1025-00007 · Quorum Insurance Holdings · Engagement & Administration

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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM

DATE: November 18, 2022

TO: Francesca Morano, Partner (Billing Partner) Yuki Nakamura, Associate (Lead Associate) Carlos Espinoza, Associate (Working Associate) Sylvia Hartwell, Partner (Tax Specialist Partner)

FROM: Douglas Carmichael, Partner (Responsible Partner)

RE: Dormancy Status — Matter No. 1025-00007 Quorum Insurance Holdings Corp. — $500,000,000 Insurance Premium Finance ABS Issuance by Quorum Receivables Funding 2022-1 LLC

MATTER NO.: 1025-00007

1. Purpose of Memorandum

This memorandum documents the formal placement of Matter No. 1025-00007 into dormant status, effective as of the date hereof, November 18, 2022. The purpose of this memorandum is to create a comprehensive internal record for Calderwood & Harkness LLP's matter management system, setting forth the rationale for the dormancy designation, the current status of all work product and documentation, an accounting of sunk costs incurred through the date of shelving, and the specific steps taken and to be taken to preserve optionality for a potential future reactivation of the transaction.

The dormancy designation follows the decision by the Board of Directors of Quorum Insurance Holdings Corp. ("QIH" or the "Client"), communicated to this firm by QIH's General Counsel, Nolan Whitford, on November 14, 2022, to shelve the proposed $500,000,000 asset-backed securitization of insurance premium finance receivables through Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"). The primary driver of the Board's shelving decision was the material widening of ABS credit spreads in the insurance premium finance sector and across the broader structured finance market during the period from the engagement's inception in late June 2022 through early November 2022. This spread widening rendered the transaction economics unworkable relative to QIH's board-approved cost-of-funds hurdle, as discussed in detail in Section 4 below.

This memorandum should be read in conjunction with the Memorandum on Market Conditions and Spread Analysis dated November 7, 2022 (prepared by this firm and circulated internally and to QIH) and the Letter to the QIH Board of Directors dated November 10, 2022 (recommending the shelving of the transaction). Both of those documents are maintained in the matter file and are incorporated herein by reference. This memorandum is intended solely for internal use within Calderwood & Harkness LLP and is protected by the attorney work product doctrine and the attorney-client privilege to the extent applicable.

2. Transaction Summary

The following is a summary of the key terms, parties, and structural features of the proposed transaction as it stood at the time of the shelving decision. This summary is provided for reference purposes and to facilitate any future reactivation analysis.

Client. Quorum Insurance Holdings Corp. (NYSE: QIHC), a Delaware corporation headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. QIH is a diversified insurance holding company with operations in property and casualty insurance, specialty lines, and insurance premium finance. QIH's premium finance subsidiary, Quorum Premium Finance LLC ("QPF"), originates insurance premium finance receivables to commercial and personal lines policyholders across all fifty states and the District of Columbia.

Transaction Type. Asset-backed securities issuance (Structured Finance) — Rule 144A / Regulation S private placement of notes backed by insurance premium finance receivables. The transaction was structured as a two-step true sale securitization, with the receivables being sold by QPF to an intermediate depositor SPV (Quorum Receivables Holding LLC, "QRH") and then transferred by QRH to the Issuer, QRF 2022-1, which would issue the notes secured by the receivables and related assets under an indenture with an indenture trustee.

Issuer. Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company formed as a bankruptcy-remote special purpose vehicle on August 3, 2022 (Delaware Secretary of State File No. 7894231). QRF 2022-1 was formed for the sole purpose of acquiring the receivables from QRH, issuing the notes, and performing related activities. The operating agreement of QRF 2022-1 contains customary separateness covenants and springing member provisions designed to ensure its bankruptcy remoteness.

Originator / Seller / Servicer. Quorum Premium Finance LLC ("QPF"), a wholly owned subsidiary of QIH. QPF was to serve as the originator and initial seller of the receivables and was designated as the initial servicer under the Servicing Agreement, responsible for the collection, administration, and enforcement of the receivables on behalf of the Issuer and the Indenture Trustee.

Depositor / Intermediate SPV. Quorum Receivables Holding LLC ("QRH"), a Delaware limited liability company formed on August 3, 2022 (Delaware Secretary of State File No. 7894228). QRH was structured as the intermediate depositor in the two-step true sale chain, acquiring the receivables from QPF and immediately transferring them to QRF 2022-1. QRH's role is critical to the true sale and non-consolidation analysis supporting the bankruptcy remoteness of the Issuer.

Underlying Assets. Insurance premium finance receivables originated by QPF, consisting of short-term loans made to insurance policyholders to finance the payment of insurance premiums. As of the cut-off date of June 30, 2022, the initial receivables pool had an aggregate outstanding principal balance of approximately $612,000,000, comprising approximately 82,400 individual loans. The receivables have a weighted average remaining term of approximately 7.8 months and a weighted average annual percentage rate of approximately 8.2%, with historically low default and loss rates consistent with the insurance premium finance asset class.

Total Issuance Size. $500,000,000 in aggregate principal amount of notes, structured in three rated classes plus a retained overcollateralization interest.

Capital Structure. The proposed capital structure of the notes was as follows:

The credit enhancement structure included subordination (the Class B and Class C Notes and the overcollateralization amount provide credit enhancement to the Class A Notes), excess spread, a reserve account funded at closing, and structural features including sequential pay and early amortization triggers.

Key Counterparties. The following parties were engaged or designated to serve in the capacities indicated:

• Structuring Agent / Lead Bookrunner: Ridgeline Capital Markets LLC. Principal contacts: Julian Weatherstone (Managing Director, Head of Insurance ABS) and Rebecca Tran (Director, ABS Syndicate). Ridgeline was responsible for structuring the transaction alongside QIH and this firm, preparing investor marketing materials, conducting the investor roadshow, and managing the book-building and pricing process.

• Indenture Trustee / Paying Agent: Calvoneth Trust Company, N.A. Principal contact: Gerald K. Fontaine (Vice President, Structured Finance Trust Services). Calvoneth Trust was designated to serve as the indenture trustee, paying agent, note registrar, and custodian under the Indenture and related agreements.

• Back-Up Servicer / Liquidity Provider: Northvane Bank, N.A. Principal contact: Diane Coletti (Senior Vice President, ABS Operations). Northvane Bank was designated to serve as the back-up servicer under the Back-Up Servicing Agreement and as the liquidity facility provider under the Liquidity Facility Agreement.

• Underwriter's Counsel: Calloway & Brandt LLP. Principal contact: Harrison Collier (Partner). Calloway & Brandt represented Ridgeline Capital Markets in connection with the transaction.

• Trustee's Counsel: Ashfield & Greer LLP. Principal contact: Vivian Sato (Partner). Ashfield & Greer represented Calvoneth Trust Company in connection with the transaction.

• Independent Manager Provider: Fortbridge Corporate Services LLC. Timothy R. Callan was appointed as the independent manager of QRF 2022-1, and Eleanor M. Vasquez was appointed as the independent manager of QRH, in each case pursuant to independent manager agreements executed on August 3, 2022.

• Rating Agencies: Brindoval Ratings Inc., principal contact: Andrew Petrosian (Senior Director, Structured Finance); and Pinnacle Rating Services LLC, principal contact: Monica Sung (Managing Director, ABS Ratings). Both agencies were engaged to provide preliminary and final ratings on the Class A, Class B, and Class C Notes.

• Auditor: Meridian Ledger LLP. Principal contact: Robert Falcone (Partner, Audit). Meridian Ledger serves as QIH's independent auditor and was engaged to provide a comfort letter in connection with the Offering Memorandum.

• Verification Agent: Veristead Analytics LLC. Principal contact: Katharine Drummond (Senior Managing Director). Veristead was engaged to perform tape reconciliation, pool stratification analysis, and data integrity verification on the receivables pool.

Governing Law. New York law governs the Indenture, the Note Purchase Agreement, the Servicing Agreement, the Back-Up Servicing Agreement, the Liquidity Facility Agreement, the Account Control Agreement, the Administration Agreement, and the Performance Guaranty. Delaware law governs the LLC Agreements and the formation documents of QRF 2022-1 and QRH. The Receivables Sale Agreement and Receivables Transfer Agreement are governed by New York law, with certain provisions relating to the perfection of security interests governed by the UCC as enacted in Delaware.

3. Timeline of Key Events

The following chronology sets forth the key milestones in the transaction from the opening of the engagement through the date of this memorandum. This timeline is provided for reference purposes and to establish the context for the dormancy designation.

4. Basis for Shelving Decision — Spread Widening Analysis

The decision by the QIH Board of Directors to shelve the transaction was driven by a material deterioration in the pricing environment for asset-backed securities during the period from the transaction's inception in late June 2022 through early November 2022. The following analysis summarizes the key data points underlying the Board's decision.

Market Conditions at Deal Launch. At the time the engagement was opened in late June 2022, comparable AAA-rated insurance premium finance ABS transactions were trading in the secondary market at spreads of approximately SOFR + 95 to SOFR + 110 basis points. This pricing level was consistent with the initial coupon guidance of SOFR + 125 basis points for the Class A Notes, which incorporated a modest new issue concession. The broader ABS market was functioning normally, with stable investor appetite for short-duration, high-credit-quality insurance premium finance receivables.

Market Conditions at Time of Pricing. By early November 2022, comparable AAA-rated insurance premium finance ABS spreads had widened materially to SOFR + 160 to SOFR + 175 basis points. This widening was attributable to a confluence of factors, including rising interest rates, Federal Reserve quantitative tightening, reduced risk appetite among institutional ABS investors, competitive supply from other ABS issuers, and broader macroeconomic uncertainty. The widening was not specific to QIH or to the insurance premium finance asset class but reflected a general repricing of credit risk across the structured finance market.

Indicative Pricing. On November 2, 2022, following the conclusion of the investor roadshow, Ridgeline Capital Markets LLC provided the following indicative pricing to QIH, reflecting actual investor feedback and order book indications:

Weighted Average Cost Analysis. The implied all-in weighted average cost ("WAC") of the notes at the indicative pricing levels was calculated as follows:

Class A contribution: 75.0% × 168 bps = 126.00 bps

Class B contribution: 15.0% × 285 bps = 42.75 bps

Class C contribution: 7.0% × 450 bps = 31.50 bps

Total implied WAC: approximately SOFR + 200.25 bps

Hurdle Rate Comparison. The QIH Board of Directors had established a cost-of-funds hurdle for the transaction, approved at the July 2022 board meeting authorizing the securitization, requiring that the all-in weighted average cost of the notes not exceed SOFR + 175 basis points. At the indicative pricing levels received from Ridgeline, the implied WAC of approximately SOFR + 200.25 basis points exceeded the board-approved hurdle rate by approximately 25.25 basis points, or roughly 14.4% above the maximum permissible cost of funds.

Economic Impact. The excess spread over the hurdle rate, applied to the $500,000,000 aggregate principal amount of the notes, would have resulted in approximately $1,262,500 per annum in additional interest expense relative to the board-approved maximum, significantly eroding the economic benefit of the securitization as compared to QIH's alternative funding sources, including its existing revolving credit facility and warehouse lines.

Conclusion. Based on the foregoing analysis, this firm concurred with the QIH Board's assessment that proceeding with the transaction at the indicative pricing levels would not be in the economic interest of QIH and its shareholders. The detailed analysis supporting this conclusion is set forth in the Memorandum on Market Conditions and Spread Analysis dated November 7, 2022 and the Letter to QIH Board dated November 10, 2022, both of which are maintained in the matter file.

5. Sunk Costs Summary

The total estimated sunk costs associated with the transaction through the date of shelving are approximately $2,555,000. This figure encompasses legal fees accrued by Calderwood & Harkness LLP, rating agency fees incurred with Brindoval Ratings Inc. and Pinnacle Rating Services LLC, and other third-party costs. A breakdown of these costs is set forth below.

