MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
FROM: Douglas Carmichael, Responsible Partner, Calderwood & Harkness LLP
TO: Francesca Morano, Billing Partner, Calderwood & Harkness LLP
DATE: July 1, 2022
RE: Staffing Plan and Budget Estimate — Quorum Insurance Holdings Corp. $500,000,000 Insurance Premium Finance ABS Issuance
MATTER NO.: 1025-00007
CLIENT: Quorum Insurance Holdings Corp. ("QIH")
ISSUER: Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1")
1. Transaction Overview and Scope of Engagement
Calderwood & Harkness LLP was retained as issuer's counsel effective June 28, 2022, in connection with the structuring and execution of a $500,000,000 asset-backed securitization of insurance premium finance receivables on behalf of Quorum Insurance Holdings Corp. and its affiliates. This memorandum sets forth the proposed staffing plan and budget estimate for the engagement.
Issuer. The notes will be issued by Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1"), a bankruptcy-remote Delaware limited liability company to be formed as a special purpose entity for the sole purpose of issuing the notes and holding the receivables pool. QRF 2022-1 will have no operating history, no employees, and no assets other than those conveyed to it in connection with the securitization.
Originator / Seller / Servicer. Quorum Premium Finance LLC ("QPF"), a wholly owned subsidiary of QIH, will originate and sell the insurance premium finance receivables that will constitute the collateral for the notes. QPF will also serve as the initial servicer of the receivables pool pursuant to a servicing agreement.
Depositor / Intermediate SPV. Quorum Receivables Holding LLC ("QRH") will serve as the intermediate special purpose vehicle (the "Depositor") in the two-step transfer structure, receiving receivables from QPF and contributing or selling them to QRF 2022-1.
Sponsor. QIH, a Delaware corporation publicly traded on the New York Stock Exchange (ticker: QIHC), is headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. QIH will serve as the sponsor of the securitization and will also act as the administrator of QRF 2022-1 pursuant to an administration agreement.
Capital Structure. The proposed capital structure for the issuance is as follows:
Offering Format. The notes will be offered and sold in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and Regulation S under the Securities Act.
Underlying Assets. The collateral for the notes will consist of insurance premium finance receivables originated by QPF. As of the anticipated cut-off date of June 30, 2022, the initial receivables pool has an approximate aggregate principal balance of $612,000,000, comprising approximately 82,400 individual insurance premium finance loans.
Governing Law. All transaction documents will be governed by the laws of the State of New York, except as otherwise required (e.g., Delaware LLC formation documents, UCC filings).
Transaction Participants. The following parties and their respective roles have been identified for purposes of this engagement:
• Structuring Agent / Lead Bookrunner: Ridgeline Capital Markets LLC
• Indenture Trustee: Calvoneth Trust Company, N.A.
• Back-Up Servicer / Liquidity Provider: Northvane Bank, N.A.
• Rating Agencies: Brindoval Ratings Inc. and Pinnacle Rating Services LLC
• Underwriter's Counsel: Calloway & Brandt LLP
• Trustee's Counsel: Ashfield & Greer LLP
• Auditor: Meridian Ledger LLP
• Verification Agent: Veristead Analytics LLC
• Independent Manager Provider: Fortbridge Corporate Services LLC
Scope of Calderwood & Harkness Engagement. Our scope of work on this engagement encompasses the full range of legal services customarily required of issuer's counsel in a securitization transaction of this nature and complexity, including the following:
1. SPV Formation and Corporate Governance. Formation of QRF 2022-1 and QRH as Delaware limited liability companies; preparation of certificates of formation, limited liability company agreements with bankruptcy-remoteness provisions, separateness covenants, and non-petition clauses; negotiation of independent manager agreements with Fortbridge Corporate Services LLC; preparation and coordination of corporate authorizations, board resolutions, secretary's certificates, and manager's certificates.
2. Structuring Advice. Advice on capital structure, credit enhancement levels, payment waterfall mechanics, early amortization triggers, and reserve fund structures, in coordination with Ridgeline Capital Markets LLC and the rating agencies.
3. Transaction Document Drafting and Negotiation. Drafting and negotiation of all core transaction documents, including the indenture, receivables sale agreement, receivables transfer agreement, servicing agreement, back-up servicing agreement, note purchase agreement, liquidity facility agreement, account control agreement, custodian agreement, grant of security interest / pledge agreement, performance guaranty, and administration agreement.
4. Offering Memorandum and Investor Materials. Preparation of the preliminary and final offering memoranda, investor presentation materials, roadshow scripts, and related investor communications.
5. Legal Opinions. Preparation and delivery of all legal opinions required for the transaction, including true sale opinions (at each transfer level), enforceability opinions, security interest perfection opinions (UCC Article 9), tax characterization opinions (debt treatment of notes and disregarded entity status of QRF 2022-1), no registration required opinions (Rule 144A / Regulation S), Delaware LLC valid formation and authorization opinions (for both QRF 2022-1 and QRH), and non-consolidation opinions.
