Team,
You've all seen the spread-widening analysis memo I circulated yesterday (Matter No. 1025-00007). I want to bring you up to speed on where things stand as of this afternoon and lay out next steps so we can move efficiently once the client makes it official.
**Current Status**
I spoke with Nolan Whitford and Sandra Ling-Hwang this afternoon. Priya Raghavan has already briefed the QIH Board, and they are expected to formally approve shelving the transaction by early next week. This is not yet final, but it is highly likely. We should proceed on the assumption that the $500 million QRF 2022-1 notes offering will be suspended.
**The Economics Problem**
To recap what drove us here: the indicative pricing we received from Ridgeline Capital Markets on November 2, at the conclusion of the virtual investor roadshow, came in materially wider than initial guidance across all tranches:
- **Class A Notes ($375M):** SOFR + 168 bps (vs. initial guidance of SOFR + 125 bps) - **Class B Notes ($75M):** SOFR + 285 bps (vs. initial guidance of SOFR + 210 bps) - **Class C Notes ($35M):** SOFR + 450 bps (vs. initial guidance of SOFR + 375 bps)
The implied all-in weighted average cost comes to approximately SOFR + 200 bps — (75% × 168) + (15% × 285) + (7% × 450) = ~200.25 bps. QIH's Board-approved cost-of-funds hurdle is SOFR + 175 bps. The indicative pricing exceeds that by roughly 25 bps, and Quorum simply cannot make the economics work at these levels.
For context, when we launched this deal in June, comparable AAA insurance premium finance ABS was trading at SOFR + 95–110 bps. By early November, comparable spreads had widened to SOFR + 160–175 bps. The broader market dislocation has made the transaction uneconomic for the client — full stop.
**Sunk Costs**
I want to acknowledge the significant costs already incurred. These are real numbers:
- Calderwood & Harkness accrued fees through the anticipated shelving: ~$1,950,000 (against the original estimate of $2,800,000 for the full transaction) - Rating agency fees (Brindoval Ratings and Pinnacle Rating Services combined): ~$420,000 - Other structuring and diligence costs (Veristead Analytics verification, Fortbridge independent manager setup, etc.): ~$185,000 - **Total sunk costs: ~$2,555,000**
Nolan indicated the Board is aware of these figures and views them as the cost of maintaining optionality to relaunch when market conditions improve. That's a reasonable and mature posture from the client.
**Action Items**
I need each of you to take ownership of the following:
**Francesca —**
1. Prepare interim billing through November 2022; target submission by the December 15 billing cycle. 2. Code the matter as dormant in our system once shelving is formally confirmed. 3. Coordinate with Nolan Whitford's office on any fee arrangement or deferral discussions if QIH raises them. I don't expect they will, but let's be prepared.
**Yuki —**
1. Draft a formal letter from me to the QIH Board (addressed to Marcus Devereaux as CEO, with copies to Priya Raghavan and Nolan Whitford) recommending shelving and summarizing the spread analysis and sunk costs. I'd like to see a draft for my review by **Thursday, November 10**. 2. Draft a separate notification letter to Ridgeline Capital Markets (attention: Julian Weatherstone) directing them to cease all investor marketing immediately and confirming that the offering is suspended. This should be ready for my review by early next week — we'll target send date once QIH Board confirmation is received. 3. Coordinate with Harrison Collier at Calloway & Brandt to inform them of the suspension. A brief call or email once the client's decision is confirmed will suffice.
**Carlos —**
1. Prepare a comprehensive index of all transaction documents in their current state — execution drafts, draft opinions, UCC filings, certificates, everything — and ensure the document management system reflects current version status. The near-final documentation package dated October 12 should be clearly marked as the most recent iteration. 2. Confirm that no UCC-1 financing statements were filed. All three — QPF/QRH, QRH/QRF 2022-1, and QRF 2022-1/Calvoneth Trust — should remain in draft only. Please verify this affirmatively. 3. Note any steps needed to preserve the SPV entities — QRF 2022-1 (DE SOS File No. 7894231) and QRH (DE SOS File No. 7894228) — so they remain in good standing for potential reactivation. This means annual reports, registered agent maintenance with Ashgrove Services Inc., Delaware franchise tax, etc. Put together a short calendar of what's due and when. 4. Flag the Fortbridge independent manager agreements — Timothy R. Callan for QRF 2022-1 and Eleanor M. Vasquez for QRH. Determine whether these need to be maintained during dormancy or can be suspended to save the client ongoing costs. Come back to me with a recommendation.
**Sylvia —**
1. No further work needed on the draft tax characterization opinion or the true sale opinions at this time. All should be preserved in current draft form (dated October 8–10, 2022). 2. Please note that if the deal relaunches, we will need to refresh the tax structuring memorandum (August 12), FATCA compliance memo (August 18), and state tax nexus analysis (September 1) for any changes in law or IRS guidance in the interim. No action required now — just flagging for your awareness.
**Preserving Optionality**
I want to be clear: QIH's intent is to relaunch when spreads normalize. This is a market-driven shelving, not a structural or credit concern. The underlying collateral remains strong — QPF's receivables portfolio (~$2.1 billion total) continues to perform well, with the historical three-year average net loss rate at just 0.42% and delinquencies manageable at 0.87% (60+ days) as of the June 30 cut-off.
The preliminary ratings from both Brindoval (AAA(cr)/A(cr)/BBB(cr)) and Pinnacle (Aaa(p)/A1(p)/Baa2(p)) should remain valid for a reasonable period, though we will need to confirm reaffirmation requirements with both agencies (Andrew Petrosian at Brindoval, Monica Sung at Pinnacle) before any relaunch.
On the documentation side, the Indenture (v4), Note Purchase Agreement (v3), Sale/Transfer Agreements (v3), Servicing Agreement (v3), and all ancillary documents are in near-final form. A relaunch would require only limited updating — new closing date, refreshed pool data, any intervening legal developments. We're in good shape.
**Final Thoughts**
I know this is a disappointing outcome after five months of intensive work. But the team should take real pride in the quality of the documentation and structure we've built. It positions QIH well for a clean relaunch, and they know it — Nolan said as much on the call today.
Please keep your calendars flexible this week in case Nolan or Sandra want to do a wrap-up call. If you have any questions or concerns, come to me directly.
Thanks, all.
Doug