5.1 Calderwood & Harkness Legal Fees

Accrued legal fees for services rendered by Calderwood & Harkness LLP through November 2022 total approximately $1,950,000. The original total engagement estimate provided to the Client at the inception of the matter was $2,800,000, which contemplated the completion of the transaction through closing and post-closing deliverables. The accrued fees of $1,950,000 represent approximately 69.6% of the original engagement estimate, reflecting the substantial progress made on the transaction prior to the shelving decision.

A detailed breakdown of accrued fees by phase of work, timekeeper, and billing rate will be set forth in the Interim Fee Statement to be submitted to the Client on December 15, 2022. The Interim Fee Statement will include a comprehensive billing narrative describing the nature and scope of services rendered.

The key categories of work performed by Calderwood & Harkness in connection with this engagement include, without limitation, the following:

(a) Structuring advice and capital structure analysis, including evaluation of alternative structures, credit enhancement levels, waterfall mechanics, and early amortization triggers;

(b) Formation and organization of QRF 2022-1 LLC and QRH LLC as Delaware limited liability companies, including preparation and filing of Certificates of Formation, drafting of LLC Agreements, negotiation and execution of Independent Manager Agreements with Fortbridge Corporate Services LLC, and designation of registered agents;

(c) Drafting, negotiation, and revision of all principal transaction documents, including the Indenture, Receivables Sale Agreement, Receivables Transfer Agreement, Servicing Agreement, Note Purchase Agreement, Liquidity Facility Agreement, Account Control Agreement, Pledge Agreement (Grant of Security Interest), Performance Guaranty, Administration Agreement, Back-Up Servicing Agreement, and Custodian Agreement;

(d) Preparation of eight draft legal opinions: two true sale opinions (QPF-to-QRH transfer and QRH-to-QRF 2022-1 transfer), enforceability opinion (Indenture and Notes), UCC Article 9 security interest perfection opinion, tax characterization opinion (debt treatment of Notes, prepared under the supervision of Sylvia Hartwell), no-registration opinion (Rule 144A / Regulation S), and two Delaware LLC valid formation opinions (QRF 2022-1 and QRH);

(e) Preparation of two draft non-consolidation opinions (QRF 2022-1 and QRH);

(f) Preparation and revision of the Preliminary Offering Memorandum through version 3, including the Issuer Supplement containing pool stratification tables, risk factors, descriptions of the transaction documents, and tax disclosure;

(g) Preparation of regulatory memoranda addressing Regulation AB II compliance, the Volcker Rule, risk retention requirements under the Dodd-Frank Act and related SEC and federal banking agency rules, and state licensing requirements for QPF;

(h) Preparation of tax memoranda addressing federal income tax treatment of the transaction, FATCA compliance, state tax nexus analysis, and review of the tax disclosure in the Offering Memorandum (Sylvia Hartwell);

(i) Preparation of rating agency materials, including legal structure summaries and responses to rating agency legal questions;

(j) Diligence memoranda, including receivables pool diligence, eligibility criteria analysis, insurance carrier counterparty credit review, and servicer operational diligence;

(k) Preparation of draft UCC-1 financing statement filings;

(l) Preparation of the Master Closing Checklist (v4), Conditions Precedent Tracker, draft Closing Certificates, and related closing deliverables;

(m) Preparation of the Memorandum on Market Conditions and Spread Analysis (November 7, 2022) and Letter to QIH Board (November 10, 2022); and

(n) General correspondence, conference calls, and coordination with the Client, Ridgeline, Calloway & Brandt, Ashfield & Greer, Calvoneth Trust, Northvane Bank, Brindoval, Pinnacle, Veristead, Fortbridge, and Meridian Ledger throughout the life of the engagement.

5.2 Rating Agency Fees

Combined accrued fees for Brindoval Ratings Inc. and Pinnacle Rating Services LLC total approximately $420,000. Both agencies were engaged pursuant to their respective standard engagement letters and fee schedules. Both agencies assigned preliminary ratings to the three rated classes of notes, as reflected in Section 2 above, but neither agency had issued final ratings as of the date of the shelving decision.

The preliminary ratings assigned were as follows:

Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812): AAA(cr) (Class A), A(cr) (Class B), BBB(cr) (Class C)

Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347): Aaa(p) (Class A), A1(p) (Class B), Baa2(p) (Class C)

The accrued fees represent engagement fees, analytical fees, and preliminary rating fees incurred through the date of the shelving decision. No final rating fees, surveillance fees, or ongoing monitoring fees have been incurred. The treatment of these accrued fees in the event of a future reactivation is governed by the terms of each agency's engagement letter, which should be reviewed at the time of any reactivation decision.

5.3 Other Costs

Structuring, diligence, and miscellaneous third-party costs accrued through the date of the shelving decision total approximately $185,000. These costs include the following:

(a) Veristead Analytics LLC — fees for tape reconciliation, pool stratification analysis, and data integrity verification on the initial receivables pool;

(b) Ridgeline Capital Markets LLC — structuring advisory fees and out-of-pocket expenses incurred in connection with roadshow preparation, investor presentation materials, and marketing coordination; and

(c) Fortbridge Corporate Services LLC — fees for independent manager services for QRF 2022-1 and QRH, including formation-related services and ongoing availability fees.

The $185,000 figure does not include internal QIH costs (including personnel time, travel expenses, and other overhead) or the fees of counterparty counsel (Calloway & Brandt LLP, representing Ridgeline, and Ashfield & Greer LLP, representing Calvoneth Trust), which fees are borne by their respective clients and are not the responsibility of QIH or Calderwood & Harkness.

Total Sunk Costs Summary:

6. Status of Work Product and Documentation

The following sections provide a comprehensive inventory of all documents, work product, and deliverables associated with the transaction, organized by category and current status. This inventory is intended to serve as a reference for any future reactivation effort and to document the preservation of all materials in the firm's document management system.

6.1 Executed / Filed Documents

The following documents have been executed by the relevant parties and/or filed with the applicable governmental authorities. These documents remain in effect as of the date of this memorandum unless otherwise noted.

(a) Certificate of Formation — QRF 2022-1 LLC, filed with the Delaware Secretary of State on August 3, 2022 (File No. 7894231).

(b) Certificate of Formation — QRH LLC, filed with the Delaware Secretary of State on August 3, 2022 (File No. 7894228).

(c) Limited Liability Company Agreement of QRF 2022-1 LLC, executed as of August 3, 2022, by Quorum Receivables Holding LLC, as sole member.

(d) Limited Liability Company Agreement of QRH LLC, executed as of August 3, 2022, by Quorum Premium Finance LLC, as sole member.

(e) Independent Manager Agreement between QRF 2022-1 LLC and Fortbridge Corporate Services LLC (Timothy R. Callan, Independent Manager), executed as of August 3, 2022.

(f) Independent Manager Agreement between QRH LLC and Fortbridge Corporate Services LLC (Eleanor M. Vasquez, Independent Manager), executed as of August 3, 2022.

(g) Secretary's Certificate of Quorum Insurance Holdings Corp. certifying the resolutions of the Board of Directors authorizing the securitization transaction and the formation of the SPVs, dated July 27, 2022.

(h) Manager's Certificate of Quorum Premium Finance LLC certifying the authorizing resolutions of its manager (QIH), dated July 27, 2022.

6.2 Near-Final / Execution-Ready Drafts (Never Executed)

The following documents were drafted, negotiated, and revised to near-final or execution-ready status but were never executed by the parties due to the shelving of the transaction. These drafts represent the most current versions of each document as of the date of the shelving decision and are maintained in the matter file for use in any future reactivation.

(a) Indenture (v4), between QRF 2022-1 LLC, as Issuer, and Calvoneth Trust Company, N.A., as Indenture Trustee.

(b) Receivables Sale Agreement (v3), between Quorum Premium Finance LLC, as Seller, and Quorum Receivables Holding LLC, as Purchaser.

(c) Receivables Transfer Agreement (v3), between Quorum Receivables Holding LLC, as Transferor, and QRF 2022-1 LLC, as Transferee.

(d) Servicing Agreement (v3), among QRF 2022-1 LLC, Quorum Premium Finance LLC, as Servicer, and Calvoneth Trust Company, N.A., as Indenture Trustee.

(e) Back-Up Servicing Agreement (v2), among QRF 2022-1 LLC, Quorum Premium Finance LLC, as Servicer, Northvane Bank, N.A., as Back-Up Servicer, and Calvoneth Trust Company, N.A., as Indenture Trustee.

(f) Administration Agreement (v2), between QRF 2022-1 LLC and Quorum Insurance Holdings Corp., as Administrator.

(g) Note Purchase Agreement (v3), among QRF 2022-1 LLC, as Issuer, Quorum Insurance Holdings Corp., and Ridgeline Capital Markets LLC, as Initial Purchaser.

(h) Liquidity Facility Agreement (v2), between QRF 2022-1 LLC and Northvane Bank, N.A., as Liquidity Provider.

(i) Account Control Agreement (v2), between QRF 2022-1 LLC and Calvoneth Trust Company, N.A., as Securities Intermediary and Indenture Trustee.

(j) Custodian Agreement (draft), between QRF 2022-1 LLC and Calvoneth Trust Company, N.A., as Custodian.

(k) Grant of Security Interest / Pledge Agreement (v2), by QRF 2022-1 LLC in favor of Calvoneth Trust Company, N.A., as Indenture Trustee, for the benefit of the Noteholders.

(l) Performance Guaranty (v1), by Quorum Insurance Holdings Corp. in favor of Calvoneth Trust Company, N.A., as Indenture Trustee, guaranteeing certain servicing obligations of QPF.

(m) Preliminary Offering Memorandum (v3), together with Issuer Supplement containing pool stratification tables, historical performance data, and related statistical information.

6.3 Draft Legal Opinions (Never Finalized)

The following draft legal opinions were prepared by Calderwood & Harkness LLP in connection with the transaction. These opinions were drafted in substantially final form but were never finalized, executed, or delivered, as the transaction did not proceed to closing. The opinions remain in draft form and are maintained in the matter file. In the event of a reactivation, each opinion will need to be reviewed, updated, and re-dated to reflect current facts, law, and circumstances.

(a) True Sale Opinion — QPF to QRH Transfer. Draft dated October 8, 2022. Opining that the transfer of receivables from QPF to QRH constitutes a true sale and not a secured financing under applicable law.

(b) True Sale Opinion — QRH to QRF 2022-1 Transfer. Draft dated October 8, 2022. Opining that the transfer of receivables from QRH to QRF 2022-1 constitutes a true sale and not a secured financing under applicable law.

(c) Enforceability of Indenture and Notes. Draft dated October 8, 2022. Opining that the Indenture and the Notes constitute legal, valid, and binding obligations of the Issuer, enforceable in accordance with their terms, subject to customary exceptions and qualifications.

(d) Security Interest Perfection — UCC Article 9. Draft dated October 8, 2022. Opining that the security interest granted by QRF 2022-1 in favor of the Indenture Trustee in the collateral described in the Indenture has been validly created and, upon the filing of UCC-1 financing statements, will be perfected under UCC Article 9 as enacted in the State of Delaware.

(e) Tax Characterization — Debt Treatment of Notes. Draft dated October 10, 2022, prepared under the supervision of Sylvia Hartwell. Opining that, for federal income tax purposes, the Notes will be treated as indebtedness of the Issuer and not as equity interests in the Issuer or as interests in a partnership or other entity.

(f) No Registration Required — Rule 144A / Regulation S. Draft dated October 8, 2022. Opining that the offer and sale of the Notes in accordance with the procedures described in the Note Purchase Agreement and the Offering Memorandum are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended.

(g) Delaware LLC Valid Formation — QRF 2022-1. Draft dated October 8, 2022. Opining that QRF 2022-1 LLC is a limited liability company validly formed and existing under the Delaware Limited Liability Company Act.

(h) Delaware LLC Valid Formation — QRH. Draft dated October 8, 2022. Opining that QRH LLC is a limited liability company validly formed and existing under the Delaware Limited Liability Company Act.