6. UCC Perfection and Filing. Analysis of the proper characterization of the receivables under the Uniform Commercial Code, preparation of UCC-1 financing statements at each transfer level, priority analysis, and coordination of filings with the Delaware Secretary of State.
7. Regulatory Compliance Analysis. Preparation of memoranda addressing the applicability of Regulation AB II, the Volcker Rule, Dodd-Frank risk retention requirements, and state insurance premium finance licensing requirements.
8. Rating Agency Engagement Support. Preparation of presentation materials for Brindoval Ratings Inc. and Pinnacle Rating Services LLC; support through the preliminary and final rating processes; preparation of responses to rating agency criteria and information requests.
9. Tax Structuring. Federal income tax characterization analysis, FATCA compliance analysis, and state tax nexus analysis (led by Sylvia Hartwell, specialist tax partner).
10. Diligence Support. Review of receivables pool data and eligibility criteria, insurance carrier counterparty analysis, servicer operational diligence, and coordination with the verification agent.
11. Closing Coordination. Preparation of master closing checklists, coordination of conditions precedent, preparation of closing certificates, execution and delivery of final documents and opinions, and post-closing compilation and blue-sky compliance.
2. Staffing Plan
2.1 Engagement Team Members
The engagement will be staffed with a team that balances senior-level strategic oversight with the capacity for intensive document production and deal execution. Set forth below is a description of each team member's role, anticipated contributions, and estimated hour commitment.
Douglas Carmichael — Responsible Partner.
Practice Group: Litigation (General). Mr. Carmichael serves as the responsible partner on this structured finance engagement.
Role: Mr. Carmichael will provide overall engagement supervision and strategic structuring guidance throughout the life of the transaction. His specific responsibilities will include: participating in and directing senior-level negotiations with counterparty counsel, including Calloway & Brandt LLP (Harrison Collier, lead partner) and Ashfield & Greer LLP (Vivian Sato); managing the client relationship with Nolan Whitford, General Counsel of QIH; reviewing and approving all opinions to be delivered at closing; interfacing with the QIH Board of Directors as needed on matters requiring board-level attention or authorization; and providing final sign-off on all major deliverables, including the offering memorandum, the indenture, and the note purchase agreement. Mr. Carmichael will also oversee the allocation of work among team members and ensure that quality standards and internal protocols are maintained throughout the engagement.
Estimated Hours: 180–220 hours over the life of the engagement.
Standard Billing Rate: $1,475 per hour.
Francesca Morano — Billing Partner.
Practice Group: Litigation (General).
Role: Ms. Morano will serve as the billing partner on this engagement, with primary responsibility for billing oversight, budget monitoring, and staffing adjustments as circumstances require. In addition to her administrative responsibilities, Ms. Morano will provide secondary review of key transaction documents, including the indenture, the note purchase agreement, and the offering memorandum, and will co-sign significant opinion letters as appropriate. Ms. Morano's involvement will serve as an additional quality-control layer, particularly during the intensive document drafting and negotiation phases of the engagement.
Estimated Hours: 60–80 hours.
Standard Billing Rate: $1,425 per hour.
Yuki Nakamura — Lead Associate.
Practice Group: Litigation (General).
Role: Ms. Nakamura will serve as the lead associate and primary day-to-day manager of document production and deal execution. She will be responsible for first-pen drafting of the principal transaction documents, including the indenture, the receivables sale agreement, the receivables transfer agreement, the note purchase agreement, the offering memorandum, and the servicing agreement. Ms. Nakamura will coordinate directly with all counterparties and their respective counsel throughout the negotiation process. In addition, she will prepare regulatory compliance memoranda addressing the applicability of Regulation AB II and the Volcker Rule, analyze rating agency criteria and map those criteria to the proposed structural features, prepare diligence memoranda on receivable eligibility criteria, and manage the master closing checklist and conditions precedent tracker. Ms. Nakamura will also be responsible for drafting the investor presentation deck and roadshow materials for the virtual roadshow.
Estimated Hours: 550–650 hours.
Standard Billing Rate: $895 per hour.
Carlos Espinoza — Working Associate.
Practice Group: Litigation (General).
Role: Mr. Espinoza will serve as the working associate, providing supporting drafting on the full suite of ancillary transaction documents, including the back-up servicing agreement, account control agreement, custodian agreement, administration agreement, liquidity facility agreement, performance guaranty, and pledge agreement. Mr. Espinoza will also be responsible for the UCC perfection analysis and preparation of draft UCC-1 financing statements at each transfer level; preparation of the risk retention compliance memorandum; preparation of the state premium finance licensing memorandum (covering all 50 states); receivables pool diligence and sample file review; insurance carrier counterparty review (including analysis of single-carrier concentration limits); preparation of the servicer operational diligence memorandum on QPF; drafting of the SPV formation documents (certificates of formation, LLC agreements, and independent manager agreements); and preparation of closing certificates.
