Doug,
Thank you — and please extend my thanks to Francesca, Yuki, and the broader Calderwood & Harkness team — for the considerable effort you have put into this transaction over the past several months.
I am writing to confirm that the QIH Board of Directors met earlier today and, after reviewing your spread-widening analysis memo (dated November 7) and Calderwood & Harkness's recommendation letter to the Board (dated November 10), has formally authorized the decision to shelve the $500,000,000 Quorum Receivables Funding 2022-1 LLC notes offering, effective immediately.
**Rationale**
As you know, the indicative pricing received on November 2 from the roadshow — Class A at SOFR + 168 bps, Class B at SOFR + 285 bps, Class C at SOFR + 450 bps — yields an all-in weighted average cost of approximately SOFR + 200 bps. That materially exceeds the Board-approved cost-of-funds hurdle of SOFR + 175 bps by roughly 25 basis points. Market conditions have deteriorated significantly since we launched this deal in the summer, when comparable AAA insurance premium ABS was trading in the SOFR + 95–110 bps range. The Board's consensus view is that proceeding at current spreads is not economically viable and would be value-destructive for QIH and its shareholders. I share that assessment.
**Next Steps — Action Items for Calderwood & Harkness**
I would appreciate your team's assistance on the following:
1. **Formal Notification to Ridgeline Capital Markets.** Please prepare and send, on behalf of QIH, a formal written notification to Ridgeline Capital Markets LLC (attention: Julian Weatherstone) confirming that the offering is suspended effective immediately and that all investor marketing activities must cease. Sandra Ling-Hwang has already spoken informally with Rebecca Tran at Ridgeline to give them a heads-up, but the formal written notification should come from counsel. Please copy Sandra and me on that correspondence.
2. **Documentation Preservation.** All transaction documents should be preserved in their current form for a potential future relaunch when market conditions improve. This includes the Indenture (v4), Receivables Sale Agreement (v3), Receivables Transfer Agreement (v3), Servicing Agreement (v3), Note Purchase Agreement (v3), all ancillary agreements, draft opinions, and the Preliminary Offering Memorandum (v3). Our goal is to keep the deal architecture, SPV entities (QRF 2022-1 and QRH), rating agency relationships, and documentation "shelf-ready" to the extent practicable, so that a relaunch can proceed on an accelerated timeline.
3. **Rating Agency Communications.** I would appreciate your recommendation on whether we need to communicate anything formally to Brindoval Ratings (Andrew Petrosian) or Pinnacle Rating Services (Monica Sung) regarding the preliminary ratings — AAA(cr)/Aaa(p) for Class A, A(cr)/A1(p) for Class B, BBB(cr)/Baa2(p) for Class C. Specifically: Do the agencies need to be formally notified of the suspension, or will the preliminary ratings simply lapse on their own terms? And what would be required to reactivate them — a full re-engagement, updated collateral data, or something more streamlined?
4. **SPV Maintenance.** Please advise on what ongoing maintenance, if any, is needed for QRF 2022-1 LLC (DE SOS File No. 7894231) and QRH LLC (DE SOS File No. 7894228) during the dormancy period. I am thinking of Delaware annual filings, registered agent fees, the independent manager agreements with Fortbridge Corporate Services, and any other requirements to keep these entities in good standing. An estimate of the annual carrying cost would be helpful for our budgeting purposes.
5. **Sunk Costs and Interim Invoice.** The Board was briefed on total sunk costs of approximately $2,555,000, comprising roughly $1,950,000 in accrued Calderwood & Harkness legal fees, approximately $420,000 in rating agency fees (Brindoval and Pinnacle combined), and approximately $185,000 in structuring and diligence costs. Priya Raghavan and her team will handle the financial reporting treatment of these costs on our end. Doug, please have your billing team send us an interim invoice through the shelving date so we can process payment of your accrued fees promptly.
6. **Matter Status.** Please code this matter as dormant rather than closed. The Board's intent is to revisit the transaction when spreads tighten — possibly in Q2 or Q3 2023, depending on how the market develops.
**Closing Thought**
I want to be clear that the Board's decision reflects market conditions, not any dissatisfaction with the work product. The structuring, documentation, and diligence your team delivered were thorough and of very high quality, and the deal is well-positioned for relaunch when the window reopens. Despite the disappointing outcome on timing, I am confident the work product will retain its value and that we will put it to use.
Please feel free to call me or Sandra if you have any questions on the above. We can set up a call later this week to discuss the rating agency and SPV maintenance items in more detail if that would be helpful.
Best regards,
Nolan
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**Nolan Whitford** Executive Vice President & General Counsel Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, CT 06901 D: (203) 554-8100
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