(i) Non-Consolidation Opinion — QRF 2022-1. Draft dated October 5, 2022. Opining that, based on the separateness covenants and organizational features of QRF 2022-1, a court would not, in a properly presented and argued case, order the substantive consolidation of the assets and liabilities of QRF 2022-1 with those of QIH, QPF, or QRH.

(j) Non-Consolidation Opinion — QRH. Draft dated October 5, 2022. Opining that, based on the separateness covenants and organizational features of QRH, a court would not, in a properly presented and argued case, order the substantive consolidation of the assets and liabilities of QRH with those of QIH or QPF.

6.4 UCC Filings (Never Filed)

The following draft UCC-1 financing statements were prepared in connection with the transaction but were never filed with the Delaware Secretary of State, as the transaction did not proceed to closing. The draft filings are maintained in the matter file for use in any future reactivation.

(a) Draft UCC-1 Financing Statement: Quorum Premium Finance LLC (Debtor) / Quorum Receivables Holding LLC (Secured Party) — to be filed with the Delaware Secretary of State, perfecting QRH's interest in the receivables acquired from QPF.

(b) Draft UCC-1 Financing Statement: Quorum Receivables Holding LLC (Debtor) / QRF 2022-1 LLC (Secured Party) — to be filed with the Delaware Secretary of State, perfecting QRF 2022-1's interest in the receivables acquired from QRH.

(c) Draft UCC-1 Financing Statement: QRF 2022-1 LLC (Debtor) / Calvoneth Trust Company, N.A. (Secured Party) — to be filed with the Delaware Secretary of State, perfecting the Indenture Trustee's security interest in the collateral pledged under the Indenture.

6.5 Closing Deliverables (Never Completed)

The following closing deliverables were in various stages of preparation at the time of the shelving decision but were never completed, executed, or delivered.

(a) Master Closing Checklist (v4) — maintained by Calderwood & Harkness, listing all required closing deliverables. All items remain incomplete and unsatisfied as of the date of this memorandum.

(b) Conditions Precedent Tracker — maintained by Calderwood & Harkness, tracking all conditions precedent to the closing of the transaction under the Note Purchase Agreement and the Indenture. All conditions precedent remain marked as unsatisfied.

(c) Draft Closing Certificates — prepared in draft form for execution by authorized officers of QIH, QPF, QRF 2022-1, and Calvoneth Trust Company, certifying as to representations, warranties, and conditions precedent. None of these certificates were executed.

(d) Comfort Letter from Meridian Ledger LLP — to be issued by Meridian Ledger in connection with the financial information included in the Offering Memorandum. The comfort letter was never requested in final form and was never issued.

6.6 Internal Memoranda and Analyses

A complete set of internal Calderwood & Harkness memoranda and analytical work product has been prepared and is maintained in the matter file. These memoranda represent significant institutional knowledge and analytical effort that would be valuable in any future reactivation of the transaction. The internal memoranda on file include, without limitation, the following:

(a) Capital structure alternatives analysis, evaluating various tranche configurations, credit enhancement levels, and pricing scenarios;

(b) Regulatory analysis, addressing Regulation AB II applicability and compliance, Volcker Rule considerations, risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the implementing rules adopted by the SEC and the federal banking agencies, and state licensing requirements applicable to QPF's premium finance lending operations;

(c) Tax memoranda, addressing federal income tax treatment of the securitization structure (including REMIC and partnership classification avoidance), FATCA compliance and withholding considerations, state tax nexus analysis for QRF 2022-1 and QRH, and a detailed review of the tax disclosure included in the Offering Memorandum (all prepared or reviewed by Sylvia Hartwell);

(d) UCC perfection analysis, addressing the perfection and priority of security interests in the receivables at each level of the transaction structure under UCC Article 9 as enacted in Delaware;

(e) Rating agency criteria analysis, summarizing the applicable rating criteria of Brindoval Ratings and Pinnacle Rating Services for insurance premium finance ABS and mapping the transaction's structural features to those criteria;

(f) Receivables pool diligence memorandum, summarizing the results of the review of the initial data tape, pool composition, concentration limits, and eligibility criteria compliance;

(g) Eligibility criteria analysis, setting forth the proposed eligibility criteria for receivables included in the initial pool and for subsequent additions during any revolving period;

(h) Insurance carrier counterparty review, analyzing the creditworthiness and financial strength ratings of the principal insurance carriers whose policyholders are obligors on the receivables in the pool;

(i) Servicer operational diligence memorandum, summarizing the results of the operational review of QPF's loan servicing platform, collection procedures, default management protocols, and systems capabilities; and

(j) Spread widening analysis and market conditions memorandum dated November 7, 2022, as described in Section 4 above.

7. Preservation and Optionality Steps

In connection with the placement of the transaction in dormant status, the following steps have been taken or are recommended to preserve the work product, maintain the structural elements of the transaction, and ensure that the transaction can be reactivated efficiently if market conditions improve and QIH elects to proceed.

7.1 Document Preservation

All work product, drafts, correspondence, memoranda, research, and other materials generated in connection with Matter No. 1025-00007 are to be preserved in the firm's document management system under that matter number. No documents associated with this matter should be destroyed, permanently archived off-system, or removed from the active matter file without the express prior written approval of the responsible partner, Douglas Carmichael. This preservation directive applies to all electronic files, email correspondence, physical files (if any), and any documents stored on individual workstations or portable devices.

Electronic copies of all near-final execution drafts of the transaction documents (as identified in Section 6.2 above), all draft legal opinions (as identified in Section 6.3 above), the Preliminary Offering Memorandum (v3), and the Master Closing Checklist (v4) are to be organized in a dedicated closing subfolder within the matter's electronic filing structure. This organization is intended to facilitate rapid retrieval and review in the event of a reactivation decision. The firm's records management team should be advised of the dormancy designation and the preservation directive to ensure that no automated retention or disposition policies are applied to the matter file.

7.2 SPV Status

QRF 2022-1 LLC and QRH LLC remain validly formed Delaware limited liability companies in good standing with the Delaware Secretary of State as of the date of this memorandum. The entities have not been dissolved and no certificates of cancellation have been filed. The following matters relating to the ongoing status of the SPVs should be noted:

(a) Fortbridge Corporate Services LLC continues to serve as the independent manager provider for both entities. Timothy R. Callan serves as the independent manager of QRF 2022-1, and Eleanor M. Vasquez serves as the independent manager of QRH, in each case pursuant to the Independent Manager Agreements executed on August 3, 2022. Fortbridge's ongoing availability fees should be monitored and paid as they come due to maintain the independent manager arrangements.

(b) Ashgrove Services Inc. serves as the registered agent for both QRF 2022-1 and QRH in the State of Delaware. Registered agent fees should continue to be paid as they come due.

(c) Annual Delaware franchise tax payments for both entities will be due. The Client (Sandra Ling-Hwang, QIH Treasurer) has been advised to maintain both SPVs in good standing by timely paying all Delaware franchise taxes and registered agent fees pending a final decision by the QIH Board on whether to reactivate the transaction or dissolve the entities. If QIH elects not to pursue the transaction within a reasonable period (e.g., 12–18 months), QIH should consider whether to dissolve the SPVs to eliminate ongoing maintenance costs.

(d) The SPVs hold no assets and have no liabilities other than the de minimis obligations under the Independent Manager Agreements and registered agent arrangements. No receivables were transferred to QRH or QRF 2022-1, and no notes were issued by QRF 2022-1.

7.3 Rating Agency Engagement

The following steps have been taken with respect to the rating agency engagements:

(a) Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812) has been informally advised, through Andrew Petrosian, that the transaction is on hold and that the issuance will not proceed at this time. The preliminary ratings of AAA(cr), A(cr), and BBB(cr) remain outstanding but have not been confirmed as final ratings.

(b) Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347) has been informally advised, through Monica Sung, that the transaction is on hold and that the issuance will not proceed at this time. The preliminary ratings of Aaa(p), A1(p), and Baa2(p) remain outstanding but have not been confirmed as final ratings.

(c) The preliminary ratings assigned by both agencies will lapse if not confirmed within the time frames specified in each agency's respective engagement letter. Typically, preliminary ratings in the ABS sector remain valid for 90 to 180 days from the date of assignment, subject to extension in the discretion of the applicable agency. As the preliminary ratings were assigned in August 2022, they may lapse as early as November or December 2022 (for Brindoval) and as early as February 2023 (for Pinnacle), depending on the specific terms of the engagement letters.

(d) If the transaction is reactivated at a future date, updated pool data (reflecting a new cut-off date), refreshed QIH financial statements, and potentially new rating agency presentations and analytical materials will be required. Given the passage of time and the changes in market conditions, the rating agencies will likely require the engagement to be re-initiated from scratch, including the submission of new rating applications, new analytical packages, and new fee arrangements. There is no assurance that the preliminary ratings previously assigned would be confirmed at the same levels upon reactivation, particularly if the pool composition, QIH's financial condition, or the agencies' rating criteria have changed.

7.4 Counterparty Notifications

The following notifications have been made or are recommended in connection with the shelving of the transaction:

(a) Ridgeline Capital Markets LLC. A formal notification letter was sent to Ridgeline Capital Markets (attention: Julian Weatherstone) on November 14, 2022, advising of the QIH Board's decision to suspend the transaction and requesting the immediate cessation of all investor marketing activities. The letter referenced Ridgeline's internal deal identifier (Ridgeline Deal ID: RCM-IPF-2022-0041). Ridgeline has acknowledged receipt of the letter and has confirmed that all marketing activities have been suspended.

(b) Other Counterparties. Formal written notifications of the transaction suspension have not yet been sent to Calvoneth Trust Company, N.A. (Gerald K. Fontaine), Northvane Bank, N.A. (Diane Coletti), Calloway & Brandt LLP (Harrison Collier), Ashfield & Greer LLP (Vivian Sato), or Veristead Analytics LLC (Katharine Drummond). Each of these parties has been informed orally of the shelving decision by members of the Calderwood & Harkness engagement team or by QIH personnel. It is recommended that formal written confirmation of the transaction suspension be sent to each of these parties as a matter of best practice and to create a clear documentary record. Draft notification letters can be prepared by this firm for QIH's review and signature if requested.

(c) Status of Counterparty Agreements. No fees, commitments, or obligations under the Indenture, Note Purchase Agreement, Liquidity Facility Agreement, Back-Up Servicing Agreement, Administration Agreement, Account Control Agreement, Custodian Agreement, Pledge Agreement, or Performance Guaranty have taken effect, as none of these agreements were executed. The only counterparty agreements in effect are the Independent Manager Agreements with Fortbridge Corporate Services LLC, as noted in Section 7.2 above.

7.5 Considerations for Potential Reactivation

If market conditions improve — specifically, if AAA-rated insurance premium finance ABS spreads contract to at or below the SOFR + 125 basis points range that prevailed at the inception of the transaction — the transaction could be reactivated with relatively modest incremental effort, leveraging the substantial body of work product that has already been completed and preserved. The following is a summary of the key workstreams that would be required for reactivation:

(i) Receivables Pool Refresh. A new cut-off date would need to be established, and QPF would need to provide a new data tape reflecting the current outstanding receivables pool. The pool composition may differ materially from the initial pool, given the short-duration nature of insurance premium finance receivables (weighted average remaining term of approximately 7.8 months as of the original cut-off date). Eligibility criteria compliance would need to be re-verified.

(ii) Pool Verification. Veristead Analytics LLC (or a comparable verification agent) would need to perform new tape reconciliation, pool stratification, and data integrity verification on the refreshed pool.

(iii) Financial Statement Update. QIH's financial statements would need to be refreshed to reflect the most recently available audited annual and unaudited interim financial data. A new comfort letter would need to be obtained from Meridian Ledger LLP.

(iv) Rating Agency Re-Engagement. New rating applications would need to be submitted to Brindoval Ratings and Pinnacle Rating Services (or alternative rating agencies), new analytical packages prepared, and new preliminary ratings obtained. New fee arrangements would need to be negotiated.