Estimated Hours: 450–550 hours.
Standard Billing Rate: $750 per hour.
Sylvia Hartwell — Specialist Partner (Tax).
Practice Group: Tax.
Role: Ms. Hartwell will lead all tax structuring and advisory work on the engagement. Her specific responsibilities will include: federal income tax characterization analysis of QRF 2022-1, including the disregarded entity analysis under Treasury Regulations Section 301.7701-3; preparation of the true sale opinion for federal income tax purposes; preparation of the tax characterization opinion addressing the treatment of the notes as indebtedness for federal income tax purposes; FATCA compliance analysis addressing the obligations of QRF 2022-1 and the indenture trustee under the Foreign Account Tax Compliance Act; state tax nexus analysis for both QRF 2022-1 and QRH; and review and approval of the tax disclosure section of the offering memorandum. Ms. Hartwell will coordinate with the broader engagement team to ensure that tax considerations are properly integrated into the structural design and documentation.
Estimated Hours: 120–160 hours.
Standard Billing Rate: $1,550 per hour.
2.2 Support Staff and Resources
In addition to the attorney team members identified above, the engagement will require paralegal support for document management, closing logistics, UCC search coordination, and Delaware Secretary of State filings. We anticipate that paralegal support will be drawn primarily from our Structured Finance Paralegal Group, with hours allocated as follows:
Estimated Paralegal Hours: 100–150 hours.
Paralegal Billing Rate: $350 per hour.
Paralegal responsibilities will include, without limitation: maintaining the master closing checklist and tracking conditions precedent; coordinating the assembly and indexing of closing binders; managing document versions in the virtual data room; processing and tracking UCC searches and filings with the Delaware Secretary of State; coordinating the preparation and filing of certificates of formation; organizing and cataloguing signature pages; and supporting the team with administrative and logistical tasks during the closing process.
Should the transaction timeline compress or the scope of work expand beyond current expectations, additional associate support may be required. Any such additions to the engagement team will be subject to Ms. Morano's prior approval and will be communicated to Nolan Whitford at QIH before any additional timekeepers begin recording time on the matter.
2.3 Staffing Summary Table
The following table summarizes the proposed staffing for this engagement:
3. Budget Estimate
3.1 Total Estimated Legal Fees
Based on the staffing plan described in Section 2, the scope of work outlined in Section 1, and our experience with comparable insurance premium finance ABS transactions, we estimate that total professional fees for Calderwood & Harkness's engagement on this matter will be approximately $2,800,000. This estimate covers all phases of the engagement from initial structuring through closing, and is inclusive of all attorney and paralegal time.
This estimate is consistent with the fee projection set forth in the engagement letter dated June 28, 2022, delivered to Nolan Whitford, General Counsel of QIH, and countersigned on behalf of QIH on the same date.
The budget estimate assumes a transaction timeline of approximately five to six months from the date of engagement to closing, with a target closing in the fourth quarter of 2022 (late November or early December 2022). This timeline is consistent with the preliminary schedule discussed with Ridgeline Capital Markets LLC and with the client during the engagement kick-off call.
It is important to note that this estimate is not a fixed fee, a fee cap, or a "not-to-exceed" commitment. Actual fees will be billed on a time-incurred basis at the standard billing rates of the individual timekeepers set forth in Section 2. Material changes in the scope of the engagement, significant delays in the transaction timeline, unanticipated regulatory developments, protracted or multi-round negotiations with counterparty counsel, or other circumstances beyond our control may cause actual fees to exceed or fall below this estimate. In the event that we anticipate a material variance from this budget, we will promptly notify Ms. Morano and communicate the revised estimate to the client.
3.2 Budget Breakdown by Phase
The engagement has been organized into five sequential phases, with estimated fee allocations as set forth below. The phased approach allows for ongoing monitoring of actual expenditures against projected costs at each stage and facilitates early identification of any budget variances.
Phase 1: Structuring and SPV Formation (July 2022). Estimated Fees: $420,000
Phase 1 encompasses the initial structuring analysis, formation of the special purpose entities, and preparation of the foundational regulatory and analytical memoranda that will guide the remainder of the engagement. This phase will commence immediately and is expected to be substantially completed by the end of July 2022, with certain SPV formation filings extending into early August 2022.
Key Deliverables:
• Capital structure alternatives analysis. A memorandum analyzing alternative capital structures, credit enhancement levels, and subordination ratios, with recommendations for the optimal structure in light of anticipated rating agency criteria and market conditions.
• Kick-off call coordination. Organization and facilitation of the transaction kick-off call with all parties, currently scheduled for July 11, 2022. Preparation of the call agenda and distribution of preliminary materials.
• Initial term sheet drafting and circulation. Preparation and circulation of the initial indicative term sheet (v1) summarizing the proposed capital structure, payment waterfall, eligibility criteria, credit enhancement, early amortization triggers, and other key structural features. Target circulation date: July 18, 2022.
