account within the time period specified in the SSA or Master Servicing Agreement;
• Material breach by the Servicer or Sub-Servicer of any representation, warranty, or covenant contained in the SSA or Master Servicing Agreement that is not cured within 30 days after notice thereof from the Indenture Trustee or the required percentage of Noteholders;
• The occurrence of an insolvency event with respect to the Servicer, the Sub-Servicer, or the Sponsor, including the filing of a voluntary or involuntary petition in bankruptcy, the appointment of a receiver or conservator, or the making of an assignment for the benefit of creditors; and
• Failure by the Servicer or Sub-Servicer to deliver Monthly Servicer Reports within the required time period, which failure continues for 5 business days after notice thereof.
Upon the occurrence of a servicer termination event that is not cured within the applicable cure period, the Indenture Trustee, at the direction of the holders of a majority of the outstanding principal amount of the Class A Notes (or, if the Class A Notes have been paid in full, the Class B Notes), may terminate the Servicer's and/or the Sub-Servicer's rights and obligations under the SSA and the Master Servicing Agreement and appoint a successor servicer. The successor servicer must be an institution that meets certain eligibility requirements set forth in the SSA and that is willing and able to assume the servicing obligations on commercially reasonable terms.
THE RECEIVABLES POOL
Pool Selection and Eligibility Criteria
The receivables included in the pool were originated by SBF through the SkyLend platform and have been selected from SBF's portfolio of unsecured consumer installment loans. The receivables in the pool were identified as of the cut-off date of March 31, 2024.
To be included in the pool, each receivable must satisfy the following eligibility criteria as of the cut-off date (each, an "Eligible Receivable"):
(a) The receivable is a fully executed unsecured consumer installment loan originated by SBF through the SkyLend platform;
(b) The outstanding principal balance of the receivable does not exceed $25,000 and is not less than $1,000;
(c) The receivable has an original term of not less than 12 months and not greater than 60 months;
(d) The receivable is not more than 30 days past due as of the cut-off date, based on servicer records maintained by Clearview;
(e) The obligor on the receivable had a FICO score of at least 620 at the time of origination;
(f) The receivable is governed by the laws of a state of the United States;
(g) No single obligor's aggregate receivables included in the pool may exceed 0.15% of the aggregate pool balance ($300,000);
(h) No single state may account for more than 20% of the aggregate pool balance;
(i) The receivable has been originated in compliance with SBF's underwriting guidelines and applicable federal and state consumer lending laws and regulations;
(j) The receivable has not been modified, waived, or amended in any material respect since origination, except as permitted under SBF's standard hardship or loss mitigation policies;
(k) The receivable is a valid and enforceable obligation of the obligor, subject to applicable bankruptcy, insolvency, and equitable principles;
(l) All required TILA, ECOA, FCRA, and other consumer protection disclosures have been made to the obligor in connection with the origination of the receivable; and
(m) The receivable is not subject to any right of rescission, setoff, counterclaim, or defense that would materially impair the collectibility of such receivable, based on SBF's records and the ordinary course of its business.
The aggregate outstanding principal balance of all receivables originated by SBF that initially met the eligibility criteria was approximately $213,750,000 (gross). Following the application of the eligibility screening process, including concentration limits and other criteria, the final pool was cut to $200,000,000 in aggregate outstanding principal balance.
Pool Statistics (as of Cut-Off Date: March 31, 2024)
The following table summarizes the key statistical characteristics of the receivables pool as of the cut-off date:
The weighted average original term is estimated based on the weighted average remaining term of 38.4 months and estimated weighted average seasoning. The actual weighted average original term, weighted average seasoning, and other characteristics of the final pool will be determined as of the cut-off date and will be set forth in the final offering memorandum.
Pool Composition Tables
The following tables set forth the distribution of the receivables in the pool by various characteristics. The data is presented as of the cut-off date of March 31, 2024. All tables are preliminary and based on information available as of the date of this Offering Memorandum. Final pool composition tables will be included in the final offering memorandum and in Appendix A hereto.
Distributio