(v) Offering Memorandum Update. The Preliminary Offering Memorandum would need to be updated to reflect the refreshed pool data, updated financial statements, any changes in the transaction structure or terms, any new risk factors, and any changes in applicable law or regulation since the date of the last draft.

(vi) Counterparty Confirmation. The willingness and availability of all counterparties (Ridgeline, Calvoneth Trust, Northvane Bank, Fortbridge, and their respective counsel) to participate in the reactivated transaction would need to be confirmed, and fee arrangements updated as necessary.

(vii) Document Finalization and Execution. All near-final transaction documents would need to be reviewed, updated to reflect any changes in law, regulation, market practice, or transaction terms, and finalized for execution. Any changes to the capital structure, pricing terms, or credit enhancement levels would need to be reflected in the documents.

(viii) UCC Filings. The UCC-1 financing statements would need to be updated and filed with the Delaware Secretary of State contemporaneously with closing.

Estimated Incremental Legal Fees. Based on the current state of the documentation and the scope of work required for reactivation, estimated incremental legal fees for Calderwood & Harkness to bring the transaction from reactivation decision to closing would be approximately $500,000 to $850,000, depending on the extent of document revisions required, the degree to which the transaction structure or terms are modified, and any new regulatory or legal developments that may need to be addressed. This estimate assumes that the same engagement team is available and that the fundamental transaction structure remains unchanged.

Estimated Timeline. The estimated timeline for reactivation from the date of a Board decision to proceed through closing of the transaction is approximately 10 to 14 weeks, assuming prompt cooperation of all parties and no material changes to the transaction structure.

8. Billing and Matter Administration

The following administrative steps are to be taken in connection with the placement of the matter in dormant status:

(a) Interim Fee Statement. An Interim Fee Statement covering all accrued and unbilled legal fees of approximately $1,950,000 through November 2022 is to be prepared and submitted to the Client, together with a comprehensive billing narrative, on December 15, 2022. The Interim Fee Statement will include a detailed breakdown by timekeeper, billing rate, phase of work, and task category. The statement should be addressed to Nolan Whitford, General Counsel, Quorum Insurance Holdings Corp., with a copy to Sandra Ling-Hwang, Treasurer.

(b) Matter Status Code. Matter No. 1025-00007 is to be coded as "Dormant" in the firm's matter management system, effective November 18, 2022. This designation will flag the matter for periodic review but will prevent routine closure or archiving. The dormancy code should be applied by the billing partner, Francesca Morano, or her designee, in coordination with the firm's finance department.

(c) Billing Partner. Francesca Morano remains the billing partner for this matter. All billing inquiries and fee arrangement discussions should be directed to Francesca.

(d) Time Recording Restrictions. No new time should be recorded to Matter No. 1025-00007 without the prior approval of Douglas Carmichael or Francesca Morano. The sole exception to this restriction is for de minimis administrative tasks directly related to SPV maintenance inquiries from the Client (e.g., routine questions regarding Delaware franchise tax payments, registered agent status, or Fortbridge independent manager arrangements), which may be recorded without prior approval provided that the aggregate time so recorded does not exceed two hours in any calendar month.

(e) Client Billing Contact. The primary client billing contact is Nolan Whitford, General Counsel, Quorum Insurance Holdings Corp. A copy of all invoices and billing correspondence should also be sent to Sandra Ling-Hwang, Treasurer, Quorum Insurance Holdings Corp.

9. Staffing Wind-Down

The Calderwood & Harkness LLP engagement team for Matter No. 1025-00007 consisted of the following professionals:

All team members listed above are released from active assignment on this matter effective November 18, 2022. Released team members are available for reassignment to other firm matters through the normal staffing allocation process.

Notwithstanding the release from active assignment, all team members should remain available on an ad hoc basis for questions from QIH regarding SPV maintenance, regulatory filings, Delaware compliance matters, or potential reactivation of the transaction. Such ad hoc inquiries are expected to be infrequent and should be handled on a reasonable-efforts basis, with any time recorded subject to the restrictions set forth in Section 8(d) above.

In the event that the matter is reactivated, the same engagement team should be reassembled to the extent available, given the team's deep familiarity with the transaction structure, documentation, counterparty relationships, and regulatory considerations. If any team member is unavailable at the time of reactivation due to other commitments, a suitable replacement should be identified in consultation with the responsible partner, and a knowledge transfer session should be conducted using the work product and memoranda preserved in the matter file.

10. Conclusion

For the reasons set forth in this memorandum, Matter No. 1025-00007 — the proposed $500,000,000 insurance premium finance asset-backed securities issuance by Quorum Receivables Funding 2022-1 LLC — is hereby placed in dormant status, effective November 18, 2022.

The total sunk costs associated with the transaction through the date of shelving are approximately $2,555,000, consisting of $1,950,000 in accrued Calderwood & Harkness legal fees, $420,000 in rating agency fees payable to Brindoval Ratings Inc. and Pinnacle Rating Services LLC, and $185,000 in other third-party costs.

All work product has been preserved in the firm's document management system and organized for efficient retrieval. The two special purpose vehicles (QRF 2022-1 LLC and QRH LLC) remain validly formed and in good standing in the State of Delaware. Near-final transaction documents, draft legal opinions, and the Preliminary Offering Memorandum are maintained in the matter file in a state that would permit reactivation with relatively modest incremental effort if market conditions improve.

No further action is required by any member of the engagement team unless and until Quorum Insurance Holdings Corp. elects to reactivate the transaction or provides further instructions regarding the disposition of the SPVs or the matter file. Any questions regarding this memorandum, the dormancy procedures, the status of the work product, or any other aspect of the matter should be directed to the undersigned.

Douglas Carmichael Partner Calderwood & Harkness LLP 601 Lexington Avenue New York, NY 10022 Telephone: (212) 555-4800

Email: dcarmichael@calderwoodharkness.com

Distribution:

cc: Matter File (1025-00007)

Class	Principal Amount	% of Total	Preliminary Ratings (Brindoval / Pinnacle)	Coupon Guidance
Class A Notes	$375,000,000	75.0%	AAA(cr) / Aaa(p)	SOFR + 125 bps
Class B Notes	$75,000,000	15.0%	A(cr) / A1(p)	SOFR + 210 bps
Class C Notes	$35,000,000	7.0%	BBB(cr) / Baa2(p)	SOFR + 375 bps
OC / Retained Interest	$15,000,000	3.0%	Unrated	N/A
Total	$500,000,000	100.0%
Date	Event
June 28, 2022	Engagement opened. Calderwood & Harkness LLP formally retained as issuer's counsel for the proposed securitization transaction. Engagement letter executed by Nolan Whitford on behalf of QIH. Matter No. 1025-00007 opened in the firm's matter management system.
June 30, 2022	Cut-off date established for the initial receivables pool. QPF provided the initial data tape reflecting an aggregate outstanding principal balance of approximately $612,000,000 across approximately 82,400 loans.
July 11, 2022	Kick-off call held with QIH treasury personnel (Sandra Ling-Hwang, Treasurer, and Nolan Whitford, General Counsel) and Ridgeline Capital Markets (Julian Weatherstone and Rebecca Tran). Discussion covered proposed transaction structure, timeline, capital structure alternatives, and rating agency strategy.
July 18, 2022	Initial term sheet (v1) circulated by Ridgeline Capital Markets to all parties. Term sheet reflected the three-tranche capital structure with overcollateralization and proposed coupon guidance ranges.
July 25, 2022	Transaction structure finalized following agreement among QIH, Ridgeline, and this firm on capital structure, credit enhancement levels, waterfall mechanics, and early amortization triggers. QIH Board authorized the formation of the SPVs and the engagement of counterparties.
August 3, 2022	QRF 2022-1 LLC (Delaware Secretary of State File No. 7894231) and QRH LLC (Delaware Secretary of State File No. 7894228) formed as Delaware limited liability companies. LLC Agreements executed. Independent Manager Agreements with Fortbridge Corporate Services LLC executed. Ashgrove Services Inc. designated as registered agent for both entities.
August 8, 2022	Rating agency presentations delivered to Brindoval Ratings Inc. and Pinnacle Rating Services LLC. Presentations included transaction overview, pool characteristics, historical performance data, cash flow modeling assumptions, and legal structure summary.
August 22, 2022	Brindoval Ratings Inc. issued preliminary ratings of AAA(cr) for the Class A Notes, A(cr) for the Class B Notes, and BBB(cr) for the Class C Notes (Engagement No. CR-SF-2022-08812).
August 29, 2022	Pinnacle Rating Services LLC issued preliminary ratings of Aaa(p) for the Class A Notes, A1(p) for the Class B Notes, and Baa2(p) for the Class C Notes (Engagement No. PRS-2022-ABS-3347).
September 6, 2022	First drafts of the four principal transaction documents circulated by Calderwood & Harkness to all parties: Indenture (v1), Receivables Sale Agreement (v1), Receivables Transfer Agreement (v1), and Servicing Agreement (v1).
September 14, 2022	First draft of the Preliminary Offering Memorandum circulated to QIH and Ridgeline for review and comment. The draft included pool stratification tables, cash flow waterfall descriptions, risk factors, and legal opinion summaries.
September 28, 2022	Second-round document comments received from Calloway & Brandt (on behalf of Ridgeline), Ashfield & Greer (on behalf of Calvoneth Trust), and QIH. Concurrent rating agency Q&A session held with Brindoval and Pinnacle to address follow-up questions on pool performance and structural features.
October 12, 2022	Near-final execution draft documentation package circulated to all parties. The package included: Indenture (v4), Receivables Sale Agreement (v3), Receivables Transfer Agreement (v3), Servicing Agreement (v3), Note Purchase Agreement (v3), and all ancillary agreements. The documentation was substantially agreed among the parties, subject to customary closing conditions and final pricing terms.
October 24, 2022	Virtual investor roadshow commenced. Ridgeline Capital Markets coordinated a series of one-on-one and group investor presentations featuring QIH management (Sandra Ling-Hwang, Treasurer, and other members of QIH's treasury team) and Ridgeline's structuring team.
November 2, 2022	Investor roadshow concluded. Ridgeline provided indicative pricing to QIH reflecting the materially widened spread environment. Indicative spreads were significantly above the initial coupon guidance established in the term sheet.
November 7, 2022	Memorandum on Market Conditions and Spread Analysis prepared by Calderwood & Harkness and circulated internally within the firm and to QIH. The memorandum analyzed the ABS spread-widening trend, compared indicative pricing against QIH's cost-of-funds hurdle, and identified the economic shortfall.
November 10, 2022	Letter from Calderwood & Harkness sent to the QIH Board of Directors recommending the shelving of the transaction based on the unfavorable spread environment and the exceedance of the board-approved cost-of-funds hurdle.
November 14, 2022	QIH Board of Directors confirmed its decision to shelve the transaction. Nolan Whitford (General Counsel) communicated the decision to Calderwood & Harkness and to Ridgeline Capital Markets. Notification letter sent by QIH (with assistance from this firm) to Ridgeline formally advising of the transaction suspension and the cessation of all investor marketing activities.