• Structure finalization. Finalization of the capital structure and key structural terms in coordination with Ridgeline Capital Markets, with target completion by July 25, 2022.
• SPV formation. Preparation and filing of Certificates of Formation for QRF 2022-1 (anticipated DE SOS File No. 7894231) and QRH (anticipated DE SOS File No. 7894228) with the Delaware Secretary of State. Target filing date: early August 2022. Preparation of limited liability company agreements for both entities, incorporating bankruptcy-remoteness provisions, separateness covenants, non-petition clauses, and limitations on the powers and activities of each entity.
• Independent manager agreements. Negotiation and execution of independent manager agreements with Fortbridge Corporate Services LLC, appointing Timothy R. Callan as the independent manager of QRF 2022-1 and Eleanor M. Vasquez as the independent manager of QRH.
• Corporate authorizations. Preparation and coordination of QIH Board resolutions authorizing the transaction, including a Secretary's Certificate, and preparation of a QPF Manager's Certificate (Sandra Ling-Hwang, Manager of QPF) authorizing QPF's participation in the transaction as originator, seller, and servicer.
• Structural diagram and cashflow schematic. Preparation of a transaction structure diagram and detailed cashflow schematic illustrating the flow of funds from obligors through the collection accounts, through the payment waterfall, and to the noteholders.
• Rating agency criteria memorandum. Preparation of a memorandum mapping the proposed structural features of the transaction against the published criteria of Brindoval Ratings Inc. and Pinnacle Rating Services LLC for insurance premium finance ABS transactions, identifying potential gaps or areas requiring additional credit enhancement or structural modification.
• Regulatory compliance memoranda. Preparation of separate memoranda addressing: (i) the applicability of Regulation AB II to the transaction and the related reporting and disclosure obligations; (ii) Volcker Rule considerations, including the status of QRF 2022-1 as a "covered fund" under the Volcker Rule and the availability of applicable exemptions; and (iii) Dodd-Frank risk retention analysis, including the obligation of QIH as sponsor to retain not less than 5% of the credit risk of the securitized assets and the permissible forms of risk retention (horizontal, vertical, or L-shaped).
• State premium finance licensing survey. Preparation of a comprehensive survey of insurance premium finance licensing requirements in all 50 states and the District of Columbia, with confirmation of QPF's licensing status in each jurisdiction.
Primary Timekeepers: Yuki Nakamura, Carlos Espinoza, Douglas Carmichael.
Phase 2: Rating Agency Engagement and Due Diligence (August 2022). Estimated Fees: $480,000
Phase 2 covers the rating agency engagement process, including preparation of presentation materials, support through the preliminary rating process, and the parallel due diligence workstream. This phase is expected to be substantially completed by the end of August 2022.
Key Deliverables:
• Rating agency presentation materials. Preparation of comprehensive rating agency presentation decks for Brindoval Ratings Inc. (primary analyst: Andrew Petrosian) and Pinnacle Rating Services LLC (primary analyst: Monica Sung). Rating agency presentations are currently scheduled for August 8, 2022.
• Preliminary rating process support. Ongoing support throughout the preliminary rating process, including responses to rating agency inquiries, provision of supplemental data and analysis, and coordination with the rating agencies on structural features and credit enhancement levels. Target dates for receipt of preliminary ratings: Brindoval — August 22, 2022; Pinnacle — August 29, 2022.
• Revised term sheet (v2). Preparation and circulation of a revised term sheet incorporating rating agency feedback, including any modifications to concentration limits, early amortization triggers, or credit enhancement levels.
• Receivables pool diligence. Comprehensive review of the receivables pool as of the anticipated cut-off date (June 30, 2022), including analysis of the following pool characteristics: aggregate principal balance of approximately $612,000,000; approximately 82,400 individual loans; weighted average annual percentage rate of 7.85%; 60+ day delinquency rate of 0.87%; and historical net loss rate of 0.42%. Review will include analysis of pool stratification by state, insurance carrier, remaining term, APR band, loan balance, and delinquency status.
• Eligibility criteria analysis and representations/warranties mapping. Analysis of the proposed eligibility criteria for receivables to be included in the initial pool and for subsequent additions (if applicable), and mapping of seller representations and warranties to the eligibility criteria.
• Insurance carrier counterparty review. Review of the insurance carrier concentration in the receivables pool, with particular attention to the proposed single carrier concentration limit of not greater than 15% of the aggregate pool balance.
• Servicer operational diligence on QPF. Preparation of a servicer operational diligence memorandum addressing QPF's servicing capabilities, systems, staffing, and track record. QPF currently services a total portfolio of approximately $2.1 billion in insurance premium finance receivables.
• Tax structuring memorandum. Preparation by Sylvia Hartwell of a comprehensive tax structuring memorandum addressing the federal income tax treatment of the transaction, including the characterization of QRF 2022-1 as a disregarded entity for federal income tax purposes under Treasury Regulations Section 301.7701-3.
• FATCA compliance memorandum. Preparation by Sylvia Hartwell of a memorandum analyzing the obligations of QRF 2022-1 and the indenture trustee under the Foreign Account Tax Compliance Act (FATCA), including withholding and reporting requirements.
• State tax nexus analysis. Preparation by Sylvia Hartwell of an analysis of state tax nexus considerations for QRF 2022-1 and QRH, including potential state income tax and franchise tax obligations.
Primary Timekeepers: Yuki Nakamura, Carlos Espinoza, Sylvia Hartwell, Douglas Carmichael.
Phase 3: Transaction Document Drafting and Negotiation (September – October 2022). Estimated Fees: $1,180,000
Phase 3 is the most labor-intensive phase of the engagement and encompasses the drafting, circulation, and negotiation of all core and ancillary transaction documents, as well as the UCC perfection analysis and related filings. This phase is expected to extend from early September through mid-October 2022 and represents the largest single component of the budget.
Key Deliverables:
Core Transaction Documents. Drafting and negotiation of the following documents:
• Indenture (between QRF 2022-1 and Calvoneth Trust Company, N.A., as indenture trustee). The indenture will govern the issuance of the Class A Notes ($375,000,000), Class B Notes ($75,000,000), and Class C Notes ($35,000,000). Key provisions will include: the payment waterfall (sequential pay structure: trustee fees and expenses → servicing fee → Class A Note interest → Class B Note interest → Class C Note interest → Class A Note principal → Class B Note principal → Class C Note principal → overcollateralization replenishment → residual distributions); events of default; and early amortization triggers, including: (i) three-month average net loss rate exceeding 2.00%; (ii) 60+ day delinquency rate exceeding 3.50%; (iii) available funds cap deficit for two consecutive collection periods; (iv) servicer default or servicer credit downgrade; and (v) aggregate outstanding pool balance declining below $450,000,000.
• Receivables Sale Agreement (QPF, as seller, and QRH, as purchaser). This agreement will effect the true sale of receivables from QPF to QRH and will contain detailed eligible receivables criteria, including: (i) receivables denominated in U.S. dollars; (ii) receivables secured by unearned premium refund rights; (iii) original term not exceeding 12 months; (iv) obligors that are U.S. commercial policyholders; (v) receivables not in default as of the cut-off date; and (vi) receivables that are compliant with applicable usury and licensing requirements. The agreement will also contain concentration limits, including: single obligor concentration not exceeding 0.75% of the aggregate pool balance; single state concentration not exceeding 20%; and single insurance carrier concentration not exceeding 15%.
• Receivables Transfer Agreement (QRH, as transferor, and QRF 2022-1, as transferee). This agreement will effect the contribution and/or sale of receivables from QRH to QRF 2022-1, with a back-up security interest granted in favor of QRF 2022-1 in the event the transfer is recharacterized as a secured loan rather than a true sale.
• Servicing Agreement (QRF 2022-1, QPF as servicer, and Calvoneth Trust Company, N.A., as indenture trustee). Key terms will include: a servicing fee of 1.00% per annum on the outstanding pool balance (approximately $510,000 per month at the initial pool balance); detailed collection procedures; monthly and quarterly reporting requirements; and servicer termination events.
• Back-Up Servicing Agreement (QRF 2022-1, QPF, Northvane Bank, N.A. as back-up servicer, and Calvoneth Trust Company, N.A.). Key terms will include: a back-up servicing fee of $50,000 per year ($12,500 per quarter); warm standby arrangements; periodic data transfer and systems testing; and transition procedures in the event of a servicer termination.
• Note Purchase Agreement (QRF 2022-1, QIH, and Ridgeline Capital Markets LLC). This agreement will set forth the terms of the placement of the notes, including: placement fees (0.30% on Class A Notes = $1,125,000; 0.45% on Class B Notes = $337,500; 0.60% on Class C Notes = $210,000; total placement fees of $1,672,500); Rule 144A / Regulation S transfer restrictions; representations and warranties of the issuer and the sponsor; closing conditions; and indemnification provisions.
• Liquidity Facility Agreement (QRF 2022-1 and Northvane Bank, N.A.). Key terms will include: a $25,000,000 liquidity commitment; a commitment fee of 0.25% per annum on the undrawn commitment ($62,500 per year); and a drawn rate of SOFR plus 150 basis points.
• Account Control Agreement (QRF 2022-1 and Calvoneth Trust Company, N.A., as securities intermediary). This agreement will establish the trust accounts and provide for the control of such accounts by the indenture trustee.
• Custodian Agreement (QRF 2022-1 and Calvoneth Trust Company, N.A., as custodian). This agreement will govern the custody of the receivable files and related documents.