November 18, 2022	Transaction formally placed in dormant status. This memorandum prepared and circulated within the Calderwood & Harkness engagement team.
Class	Initial Guidance	Indicative Pricing	Widening
Class A Notes	SOFR + 125 bps	SOFR + 168 bps	+43 bps
Class B Notes	SOFR + 210 bps	SOFR + 285 bps	+75 bps
Class C Notes	SOFR + 375 bps	SOFR + 450 bps	+75 bps
Category	Amount
Calderwood & Harkness Legal Fees	$1,950,000
Rating Agency Fees (Brindoval + Pinnacle)	$420,000
Other Third-Party Costs	$185,000
Total	$2,555,000
Name	Role	Title
Douglas Carmichael	Responsible Partner	Partner, Structured Finance
Francesca Morano	Billing Partner	Partner, Capital Markets
Yuki Nakamura	Lead Associate	Senior Associate, Structured Finance
Carlos Espinoza	Working Associate	Associate, Structured Finance
Sylvia Hartwell	Tax Specialist Partner	Partner, Tax

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM
DATE: November 18, 2022
TO: Francesca Morano, Partner (Billing Partner) Yuki Nakamura, Associate (Lead Associate) Carlos Espinoza, Associate (Working Associate) Sylvia Hartwell, Partner (Tax Specialist Partner)
FROM: Douglas Carmichael, Partner (Responsible Partner)
RE: Dormancy Status — Matter No. 1025-00007 Quorum Insurance Holdings Corp. — $500,000,000 Insurance Premium Finance ABS Issuance by Quorum Receivables Funding 2022-1 LLC
MATTER NO.: 1025-00007
1. Purpose of Memorandum
This memorandum documents the formal placement of Matter No. 1025-00007 into dormant status, effective as of the date hereof, November 18, 2022. The purpose of this memorandum is to create a comprehensive internal record for Calderwood & Harkness LLP's matter management system, setting forth the rationale for the dormancy designation, the current status of all work product and documentation, an accounting of sunk costs incurred through the date of shelving, and the specific steps taken and to be taken to preserve optionality for a potential future reactivation of the transaction.
The dormancy designation follows the decision by the Board of Directors of Quorum Insurance Holdings Corp. ("QIH" or the "Client"), communicated to this firm by QIH's General Counsel, Nolan Whitford, on November 14, 2022, to shelve the proposed $500,000,000 asset-backed securitization of insurance premium finance receivables through Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"). The primary driver of the Board's shelving decision was the material widening of ABS credit spreads in the insurance premium finance sector and across the broader structured finance market during the period from the engagement's inception in late June 2022 through early November 2022. This spread widening rendered the transaction economics unworkable relative to QIH's board-approved cost-of-funds hurdle, as discussed in detail in Section 4 below.
This memorandum should be read in conjunction with the Memorandum on Market Conditions and Spread Analysis dated November 7, 2022 (prepared by this firm and circulated internally and to QIH) and the Letter to the QIH Board of Directors dated November 10, 2022 (recommending the shelving of the transaction). Both of those documents are maintained in the matter file and are incorporated herein by reference. This memorandum is intended solely for internal use within Calderwood & Harkness LLP and is protected by the attorney work product doctrine and the attorney-client privilege to the extent applicable.
2. Transaction Summary
The following is a summary of the key terms, parties, and structural features of the proposed transaction as it stood at the time of the shelving decision. This summary is provided for reference purposes and to facilitate any future reactivation analysis.
Client. Quorum Insurance Holdings Corp. (NYSE: QIHC), a Delaware corporation headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. QIH is a diversified insurance holding company with operations in property and casualty insurance, specialty lines, and insurance premium finance. QIH's premium finance subsidiary, Quorum Premium Finance LLC ("QPF"), originates insurance premium finance receivables to commercial and personal lines policyholders across all fifty states and the District of Columbia.
Transaction Type. Asset-backed securities issuance (Structured Finance) — Rule 144A / Regulation S private placement of notes backed by insurance premium finance receivables. The transaction was structured as a two-step true sale securitization, with the receivables being sold by QPF to an intermediate depositor SPV (Quorum Receivables Holding LLC, "QRH") and then transferred by QRH to the Issuer, QRF 2022-1, which would issue the notes secured by the receivables and related assets under an indenture with an indenture trustee.
Issuer. Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company formed as a bankruptcy-remote special purpose vehicle on August 3, 2022 (Delaware Secretary of State File No. 7894231). QRF 2022-1 was formed for the sole purpose of acquiring the receivables from QRH, issuing the notes, and performing related activities. The operating agreement of QRF 2022-1 contains customary separateness covenants and springing member provisions designed to ensure its bankruptcy remoteness.
Originator / Seller / Servicer. Quorum Premium Finance LLC ("QPF"), a wholly owned subsidiary of QIH. QPF was to serve as the originator and initial seller of the receivables and was designated as the initial servicer under the Servicing Agreement, responsible for the collection, administration, and enforcement of the receivables on behalf of the Issuer and the Indenture Trustee.
Depositor / Intermediate SPV. Quorum Receivables Holding LLC ("QRH"), a Delaware limited liability company formed on August 3, 2022 (Delaware Secretary of State File No. 7894228). QRH was structured as the intermediate depositor in the two-step true sale chain, acquiring the receivables from QPF and immediately transferring them to QRF 2022-1. QRH's role is critical to the true sale and non-consolidation analysis supporting the bankruptcy remoteness of the Issuer.
Underlying Assets. Insurance premium finance receivables originated by QPF, consisting of short-term loans made to insurance policyholders to finance the payment of insurance premiums. As of the cut-off date of June 30, 2022, the initial receivables pool had an aggregate outstanding principal balance of approximately $612,000,000, comprising approximately 82,400 individual loans. The receivables have a weighted average remaining term of approximately 7.8 months and a weighted average annual percentage rate of approximately 8.2%, with historically low default and loss rates consistent with the insurance premium finance asset class.
Total Issuance Size. $500,000,000 in aggregate principal amount of notes, structured in three rated classes plus a retained overcollateralization interest.
Capital Structure. The proposed capital structure of the notes was as follows:
The credit enhancement structure included subordination (the Class B and Class C Notes and the overcollateralization amount provide credit enhancement to the Class A Notes), excess spread, a reserve account funded at closing, and structural features including sequential pay and early amortization triggers.
Key Counterparties. The following parties were engaged or designated to serve in the capacities indicated:
• Structuring Agent / Lead Bookrunner: Ridgeline Capital Markets LLC. Principal contacts: Julian Weatherstone (Managing Director, Head of Insurance ABS) and Rebecca Tran (Director, ABS Syndicate). Ridgeline was responsible for structuring the transaction alongside QIH and this firm, preparing investor marketing materials, conducting the investor roadshow, and managing the book-building and pricing process.
• Indenture Trustee / Paying Agent: Calvoneth Trust Company, N.A. Principal contact: Gerald K. Fontaine (Vice President, Structured Finance Trust Services). Calvoneth Trust was designated to serve as the indenture trustee, paying agent, note registrar, and custodian under the Indenture and related agreements.
• Back-Up Servicer / Liquidity Provider: Northvane Bank, N.A. Principal contact: Diane Coletti (Senior Vice President, ABS Operations). Northvane Bank was designated to serve as the back-up servicer under the Back-Up Servicing Agreement and as the liquidity facility provider under the Liquidity Facility Agreement.
• Underwriter's Counsel: Calloway & Brandt LLP. Principal contact: Harrison Collier (Partner). Calloway & Brandt represented Ridgeline Capital Markets in connection with the transaction.
• Trustee's Counsel: Ashfield & Greer LLP. Principal contact: Vivian Sato (Partner). Ashfield & Greer represented Calvoneth Trust Company in connection with the transaction.
• Independent Manager Provider: Fortbridge Corporate Services LLC. Timothy R. Callan was appointed as the independent manager of QRF 2022-1, and Eleanor M. Vasquez was appointed as the independent manager of QRH, in each case pursuant to independent manager agreements executed on August 3, 2022.
• Rating Agencies: Brindoval Ratings Inc., principal contact: Andrew Petrosian (Senior Director, Structured Finance); and Pinnacle Rating Services LLC, principal contact: Monica Sung (Managing Director, ABS Ratings). Both agencies were engaged to provide preliminary and final ratings on the Class A, Class B, and Class C Notes.
• Auditor: Meridian Ledger LLP. Principal contact: Robert Falcone (Partner, Audit). Meridian Ledger serves as QIH's independent auditor and was engaged to provide a comfort letter in connection with the Offering Memorandum.
• Verification Agent: Veristead Analytics LLC. Principal contact: Katharine Drummond (Senior Managing Director). Veristead was engaged to perform tape reconciliation, pool stratification analysis, and data integrity verification on the receivables pool.
Governing Law. New York law governs the Indenture, the Note Purchase Agreement, the Servicing Agreement, the Back-Up Servicing Agreement, the Liquidity Facility Agreement, the Account Control Agreement, the Administration Agreement, and the Performance Guaranty. Delaware law governs the LLC Agreements and the formation documents of QRF 2022-1 and QRH. The Receivables Sale Agreement and Receivables Transfer Agreement are governed by New York law, with certain provisions relating to the perfection of security interests governed by the UCC as enacted in Delaware.
3. Timeline of Key Events
The following chronology sets forth the key milestones in the transaction from the opening of the engagement through the date of this memorandum. This timeline is provided for reference purposes and to establish the context for the dormancy designation.
4. Basis for Shelving Decision — Spread Widening Analysis
The decision by the QIH Board of Directors to shelve the transaction was driven by a material deterioration in the pricing environment for asset-backed securities during the period from the transaction's inception in late June 2022 through early November 2022. The following analysis summarizes the key data points underlying the Board's decision.
Market Conditions at Deal Launch. At the time the engagement was opened in late June 2022, comparable AAA-rated insurance premium finance ABS transactions were trading in the secondary market at spreads of approximately SOFR + 95 to SOFR + 110 basis points. This pricing level was consistent with the initial coupon guidance of SOFR + 125 basis points for the Class A Notes, which incorporated a modest new issue concession. The broader ABS market was functioning normally, with stable investor appetite for short-duration, high-credit-quality insurance premium finance receivables.
Market Conditions at Time of Pricing. By early November 2022, comparable AAA-rated insurance premium finance ABS spreads had widened materially to SOFR + 160 to SOFR + 175 basis points. This widening was attributable to a confluence of factors, including rising interest rates, Federal Reserve quantitative tightening, reduced risk appetite among institutional ABS investors, competitive supply from other ABS issuers, and broader macroeconomic uncertainty. The widening was not specific to QIH or to the insurance premium finance asset class but reflected a general repricing of credit risk across the structured finance market.
Indicative Pricing. On November 2, 2022, following the conclusion of the investor roadshow, Ridgeline Capital Markets LLC provided the following indicative pricing to QIH, reflecting actual investor feedback and order book indications:
Weighted Average Cost Analysis. The implied all-in weighted average cost ("WAC") of the notes at the indicative pricing levels was calculated as follows:
Class A contribution: 75.0% × 168 bps = 126.00 bps
Class B contribution: 15.0% × 285 bps = 42.75 bps
Class C contribution: 7.0% × 450 bps = 31.50 bps
Total implied WAC: approximately SOFR + 200.25 bps
Hurdle Rate Comparison. The QIH Board of Directors had established a cost-of-funds hurdle for the transaction, approved at the July 2022 board meeting authorizing the securitization, requiring that the all-in weighted average cost of the notes not exceed SOFR + 175 basis points. At the indicative pricing levels received from Ridgeline, the implied WAC of approximately SOFR + 200.25 basis points exceeded the board-approved hurdle rate by approximately 25.25 basis points, or roughly 14.4% above the maximum permissible cost of funds.
Economic Impact. The excess spread over the hurdle rate, applied to the $500,000,000 aggregate principal amount of the notes, would have resulted in approximately $1,262,500 per annum in additional interest expense relative to the board-approved maximum, significantly eroding the economic benefit of the securitization as compared to QIH's alternative funding sources, including its existing revolving credit facility and warehouse lines.