• Grant of Security Interest / Pledge Agreement (QRF 2022-1, as grantor, and Calvoneth Trust Company, N.A., as secured party). This agreement will grant Calvoneth Trust a first-priority security interest in all receivables, collections, accounts, and other collateral held by QRF 2022-1 for the benefit of the noteholders.
• Performance Guaranty (QIH, as guarantor, and Calvoneth Trust Company, N.A., as beneficiary). QIH will guaranty the obligations of QPF in its capacities as seller and servicer under the receivables sale agreement and the servicing agreement.
• Administration Agreement (QRF 2022-1 and QIH, as administrator). QIH will provide certain administrative services to QRF 2022-1, including tax return preparation, regulatory filings, and general corporate administration.
Additional Phase 3 Deliverables:
• Finalized term sheet (v3). Target circulation date: September 2, 2022.
• First drafts of transaction documents. Target circulation of first drafts of all core transaction documents: September 6, 2022. Target circulation of the first draft of the offering memorandum: September 14, 2022.
• Negotiation rounds. Substantive negotiation rounds with Calloway & Brandt LLP (Harrison Collier and Megan O'Shaughnessy, underwriter's counsel), Ashfield & Greer LLP (Vivian Sato, trustee's counsel), Northvane Bank, N.A. (back-up servicer and liquidity provider), and Ridgeline Capital Markets LLC.
• Near-final execution draft documentation package. Target date for circulation of the near-final execution draft of all transaction documents: October 12, 2022.
• Rating agency Q&A support. Ongoing support for rating agency questions and follow-up requests during the document drafting period, including preparation and circulation of a letter to Brindoval Ratings Inc. and Pinnacle Rating Services LLC confirming satisfaction of preliminary rating conditions.
• UCC perfection analysis memorandum. Preparation of a comprehensive memorandum analyzing the characterization of the receivables under the Uniform Commercial Code (as payment intangibles versus accounts), the filing requirements at each level of transfer (QPF to QRH, QRH to QRF 2022-1, and QRF 2022-1 to Calvoneth Trust), and the priority of the security interests created at each level.
• Draft UCC-1 financing statements. Preparation of three draft UCC-1 financing statements for filing with the Delaware Secretary of State: (i) QPF (debtor) / QRH (secured party); (ii) QRH (debtor) / QRF 2022-1 (secured party); and (iii) QRF 2022-1 (debtor) / Calvoneth Trust Company, N.A. (secured party).
• Tax disclosure review. Review by Sylvia Hartwell of the tax considerations section of the offering memorandum, including federal income tax, state and local tax, and FATCA-related disclosures.
Primary Timekeepers: Yuki Nakamura, Carlos Espinoza, Douglas Carmichael, Francesca Morano (review), Sylvia Hartwell (tax sections).
Phase 4: Offering Memorandum, Opinions, and Investor Materials (October 2022). Estimated Fees: $480,000
Phase 4 encompasses the finalization of the offering memorandum, the preparation of all legal opinions, and the preparation of investor marketing materials. This phase will overlap to some extent with the latter portion of Phase 3 and is expected to extend through the end of October 2022.
Key Deliverables:
• Preliminary Offering Memorandum (v3). Finalization of the preliminary offering memorandum, including: a detailed description of the receivables pool (including pool composition, stratification tables, and historical performance data); comprehensive risk factors; description of structural features (including the payment waterfall, credit enhancement, and early amortization triggers); credit enhancement levels (Class A: 25.0%; Class B: 10.0%; Class C: 3.0%); preliminary ratings (Brindoval Ratings: AAA(cr) / A(cr) / BBB(cr); Pinnacle Rating Services: Aaa(p) / A1(p) / Baa2(p)); tax considerations; and a summary of the legal opinions to be delivered at closing.
• Pool stratification supplement tables. Preparation of supplemental pool stratification tables (by state, insurance carrier, remaining term, APR band, loan balance, and delinquency status), coordinated with Veristead Analytics LLC (Katharine Drummond, engagement manager) for third-party verification and reconciliation of the pool tape data.
• Investor presentation deck. Preparation of a comprehensive investor presentation deck for the virtual roadshow, which is scheduled to commence on October 24, 2022.
• Roadshow script and talking points. Preparation of a detailed roadshow script and talking points for use by QIH management and Ridgeline Capital Markets during investor presentations, compliance-reviewed for consistency with Rule 144A disclosure requirements.
• Investor Q&A compilation. Compilation of anticipated investor questions and preparation of suggested responses, covering credit, structural, legal, tax, and regulatory topics.
• Legal opinions. Drafting of all eight legal opinions required for the transaction. All opinions will remain in draft form unless and until the transaction proceeds to closing. The opinions to be prepared are:
1. True sale opinion (QPF → QRH) — opining that the transfer of receivables from QPF to QRH constitutes a true sale and not a secured loan.
2. True sale opinion (QRH → QRF 2022-1) — opining that the transfer of receivables from QRH to QRF 2022-1 constitutes a true sale and not a secured loan.