Conclusion. Based on the foregoing analysis, this firm concurred with the QIH Board's assessment that proceeding with the transaction at the indicative pricing levels would not be in the economic interest of QIH and its shareholders. The detailed analysis supporting this conclusion is set forth in the Memorandum on Market Conditions and Spread Analysis dated November 7, 2022 and the Letter to QIH Board dated November 10, 2022, both of which are maintained in the matter file.
5. Sunk Costs Summary
The total estimated sunk costs associated with the transaction through the date of shelving are approximately $2,555,000. This figure encompasses legal fees accrued by Calderwood & Harkness LLP, rating agency fees incurred with Brindoval Ratings Inc. and Pinnacle Rating Services LLC, and other third-party costs. A breakdown of these costs is set forth below.
5.1 Calderwood & Harkness Legal Fees
Accrued legal fees for services rendered by Calderwood & Harkness LLP through November 2022 total approximately $1,950,000. The original total engagement estimate provided to the Client at the inception of the matter was $2,800,000, which contemplated the completion of the transaction through closing and post-closing deliverables. The accrued fees of $1,950,000 represent approximately 69.6% of the original engagement estimate, reflecting the substantial progress made on the transaction prior to the shelving decision.
A detailed breakdown of accrued fees by phase of work, timekeeper, and billing rate will be set forth in the Interim Fee Statement to be submitted to the Client on December 15, 2022. The Interim Fee Statement will include a comprehensive billing narrative describing the nature and scope of services rendered.
The key categories of work performed by Calderwood & Harkness in connection with this engagement include, without limitation, the following:
(a) Structuring advice and capital structure analysis, including evaluation of alternative structures, credit enhancement levels, waterfall mechanics, and early amortization triggers;
(b) Formation and organization of QRF 2022-1 LLC and QRH LLC as Delaware limited liability companies, including preparation and filing of Certificates of Formation, drafting of LLC Agreements, negotiation and execution of Independent Manager Agreements with Fortbridge Corporate Services LLC, and designation of registered agents;
(c) Drafting, negotiation, and revision of all principal transaction documents, including the Indenture, Receivables Sale Agreement, Receivables Transfer Agreement, Servicing Agreement, Note Purchase Agreement, Liquidity Facility Agreement, Account Control Agreement, Pledge Agreement (Grant of Security Interest), Performance Guaranty, Administration Agreement, Back-Up Servicing Agreement, and Custodian Agreement;
(d) Preparation of eight draft legal opinions: two true sale opinions (QPF-to-QRH transfer and QRH-to-QRF 2022-1 transfer), enforceability opinion (Indenture and Notes), UCC Article 9 security interest perfection opinion, tax characterization opinion (debt treatment of Notes, prepared under the supervision of Sylvia Hartwell), no-registration opinion (Rule 144A / Regulation S), and two Delaware LLC valid formation opinions (QRF 2022-1 and QRH);
(e) Preparation of two draft non-consolidation opinions (QRF 2022-1 and QRH);
(f) Preparation and revision of the Preliminary Offering Memorandum through version 3, including the Issuer Supplement containing pool stratification tables, risk factors, descriptions of the transaction documents, and tax disclosure;
(g) Preparation of regulatory memoranda addressing Regulation AB II compliance, the Volcker Rule, risk retention requirements under the Dodd-Frank Act and related SEC and federal banking agency rules, and state licensing requirements for QPF;
(h) Preparation of tax memoranda addressing federal income tax treatment of the transaction, FATCA compliance, state tax nexus analysis, and review of the tax disclosure in the Offering Memorandum (Sylvia Hartwell);
(i) Preparation of rating agency materials, including legal structure summaries and responses to rating agency legal questions;
(j) Diligence memoranda, including receivables pool diligence, eligibility criteria analysis, insurance carrier counterparty credit review, and servicer operational diligence;
(k) Preparation of draft UCC-1 financing statement filings;
(l) Preparation of the Master Closing Checklist (v4), Conditions Precedent Tracker, draft Closing Certificates, and related closing deliverables;
(m) Preparation of the Memorandum on Market Conditions and Spread Analysis (November 7, 2022) and Letter to QIH Board (November 10, 2022); and
(n) General correspondence, conference calls, and coordination with the Client, Ridgeline, Calloway & Brandt, Ashfield & Greer, Calvoneth Trust, Northvane Bank, Brindoval, Pinnacle, Veristead, Fortbridge, and Meridian Ledger throughout the life of the engagement.
5.2 Rating Agency Fees
Combined accrued fees for Brindoval Ratings Inc. and Pinnacle Rating Services LLC total approximately $420,000. Both agencies were engaged pursuant to their respective standard engagement letters and fee schedules. Both agencies assigned preliminary ratings to the three rated classes of notes, as reflected in Section 2 above, but neither agency had issued final ratings as of the date of the shelving decision.
The preliminary ratings assigned were as follows:
Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812): AAA(cr) (Class A), A(cr) (Class B), BBB(cr) (Class C)
Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347): Aaa(p) (Class A), A1(p) (Class B), Baa2(p) (Class C)
The accrued fees represent engagement fees, analytical fees, and preliminary rating fees incurred through the date of the shelving decision. No final rating fees, surveillance fees, or ongoing monitoring fees have been incurred. The treatment of these accrued fees in the event of a future reactivation is governed by the terms of each agency's engagement letter, which should be reviewed at the time of any reactivation decision.
5.3 Other Costs
Structuring, diligence, and miscellaneous third-party costs accrued through the date of the shelving decision total approximately $185,000. These costs include the following:
(a) Veristead Analytics LLC — fees for tape reconciliation, pool stratification analysis, and data integrity verification on the initial receivables pool;
(b) Ridgeline Capital Markets LLC — structuring advisory fees and out-of-pocket expenses incurred in connection with roadshow preparation, investor presentation materials, and marketing coordination; and
(c) Fortbridge Corporate Services LLC — fees for independent manager services for QRF 2022-1 and QRH, including formation-related services and ongoing availability fees.
The $185,000 figure does not include internal QIH costs (including personnel time, travel expenses, and other overhead) or the fees of counterparty counsel (Calloway & Brandt LLP, representing Ridgeline, and Ashfield & Greer LLP, representing Calvoneth Trust), which fees are borne by their respective clients and are not the responsibility of QIH or Calderwood & Harkness.
Total Sunk Costs Summary:
6. Status of Work Product and Documentation
The following sections provide a comprehensive inventory of all documents, work product, and deliverables associated with the transaction, organized by category and current status. This inventory is intended to serve as a reference for any future reactivation effort and to document the preservation of all materials in the firm's document management system.
6.1 Executed / Filed Documents
The following documents have been executed by the relevant parties and/or filed with the applicable governmental authorities. These documents remain in effect as of the date of this memorandum unless otherwise noted.
(a) Certificate of Formation — QRF 2022-1 LLC, filed with the Delaware Secretary of State on August 3, 2022 (File No. 7894231).
(b) Certificate of Formation — QRH LLC, filed with the Delaware Secretary of State on August 3, 2022 (File No. 7894228).
(c) Limited Liability Company Agreement of QRF 2022-1 LLC, executed as of August 3, 2022, by Quorum Receivables Holding LLC, as sole member.
(d) Limited Liability Company Agreement of QRH LLC, executed as of August 3, 2022, by Quorum Premium Finance LLC, as sole member.
(e) Independent Manager Agreement between QRF 2022-1 LLC and Fortbridge Corporate Services LLC (Timothy R. Callan, Independent Manager), executed as of August 3, 2022.
(f) Independent Manager Agreement between QRH LLC and Fortbridge Corporate Services LLC (Eleanor M. Vasquez, Independent Manager), executed as of August 3, 2022.
(g) Secretary's Certificate of Quorum Insurance Holdings Corp. certifying the resolutions of the Board of Directors authorizing the securitization transaction and the formation of the SPVs, dated July 27, 2022.
(h) Manager's Certificate of Quorum Premium Finance LLC certifying the authorizing resolutions of its manager (QIH), dated July 27, 2022.
6.2 Near-Final / Execution-Ready Drafts (Never Executed)
The following documents were drafted, negotiated, and revised to near-final or execution-ready status but were never executed by the parties due to the shelving of the transaction. These drafts represent the most current versions of each document as of the date of the shelving decision and are maintained in the matter file for use in any future reactivation.
(a) Indenture (v4), between QRF 2022-1 LLC, as Issuer, and Calvoneth Trust Company, N.A., as Indenture Trustee.
(b) Receivables Sale Agreement (v3), between Quorum Premium Finance LLC, as Seller, and Quorum Receivables Holding LLC, as Purchaser.
(c) Receivables Transfer Agreement (v3), between Quorum Receivables Holding LLC, as Transferor, and QRF 2022-1 LLC, as Transferee.
(d) Servicing Agreement (v3), among QRF 2022-1 LLC, Quorum Premium Finance LLC, as Servicer, and Calvoneth Trust Company, N.A., as Indenture Trustee.
(e) Back-Up Servicing Agreement (v2), among QRF 2022-1 LLC, Quorum Premium Finance LLC, as Servicer, Northvane Bank, N.A., as Back-Up Servicer, and Calvoneth Trust Company, N.A., as Indenture Trustee.
(f) Administration Agreement (v2), between QRF 2022-1 LLC and Quorum Insurance Holdings Corp., as Administrator.
(g) Note Purchase Agreement (v3), among QRF 2022-1 LLC, as Issuer, Quorum Insurance Holdings Corp., and Ridgeline Capital Markets LLC, as Initial Purchaser.
(h) Liquidity Facility Agreement (v2), between QRF 2022-1 LLC and Northvane Bank, N.A., as Liquidity Provider.
(i) Account Control Agreement (v2), between QRF 2022-1 LLC and Calvoneth Trust Company, N.A., as Securities Intermediary and Indenture Trustee.
(j) Custodian Agreement (draft), between QRF 2022-1 LLC and Calvoneth Trust Company, N.A., as Custodian.
(k) Grant of Security Interest / Pledge Agreement (v2), by QRF 2022-1 LLC in favor of Calvoneth Trust Company, N.A., as Indenture Trustee, for the benefit of the Noteholders.
(l) Performance Guaranty (v1), by Quorum Insurance Holdings Corp. in favor of Calvoneth Trust Company, N.A., as Indenture Trustee, guaranteeing certain servicing obligations of QPF.
(m) Preliminary Offering Memorandum (v3), together with Issuer Supplement containing pool stratification tables, historical performance data, and related statistical information.
6.3 Draft Legal Opinions (Never Finalized)
The following draft legal opinions were prepared by Calderwood & Harkness LLP in connection with the transaction. These opinions were drafted in substantially final form but were never finalized, executed, or delivered, as the transaction did not proceed to closing. The opinions remain in draft form and are maintained in the matter file. In the event of a reactivation, each opinion will need to be reviewed, updated, and re-dated to reflect current facts, law, and circumstances.
(a) True Sale Opinion — QPF to QRH Transfer. Draft dated October 8, 2022. Opining that the transfer of receivables from QPF to QRH constitutes a true sale and not a secured financing under applicable law.
(b) True Sale Opinion — QRH to QRF 2022-1 Transfer. Draft dated October 8, 2022. Opining that the transfer of receivables from QRH to QRF 2022-1 constitutes a true sale and not a secured financing under applicable law.
(c) Enforceability of Indenture and Notes. Draft dated October 8, 2022. Opining that the Indenture and the Notes constitute legal, valid, and binding obligations of the Issuer, enforceable in accordance with their terms, subject to customary exceptions and qualifications.
(d) Security Interest Perfection — UCC Article 9. Draft dated October 8, 2022. Opining that the security interest granted by QRF 2022-1 in favor of the Indenture Trustee in the collateral described in the Indenture has been validly created and, upon the filing of UCC-1 financing statements, will be perfected under UCC Article 9 as enacted in the State of Delaware.
(e) Tax Characterization — Debt Treatment of Notes. Draft dated October 10, 2022, prepared under the supervision of Sylvia Hartwell. Opining that, for federal income tax purposes, the Notes will be treated as indebtedness of the Issuer and not as equity interests in the Issuer or as interests in a partnership or other entity.
(f) No Registration Required — Rule 144A / Regulation S. Draft dated October 8, 2022. Opining that the offer and sale of the Notes in accordance with the procedures described in the Note Purchase Agreement and the Offering Memorandum are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended.
(g) Delaware LLC Valid Formation — QRF 2022-1. Draft dated October 8, 2022. Opining that QRF 2022-1 LLC is a limited liability company validly formed and existing under the Delaware Limited Liability Company Act.
(h) Delaware LLC Valid Formation — QRH. Draft dated October 8, 2022. Opining that QRH LLC is a limited liability company validly formed and existing under the Delaware Limited Liability Company Act.
(i) Non-Consolidation Opinion — QRF 2022-1. Draft dated October 5, 2022. Opining that, based on the separateness covenants and organizational features of QRF 2022-1, a court would not, in a properly presented and argued case, order the substantive consolidation of the assets and liabilities of QRF 2022-1 with those of QIH, QPF, or QRH.
(j) Non-Consolidation Opinion — QRH. Draft dated October 5, 2022. Opining that, based on the separateness covenants and organizational features of QRH, a court would not, in a properly presented and argued case, order the substantive consolidation of the assets and liabilities of QRH with those of QIH or QPF.
6.4 UCC Filings (Never Filed)
The following draft UCC-1 financing statements were prepared in connection with the transaction but were never filed with the Delaware Secretary of State, as the transaction did not proceed to closing. The draft filings are maintained in the matter file for use in any future reactivation.
(a) Draft UCC-1 Financing Statement: Quorum Premium Finance LLC (Debtor) / Quorum Receivables Holding LLC (Secured Party) — to be filed with the Delaware Secretary of State, perfecting QRH's interest in the receivables acquired from QPF.
(b) Draft UCC-1 Financing Statement: Quorum Receivables Holding LLC (Debtor) / QRF 2022-1 LLC (Secured Party) — to be filed with the Delaware Secretary of State, perfecting QRF 2022-1's interest in the receivables acquired from QRH.
(c) Draft UCC-1 Financing Statement: QRF 2022-1 LLC (Debtor) / Calvoneth Trust Company, N.A. (Secured Party) — to be filed with the Delaware Secretary of State, perfecting the Indenture Trustee's security interest in the collateral pledged under the Indenture.
6.5 Closing Deliverables (Never Completed)
The following closing deliverables were in various stages of preparation at the time of the shelving decision but were never completed, executed, or delivered.
(a) Master Closing Checklist (v4) — maintained by Calderwood & Harkness, listing all required closing deliverables. All items remain incomplete and unsatisfied as of the date of this memorandum.
(b) Conditions Precedent Tracker — maintained by Calderwood & Harkness, tracking all conditions precedent to the closing of the transaction under the Note Purchase Agreement and the Indenture. All conditions precedent remain marked as unsatisfied.
(c) Draft Closing Certificates — prepared in draft form for execution by authorized officers of QIH, QPF, QRF 2022-1, and Calvoneth Trust Company, certifying as to representations, warranties, and conditions precedent. None of these certificates were executed.
(d) Comfort Letter from Meridian Ledger LLP — to be issued by Meridian Ledger in connection with the financial information included in the Offering Memorandum. The comfort letter was never requested in final form and was never issued.
6.6 Internal Memoranda and Analyses
A complete set of internal Calderwood & Harkness memoranda and analytical work product has been prepared and is maintained in the matter file. These memoranda represent significant institutional knowledge and analytical effort that would be valuable in any future reactivation of the transaction. The internal memoranda on file include, without limitation, the following:
(a) Capital structure alternatives analysis, evaluating various tranche configurations, credit enhancement levels, and pricing scenarios;
(b) Regulatory analysis, addressing Regulation AB II applicability and compliance, Volcker Rule considerations, risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the implementing rules adopted by the SEC and the federal banking agencies, and state licensing requirements applicable to QPF's premium finance lending operations;
(c) Tax memoranda, addressing federal income tax treatment of the securitization structure (including REMIC and partnership classification avoidance), FATCA compliance and withholding considerations, state tax nexus analysis for QRF 2022-1 and QRH, and a detailed review of the tax disclosure included in the Offering Memorandum (all prepared or reviewed by Sylvia Hartwell);
(d) UCC perfection analysis, addressing the perfection and priority of security interests in the receivables at each level of the transaction structure under UCC Article 9 as enacted in Delaware;
(e) Rating agency criteria analysis, summarizing the applicable rating criteria of Brindoval Ratings and Pinnacle Rating Services for insurance premium finance ABS and mapping the transaction's structural features to those criteria;
(f) Receivables pool diligence memorandum, summarizing the results of the review of the initial data tape, pool composition, concentration limits, and eligibility criteria compliance;
(g) Eligibility criteria analysis, setting forth the proposed eligibility criteria for receivables included in the initial pool and for subsequent additions during any revolving period;
(h) Insurance carrier counterparty review, analyzing the creditworthiness and financial strength ratings of the principal insurance carriers whose policyholders are obligors on the receivables in the pool;
(i) Servicer operational diligence memorandum, summarizing the results of the operational review of QPF's loan servicing platform, collection procedures, default management protocols, and systems capabilities; and
(j) Spread widening analysis and market conditions memorandum dated November 7, 2022, as described in Section 4 above.
7. Preservation and Optionality Steps
In connection with the placement of the transaction in dormant status, the following steps have been taken or are recommended to preserve the work product, maintain the structural elements of the transaction, and ensure that the transaction can be reactivated efficiently if market conditions improve and QIH elects to proceed.
7.1 Document Preservation
All work product, drafts, correspondence, memoranda, research, and other materials generated in connection with Matter No. 1025-00007 are to be preserved in the firm's document management system under that matter number. No documents associated with this matter should be destroyed, permanently archived off-system, or removed from the active matter file without the express prior written approval of the responsible partner, Douglas Carmichael. This preservation directive applies to all electronic files, email correspondence, physical files (if any), and any documents stored on individual workstations or portable devices.
Electronic copies of all near-final execution drafts of the transaction documents (as identified in Section 6.2 above), all draft legal opinions (as identified in Section 6.3 above), the Preliminary Offering Memorandum (v3), and the Master Closing Checklist (v4) are to be organized in a dedicated closing subfolder within the matter's electronic filing structure. This organization is intended to facilitate rapid retrieval and review in the event of a reactivation decision. The firm's records management team should be advised of the dormancy designation and the preservation directive to ensure that no automated retention or disposition policies are applied to the matter file.
7.2 SPV Status
QRF 2022-1 LLC and QRH LLC remain validly formed Delaware limited liability companies in good standing with the Delaware Secretary of State as of the date of this memorandum. The entities have not been dissolved and no certificates of cancellation have been filed. The following matters relating to the ongoing status of the SPVs should be noted:
(a) Fortbridge Corporate Services LLC continues to serve as the independent manager provider for both entities. Timothy R. Callan serves as the independent manager of QRF 2022-1, and Eleanor M. Vasquez serves as the independent manager of QRH, in each case pursuant to the Independent Manager Agreements executed on August 3, 2022. Fortbridge's ongoing availability fees should be monitored and paid as they come due to maintain the independent manager arrangements.
(b) Ashgrove Services Inc. serves as the registered agent for both QRF 2022-1 and QRH in the State of Delaware. Registered agent fees should continue to be paid as they come due.
(c) Annual Delaware franchise tax payments for both entities will be due. The Client (Sandra Ling-Hwang, QIH Treasurer) has been advised to maintain both SPVs in good standing by timely paying all Delaware franchise taxes and registered agent fees pending a final decision by the QIH Board on whether to reactivate the transaction or dissolve the entities. If QIH elects not to pursue the transaction within a reasonable period (e.g., 12–18 months), QIH should consider whether to dissolve the SPVs to eliminate ongoing maintenance costs.
(d) The SPVs hold no assets and have no liabilities other than the de minimis obligations under the Independent Manager Agreements and registered agent arrangements. No receivables were transferred to QRH or QRF 2022-1, and no notes were issued by QRF 2022-1.
7.3 Rating Agency Engagement
The following steps have been taken with respect to the rating agency engagements:
(a) Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812) has been informally advised, through Andrew Petrosian, that the transaction is on hold and that the issuance will not proceed at this time. The preliminary ratings of AAA(cr), A(cr), and BBB(cr) remain outstanding but have not been confirmed as final ratings.
(b) Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347) has been informally advised, through Monica Sung, that the transaction is on hold and that the issuance will not proceed at this time. The preliminary ratings of Aaa(p), A1(p), and Baa2(p) remain outstanding but have not been confirmed as final ratings.
(c) The preliminary ratings assigned by both agencies will lapse if not confirmed within the time frames specified in each agency's respective engagement letter. Typically, preliminary ratings in the ABS sector remain valid for 90 to 180 days from the date of assignment, subject to extension in the discretion of the applicable agency. As the preliminary ratings were assigned in August 2022, they may lapse as early as November or December 2022 (for Brindoval) and as early as February 2023 (for Pinnacle), depending on the specific terms of the engagement letters.
(d) If the transaction is reactivated at a future date, updated pool data (reflecting a new cut-off date), refreshed QIH financial statements, and potentially new rating agency presentations and analytical materials will be required. Given the passage of time and the changes in market conditions, the rating agencies will likely require the engagement to be re-initiated from scratch, including the submission of new rating applications, new analytical packages, and new fee arrangements. There is no assurance that the preliminary ratings previously assigned would be confirmed at the same levels upon reactivation, particularly if the pool composition, QIH's financial condition, or the agencies' rating criteria have changed.
7.4 Counterparty Notifications
The following notifications have been made or are recommended in connection with the shelving of the transaction:
(a) Ridgeline Capital Markets LLC. A formal notification letter was sent to Ridgeline Capital Markets (attention: Julian Weatherstone) on November 14, 2022, advising of the QIH Board's decision to suspend the transaction and requesting the immediate cessation of all investor marketing activities. The letter referenced Ridgeline's internal deal identifier (Ridgeline Deal ID: RCM-IPF-2022-0041). Ridgeline has acknowledged receipt of the letter and has confirmed that all marketing activities have been suspended.
(b) Other Counterparties. Formal written notifications of the transaction suspension have not yet been sent to Calvoneth Trust Company, N.A. (Gerald K. Fontaine), Northvane Bank, N.A. (Diane Coletti), Calloway & Brandt LLP (Harrison Collier), Ashfield & Greer LLP (Vivian Sato), or Veristead Analytics LLC (Katharine Drummond). Each of these parties has been informed orally of the shelving decision by members of the Calderwood & Harkness engagement team or by QIH personnel. It is recommended that formal written confirmation of the transaction suspension be sent to each of these parties as a matter of best practice and to create a clear documentary record. Draft notification letters can be prepared by this firm for QIH's review and signature if requested.
(c) Status of Counterparty Agreements. No fees, commitments, or obligations under the Indenture, Note Purchase Agreement, Liquidity Facility Agreement, Back-Up Servicing Agreement, Administration Agreement, Account Control Agreement, Custodian Agreement, Pledge Agreement, or Performance Guaranty have taken effect, as none of these agreements were executed. The only counterparty agreements in effect are the Independent Manager Agreements with Fortbridge Corporate Services LLC, as noted in Section 7.2 above.
7.5 Considerations for Potential Reactivation
If market conditions improve — specifically, if AAA-rated insurance premium finance ABS spreads contract to at or below the SOFR + 125 basis points range that prevailed at the inception of the transaction — the transaction could be reactivated with relatively modest incremental effort, leveraging the substantial body of work product that has already been completed and preserved. The following is a summary of the key workstreams that would be required for reactivation:
(i) Receivables Pool Refresh. A new cut-off date would need to be established, and QPF would need to provide a new data tape reflecting the current outstanding receivables pool. The pool composition may differ materially from the initial pool, given the short-duration nature of insurance premium finance receivables (weighted average remaining term of approximately 7.8 months as of the original cut-off date). Eligibility criteria compliance would need to be re-verified.
(ii) Pool Verification. Veristead Analytics LLC (or a comparable verification agent) would need to perform new tape reconciliation, pool stratification, and data integrity verification on the refreshed pool.
(iii) Financial Statement Update. QIH's financial statements would need to be refreshed to reflect the most recently available audited annual and unaudited interim financial data. A new comfort letter would need to be obtained from Meridian Ledger LLP.