3. Enforceability opinion (Indenture and Notes) — opining that the indenture and the notes constitute the legal, valid, and binding obligations of QRF 2022-1, enforceable in accordance with their terms.
4. Security interest perfection opinion (UCC Article 9) — opining that the UCC-1 financing statements, when properly filed, will perfect a first-priority security interest in the receivables and related collateral.
5. Tax characterization opinion (debt treatment; QRF 2022-1 as disregarded entity) — prepared by Sylvia Hartwell — opining that the notes will be treated as indebtedness for federal income tax purposes and that QRF 2022-1 will be treated as a disregarded entity.
6. No registration required opinion (Rule 144A / Regulation S) — opining that the offering and sale of the notes in accordance with the procedures described in the offering memorandum is exempt from the registration requirements of the Securities Act.
7. Delaware LLC valid formation and authorization opinion (QRF 2022-1) — opining that QRF 2022-1 has been duly formed as a Delaware limited liability company and has the requisite power and authority to enter into the transaction documents.
8. Delaware LLC valid formation and authorization opinion (QRH) — opining that QRH has been duly formed as a Delaware limited liability company and has the requisite power and authority to enter into the transaction documents.
• Non-consolidation opinions. Preparation of draft non-consolidation opinions for QRF 2022-1 and QRH, opining that the assets of each entity would not be substantively consolidated with those of QIH or QPF in a bankruptcy proceeding.
• Coordination with Meridian Ledger LLP. Coordination with Robert Falcone of Meridian Ledger LLP regarding the agreed-upon procedures letter and the comfort letter to be delivered in connection with the offering.
Primary Timekeepers: Douglas Carmichael, Yuki Nakamura, Carlos Espinoza, Sylvia Hartwell, Francesca Morano (review).
Phase 5: Closing and Post-Closing (November 2022, if closing proceeds). Estimated Fees: $240,000
Phase 5 covers the final preparation for closing, the closing itself, and post-closing activities. This phase is contingent on the transaction proceeding to closing and is targeted for completion in November 2022 (or early December 2022, depending on market conditions and investor demand). If the transaction is deferred, shelved, or cancelled, the costs associated with this phase will be reduced or eliminated, and fees will be billed only for work actually performed.
Key Deliverables:
• Finalization and execution of all transaction documents. Final conforming of all transaction documents, coordination of signature pages, and execution and delivery of all agreements.
• Filing of UCC-1 financing statements. Filing of the three UCC-1 financing statements with the Delaware Secretary of State and confirmation of filing.
• Closing certificates. Preparation of closing certificates for QIH/QPF, QRF 2022-1, and Calvoneth Trust Company, N.A., certifying the satisfaction of closing conditions.
• Final opinion letter delivery. Finalization and delivery of all eight legal opinions and the two non-consolidation opinions described in Phase 4.
• Master closing checklist completion. Final review and completion of the master closing checklist, confirmation of the satisfaction of all conditions precedent to closing, and coordination with all parties to ensure timely completion.
• Post-closing activities. Final document compilation and assembly of closing binders; distribution of executed documents to all parties; blue-sky compliance confirmations; and preparation of a post-closing memorandum summarizing the completed transaction.
Note: This phase is contingent on the transaction proceeding to closing. In the event that the transaction does not close, costs associated with this phase will be reduced accordingly. Work product generated during earlier phases will be preserved in the matter files for potential future reactivation of the transaction.
Primary Timekeepers: Yuki Nakamura, Carlos Espinoza, Douglas Carmichael.
3.3 Budget Summary Table
3.4 Disbursements and Third-Party Costs
The $2,800,000 budget set forth above covers Calderwood & Harkness professional fees only and does not include disbursements or third-party costs.
Disbursements. Filing fees (including Delaware Secretary of State filing fees for certificates of formation and UCC-1 financing statements), travel expenses (if in-person meetings or closings are required), printing and reproduction costs, data room hosting fees, overnight courier charges, and other out-of-pocket disbursements are estimated separately and will be billed to the client at cost. We estimate total disbursements in the range of $25,000 to $40,000 for the engagement.
Third-Party Costs. The following third-party costs will be borne directly by QIH and are not included in the Calderwood & Harkness budget or disbursement estimate:
• Rating agency fees. Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812) and Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347). Combined estimated rating agency fees: approximately $420,000.
• Structuring and diligence costs. Fees payable to Ridgeline Capital Markets LLC, Veristead Analytics LLC, and other third-party advisors. Estimated at approximately $185,000.
• Calvoneth Trust Company, N.A. Trustee acceptance fee, annual trustee fee, and initial set-up costs.
• Northvane Bank, N.A. Back-up servicer set-up costs and liquidity facility arrangement fees.
• Fortbridge Corporate Services LLC. Independent manager fees for Timothy R. Callan (QRF 2022-1) and Eleanor M. Vasquez (QRH).