(iv) Rating Agency Re-Engagement. New rating applications would need to be submitted to Brindoval Ratings and Pinnacle Rating Services (or alternative rating agencies), new analytical packages prepared, and new preliminary ratings obtained. New fee arrangements would need to be negotiated.
(v) Offering Memorandum Update. The Preliminary Offering Memorandum would need to be updated to reflect the refreshed pool data, updated financial statements, any changes in the transaction structure or terms, any new risk factors, and any changes in applicable law or regulation since the date of the last draft.
(vi) Counterparty Confirmation. The willingness and availability of all counterparties (Ridgeline, Calvoneth Trust, Northvane Bank, Fortbridge, and their respective counsel) to participate in the reactivated transaction would need to be confirmed, and fee arrangements updated as necessary.
(vii) Document Finalization and Execution. All near-final transaction documents would need to be reviewed, updated to reflect any changes in law, regulation, market practice, or transaction terms, and finalized for execution. Any changes to the capital structure, pricing terms, or credit enhancement levels would need to be reflected in the documents.
(viii) UCC Filings. The UCC-1 financing statements would need to be updated and filed with the Delaware Secretary of State contemporaneously with closing.
Estimated Incremental Legal Fees. Based on the current state of the documentation and the scope of work required for reactivation, estimated incremental legal fees for Calderwood & Harkness to bring the transaction from reactivation decision to closing would be approximately $500,000 to $850,000, depending on the extent of document revisions required, the degree to which the transaction structure or terms are modified, and any new regulatory or legal developments that may need to be addressed. This estimate assumes that the same engagement team is available and that the fundamental transaction structure remains unchanged.
Estimated Timeline. The estimated timeline for reactivation from the date of a Board decision to proceed through closing of the transaction is approximately 10 to 14 weeks, assuming prompt cooperation of all parties and no material changes to the transaction structure.
8. Billing and Matter Administration
The following administrative steps are to be taken in connection with the placement of the matter in dormant status:
(a) Interim Fee Statement. An Interim Fee Statement covering all accrued and unbilled legal fees of approximately $1,950,000 through November 2022 is to be prepared and submitted to the Client, together with a comprehensive billing narrative, on December 15, 2022. The Interim Fee Statement will include a detailed breakdown by timekeeper, billing rate, phase of work, and task category. The statement should be addressed to Nolan Whitford, General Counsel, Quorum Insurance Holdings Corp., with a copy to Sandra Ling-Hwang, Treasurer.
(b) Matter Status Code. Matter No. 1025-00007 is to be coded as "Dormant" in the firm's matter management system, effective November 18, 2022. This designation will flag the matter for periodic review but will prevent routine closure or archiving. The dormancy code should be applied by the billing partner, Francesca Morano, or her designee, in coordination with the firm's finance department.
(c) Billing Partner. Francesca Morano remains the billing partner for this matter. All billing inquiries and fee arrangement discussions should be directed to Francesca.
(d) Time Recording Restrictions. No new time should be recorded to Matter No. 1025-00007 without the prior approval of Douglas Carmichael or Francesca Morano. The sole exception to this restriction is for de minimis administrative tasks directly related to SPV maintenance inquiries from the Client (e.g., routine questions regarding Delaware franchise tax payments, registered agent status, or Fortbridge independent manager arrangements), which may be recorded without prior approval provided that the aggregate time so recorded does not exceed two hours in any calendar month.
(e) Client Billing Contact. The primary client billing contact is Nolan Whitford, General Counsel, Quorum Insurance Holdings Corp. A copy of all invoices and billing correspondence should also be sent to Sandra Ling-Hwang, Treasurer, Quorum Insurance Holdings Corp.
9. Staffing Wind-Down
The Calderwood & Harkness LLP engagement team for Matter No. 1025-00007 consisted of the following professionals:
All team members listed above are released from active assignment on this matter effective November 18, 2022. Released team members are available for reassignment to other firm matters through the normal staffing allocation process.
Notwithstanding the release from active assignment, all team members should remain available on an ad hoc basis for questions from QIH regarding SPV maintenance, regulatory filings, Delaware compliance matters, or potential reactivation of the transaction. Such ad hoc inquiries are expected to be infrequent and should be handled on a reasonable-efforts basis, with any time recorded subject to the restrictions set forth in Section 8(d) above.
In the event that the matter is reactivated, the same engagement team should be reassembled to the extent available, given the team's deep familiarity with the transaction structure, documentation, counterparty relationships, and regulatory considerations. If any team member is unavailable at the time of reactivation due to other commitments, a suitable replacement should be identified in consultation with the responsible partner, and a knowledge transfer session should be conducted using the work product and memoranda preserved in the matter file.
10. Conclusion
For the reasons set forth in this memorandum, Matter No. 1025-00007 — the proposed $500,000,000 insurance premium finance asset-backed securities issuance by Quorum Receivables Funding 2022-1 LLC — is hereby placed in dormant status, effective November 18, 2022.
The total sunk costs associated with the transaction through the date of shelving are approximately $2,555,000, consisting of $1,950,000 in accrued Calderwood & Harkness legal fees, $420,000 in rating agency fees payable to Brindoval Ratings Inc. and Pinnacle Rating Services LLC, and $185,000 in other third-party costs.
All work product has been preserved in the firm's document management system and organized for efficient retrieval. The two special purpose vehicles (QRF 2022-1 LLC and QRH LLC) remain validly formed and in good standing in the State of Delaware. Near-final transaction documents, draft legal opinions, and the Preliminary Offering Memorandum are maintained in the matter file in a state that would permit reactivation with relatively modest incremental effort if market conditions improve.
No further action is required by any member of the engagement team unless and until Quorum Insurance Holdings Corp. elects to reactivate the transaction or provides further instructions regarding the disposition of the SPVs or the matter file. Any questions regarding this memorandum, the dormancy procedures, the status of the work product, or any other aspect of the matter should be directed to the undersigned.
Douglas Carmichael Partner Calderwood & Harkness LLP 601 Lexington Avenue New York, NY 10022 Telephone: (212) 555-4800
Email: dcarmichael@calderwoodharkness.com
Distribution:
cc: Matter File (1025-00007)
Class | Principal Amount | % of Total | Preliminary Ratings (Brindoval / Pinnacle) | Coupon Guidance
Class A Notes | $375,000,000 | 75.0% | AAA(cr) / Aaa(p) | SOFR + 125 bps
Class B Notes | $75,000,000 | 15.0% | A(cr) / A1(p) | SOFR + 210 bps
Class C Notes | $35,000,000 | 7.0% | BBB(cr) / Baa2(p) | SOFR + 375 bps
OC / Retained Interest | $15,000,000 | 3.0% | Unrated | N/A
Total | $500,000,000 | 100.0%
Date | Event
June 28, 2022 | Engagement opened. Calderwood & Harkness LLP formally retained as issuer's counsel for the proposed securitization transaction. Engagement letter executed by Nolan Whitford on behalf of QIH. Matter No. 1025-00007 opened in the firm's matter management system.
June 30, 2022 | Cut-off date established for the initial receivables pool. QPF provided the initial data tape reflecting an aggregate outstanding principal balance of approximately $612,000,000 across approximately 82,400 loans.
July 11, 2022 | Kick-off call held with QIH treasury personnel (Sandra Ling-Hwang, Treasurer, and Nolan Whitford, General Counsel) and Ridgeline Capital Markets (Julian Weatherstone and Rebecca Tran). Discussion covered proposed transaction structure, timeline, capital structure alternatives, and rating agency strategy.
July 18, 2022 | Initial term sheet (v1) circulated by Ridgeline Capital Markets to all parties. Term sheet reflected the three-tranche capital structure with overcollateralization and proposed coupon guidance ranges.
July 25, 2022 | Transaction structure finalized following agreement among QIH, Ridgeline, and this firm on capital structure, credit enhancement levels, waterfall mechanics, and early amortization triggers. QIH Board authorized the formation of the SPVs and the engagement of counterparties.
August 3, 2022 | QRF 2022-1 LLC (Delaware Secretary of State File No. 7894231) and QRH LLC (Delaware Secretary of State File No. 7894228) formed as Delaware limited liability companies. LLC Agreements executed. Independent Manager Agreements with Fortbridge Corporate Services LLC executed. Ashgrove Services Inc. designated as registered agent for both entities.
August 8, 2022 | Rating agency presentations delivered to Brindoval Ratings Inc. and Pinnacle Rating Services LLC. Presentations included transaction overview, pool characteristics, historical performance data, cash flow modeling assumptions, and legal structure summary.
August 22, 2022 | Brindoval Ratings Inc. issued preliminary ratings of AAA(cr) for the Class A Notes, A(cr) for the Class B Notes, and BBB(cr) for the Class C Notes (Engagement No. CR-SF-2022-08812).
August 29, 2022 | Pinnacle Rating Services LLC issued preliminary ratings of Aaa(p) for the Class A Notes, A1(p) for the Class B Notes, and Baa2(p) for the Class C Notes (Engagement No. PRS-2022-ABS-3347).
September 6, 2022 | First drafts of the four principal transaction documents circulated by Calderwood & Harkness to all parties: Indenture (v1), Receivables Sale Agreement (v1), Receivables Transfer Agreement (v1), and Servicing Agreement (v1).
September 14, 2022 | First draft of the Preliminary Offering Memorandum circulated to QIH and Ridgeline for review and comment. The draft included pool stratification tables, cash flow waterfall descriptions, risk factors, and legal opinion summaries.
September 28, 2022 | Second-round document comments received from Calloway & Brandt (on behalf of Ridgeline), Ashfield & Greer (on behalf of Calvoneth Trust), and QIH. Concurrent rating agency Q&A session held with Brindoval and Pinnacle to address follow-up questions on pool performance and structural features.
October 12, 2022 | Near-final execution draft documentation package circulated to all parties. The package included: Indenture (v4), Receivables Sale Agreement (v3), Receivables Transfer Agreement (v3), Servicing Agreement (v3), Note Purchase Agreement (v3), and all ancillary agreements. The documentation was substantially agreed among the parties, subject to customary closing conditions and final pricing terms.
October 24, 2022 | Virtual investor roadshow commenced. Ridgeline Capital Markets coordinated a series of one-on-one and group investor presentations featuring QIH management (Sandra Ling-Hwang, Treasurer, and other members of QIH's treasury team) and Ridgeline's structuring team.
November 2, 2022 | Investor roadshow concluded. Ridgeline provided indicative pricing to QIH reflecting the materially widened spread environment. Indicative spreads were significantly above the initial coupon guidance established in the term sheet.
November 7, 2022 | Memorandum on Market Conditions and Spread Analysis prepared by Calderwood & Harkness and circulated internally within the firm and to QIH. The memorandum analyzed the ABS spread-widening trend, compared indicative pricing against QIH's cost-of-funds hurdle, and identified the economic shortfall.
November 10, 2022 | Letter from Calderwood & Harkness sent to the QIH Board of Directors recommending the shelving of the transaction based on the unfavorable spread environment and the exceedance of the board-approved cost-of-funds hurdle.
November 14, 2022 | QIH Board of Directors confirmed its decision to shelve the transaction. Nolan Whitford (General Counsel) communicated the decision to Calderwood & Harkness and to Ridgeline Capital Markets. Notification letter sent by QIH (with assistance from this firm) to Ridgeline formally advising of the transaction suspension and the cessation of all investor marketing activities.
November 18, 2022 | Transaction formally placed in dormant status. This memorandum prepared and circulated within the Calderwood & Harkness engagement team.
Class | Initial Guidance | Indicative Pricing | Widening
Class A Notes | SOFR + 125 bps | SOFR + 168 bps | +43 bps
Class B Notes | SOFR + 210 bps | SOFR + 285 bps | +75 bps
Class C Notes | SOFR + 375 bps | SOFR + 450 bps | +75 bps
Category | Amount
Calderwood & Harkness Legal Fees | $1,950,000
Rating Agency Fees (Brindoval + Pinnacle) | $420,000
Other Third-Party Costs | $185,000
Total | $2,555,000
Name | Role | Title
Douglas Carmichael | Responsible Partner | Partner, Structured Finance
Francesca Morano | Billing Partner | Partner, Capital Markets
Yuki Nakamura | Lead Associate | Senior Associate, Structured Finance
Carlos Espinoza | Working Associate | Associate, Structured Finance
Sylvia Hartwell | Tax Specialist Partner | Partner, Tax

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM

MATTER NO.: 1025-00007

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