• Meridian Ledger LLP. Fees for the comfort letter and agreed-upon procedures engagement (Robert Falcone, engagement partner).
4. Budget Assumptions and Caveats
The budget estimate set forth in this memorandum is based on a number of assumptions and is subject to the following caveats:
1. Timeline. The budget assumes a transaction timeline of approximately five to six months from the date of engagement (June 28, 2022) to closing, with a target closing in late November or early December 2022. Significant delays in the transaction timeline—whether caused by market disruption, regulatory developments, rating agency process delays, counterparty unresponsiveness, or other factors—may increase the total fees incurred.
2. Negotiation Assumptions. The budget assumes a single round of substantive negotiation on the core transaction documents with Calloway & Brandt LLP (underwriter's counsel) and Ashfield & Greer LLP (trustee's counsel), followed by resolution of open points and conforming of execution drafts. Additional rounds of substantive negotiation could increase Phase 3 costs materially.
3. Rating Agency Process. The budget assumes a smooth and timely rating agency process, with preliminary ratings achieved by the end of August 2022. Significant re-structuring demands by Brindoval Ratings Inc. or Pinnacle Rating Services LLC—such as requirements for additional credit enhancement, modified early amortization triggers, or fundamental changes to the capital structure—could increase costs across multiple phases.
4. No Litigation or Enforcement. The budget does not include any contingency for litigation, enforcement actions, workout scenarios, or disputes arising from or in connection with the transaction. Any such matters would be scoped and budgeted separately.
5. Client Cooperation. The budget assumes timely cooperation and responsiveness from the QIH in-house legal team, including Nolan Whitford (General Counsel) and Sandra Ling-Hwang (Manager of QPF), and from QPF's operations, finance, and IT teams in connection with data requests, diligence information, and review of documents. Delays in client responses may result in increased costs due to inefficiency, rework, or the need to maintain staffing levels during periods of inactivity.
6. Transaction Suspension or Cancellation. In the event that the transaction is delayed, shelved, or cancelled, fees will be billed for work performed through the date of suspension. All work product generated will be preserved in the matter files for potential future reactivation of the transaction.
7. Material Scope Changes. Any material change in the size of the transaction (e.g., an increase or decrease in the aggregate principal amount of notes), the structure of the transaction (e.g., additional tranches, a revolving structure, or a master trust format), or the applicable regulatory landscape (e.g., new SEC rulemaking affecting securitization disclosure or retention requirements) may require a revision of this budget estimate. Any such revision will be discussed with Ms. Morano and communicated to the client before additional work is undertaken.
8. Billing Procedures. Billing will be on a monthly basis, with invoices prepared on a time-incurred basis reflecting the hours recorded by each timekeeper during the applicable billing period. Interim fee statements will be directed to Francesca Morano for review and approval before transmission to Nolan Whitford and Priya Raghavan at QIH for payment.
5. Key Counterparty Counsel and Coordination
Given the number of parties involved in this transaction and the complexity of the documentation, a significant portion of the engagement team's time—particularly during Phases 3 and 4—will be devoted to coordination and negotiation with counterparty counsel and other transaction participants. The following sets forth the anticipated volume and nature of interaction with each key counterparty.
Calloway & Brandt LLP (Harrison Collier, partner; Megan O'Shaughnessy, associate) — underwriter's counsel to Ridgeline Capital Markets LLC. Calloway & Brandt will be the primary negotiation counterpart on the indenture, the note purchase agreement, and the offering memorandum. We anticipate extensive interaction with their team throughout Phases 3 and 4, including multiple rounds of document mark-ups, conference calls, and in-person or virtual negotiation sessions on key commercial and legal terms.
Ashfield & Greer LLP (Vivian Sato, partner) — counsel to Calvoneth Trust Company, N.A. Ashfield & Greer will negotiate trustee-related provisions across multiple documents, including the indenture, the servicing agreement, the account control agreement, and the custodian agreement, as well as indemnification provisions and closing deliverables applicable to the trustee.
Ridgeline Capital Markets LLC (Julian Weatherstone, Managing Director; Rebecca Tran, Vice President). Calderwood & Harkness will coordinate closely with Ridgeline on structuring decisions, pricing, investor marketing strategy, and the content of the offering memorandum and investor presentation materials. Ridgeline will also be the primary point of contact for investor feedback during the roadshow process.
Northvane Bank, N.A. (Diane Coletti, Vice President, Structured Finance). Coordination with Northvane will cover both the back-up servicing arrangement and the liquidity facility. We anticipate substantive negotiation of both the back-up servicing agreement and the liquidity facility agreement.
Fortbridge Corporate Services LLC. Coordination on the appointment and qualification of the independent managers for QRF 2022-1 and QRH, including review of standard form independent manager agreements and any modifications required for this transaction.
Meridian Ledger LLP (Robert Falcone, partner). Coordination regarding the scope and timing of the comfort letter and the agreed-upon procedures engagement in connection with the offering memorandum.