PRIVILEGED AND CONFIDENTIAL
DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR RELIANCE
CALDERWOOD & HARKNESS LLP 601 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
DRAFT — October 10, 2022
Quorum Receivables Funding 2022-1 LLC c/o Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, CT 06901
Attention: Nolan Whitford, General Counsel
Sandra Ling-Hwang, Treasurer
Copy to:
Ridgeline Capital Markets LLC 383 Madison Avenue, 14th Floor New York, NY 10179
Attention: Julian Weatherstone, Head of ABS Origination
Calvoneth Trust Company, N.A. 600 Travis Street, Suite 5800 Houston, TX 77002
Attention: Gerald K. Fontaine, Senior Trust Officer
Re: Federal Income Tax Characterization of (i) the Class A Notes, Class B Notes, and Class C Notes (collectively, the "Notes") to be issued by Quorum Receivables Funding 2022-1 LLC (the "Issuer") and (ii) the Federal Income Tax Status of the Issuer, in connection with the proposed issuance of $500,000,000 aggregate principal amount of Notes, comprising $375,000,000 Class A Floating Rate Asset-Backed Notes (preliminary ratings AAA(cr) / Aaa(p)), $75,000,000 Class B Floating Rate Asset-Backed Notes (preliminary ratings A(cr) / A1(p)), and $35,000,000 Class C Floating Rate Asset-Backed Notes (preliminary ratings BBB(cr) / Baa2(p))
Ladies and Gentlemen:
I. INTRODUCTION AND ENGAGEMENT
Calderwood & Harkness LLP ("we," "us," or "Calderwood & Harkness") has acted as issuer's counsel to Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"), a Delaware limited liability company, in connection with the proposed issuance by the Issuer of $500,000,000 in aggregate principal amount of floating rate asset-backed notes (the "Notes"), consisting of $375,000,000 Class A Floating Rate Asset-Backed Notes (the "Class A Notes"), $75,000,000 Class B Floating Rate Asset-Backed Notes (the "Class B Notes"), and $35,000,000 Class C Floating Rate Asset-Backed Notes (the "Class C Notes").
Our engagement has been conducted through Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation publicly traded on the New York Stock Exchange under the ticker symbol "QIHC," headquartered at 400 Atlantic Street, Suite 2200, Stamford, CT 06901. QIH serves as the parent company and sponsor of the securitization transaction described herein. This engagement is tracked under Calderwood & Harkness Matter No. 1025-00007. This draft opinion has been prepared by Sylvia Hartwell, Partner (Tax), Calderwood & Harkness LLP.
This draft opinion has been prepared for inclusion in or delivery in connection with the closing of the offering of the Notes pursuant to a Note Purchase Agreement (as defined below) among QRF 2022-1, QIH, and Ridgeline Capital Markets LLC (the "Initial Purchaser"). The Notes are being offered in reliance on the exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and Regulation S promulgated thereunder. Accordingly, the Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to U.S. persons except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
This is a draft for discussion purposes only and may not be relied upon by any party for any purpose. The final version of this opinion is intended to be delivered at the closing of the offering of the Notes, subject to the completion of all conditions precedent to such closing, including execution and delivery of all Transaction Documents (as defined below) in final form and the satisfaction of all other customary closing conditions. Until such final delivery, no opinion is being rendered, and no reliance may be placed on the analysis or conclusions set forth herein.
II. DOCUMENTS AND MATERIALS REVIEWED
In rendering the opinions set forth herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents and materials (collectively, the "Transaction Documents"):
1. Preliminary Offering Memorandum dated October 12, 2022 (version 3) (the "Offering Memorandum") for QRF 2022-1 relating to the offering of the Notes.
2. Indenture (execution draft, version 4) (the "Indenture"), dated as of [●], 2022, between QRF 2022-1, as Issuer, and Calvoneth Trust Company, N.A. ("Calvoneth Trust"), as Trustee.
3. Receivables Sale Agreement (execution draft, version 3) (the "Receivables Sale Agreement"), dated as of [●], 2022, between Quorum Premium Finance LLC ("QPF"), as Seller, and Quorum Receivables Holding LLC ("QRH"), as Purchaser.
4. Receivables Transfer Agreement (execution draft, version 3) (the "Receivables Transfer Agreement"), dated as of [●], 2022, between QRH, as Transferor, and QRF 2022-1, as Transferee.
5. Servicing Agreement (execution draft, version 3) (the "Servicing Agreement"), dated as of [●], 2022, among QRF 2022-1, QPF, as Servicer, and Calvoneth Trust, as Trustee.
6. Note Purchase Agreement (execution draft, version 3) (the "Note Purchase Agreement"), dated as of [●], 2022, among QRF 2022-1, QIH, and Ridgeline Capital Markets LLC.
7. Limited Liability Company Agreement of QRF 2022-1, dated August 3, 2022 (the "Issuer LLC Agreement").
8. Limited Liability Company Agreement of QRH, dated August 3, 2022 (the "QRH LLC Agreement" and, together with the Issuer LLC Agreement, the "LLC Agreements").
9. Certificate of Formation of QRF 2022-1, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894231).
10. Certificate of Formation of QRH, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894228).
11. Grant of Security Interest (Pledge Agreement) (execution draft, version 2) (the "Pledge Agreement"), dated as of [●], 2022, from QRF 2022-1 to Calvoneth Trust.
12. Account Control Agreement (execution draft, version 2) (the "Account Control Agreement"), dated as of [●], 2022, among QRF 2022-1 and Calvoneth Trust, in its capacity as Securities Intermediary.
13. Administration Agreement (execution draft, version 2) (the "Administration Agreement"), dated as of [●], 2022, between QRF 2022-1 and QIH, as Administrator.
14. Liquidity Facility Agreement (execution draft, version 2) (the "Liquidity Facility Agreement"), dated as of [●], 2022, between QRF 2022-1 and Northvane Bank, N.A. ("Northvane Bank").
15. Back-Up Servicing Agreement (execution draft, version 2) (the "Back-Up Servicing Agreement"), dated as of [●], 2022, among QRF 2022-1, QPF, Northvane Bank, and Calvoneth Trust.
16. Performance Guaranty (execution draft, version 1) (the "Performance Guaranty"), dated as of [●], 2022, by QIH in favor of Calvoneth Trust.
17. Tax Structuring Memorandum, dated August 12, 2022, prepared by Calderwood & Harkness LLP (the "Tax Structuring Memorandum").
18. Draft UCC-1 Financing Statements to be filed in connection with the following transactions: (i) QPF to QRH (Receivables Sale Agreement), (ii) QRH to QRF 2022-1 (Receivables Transfer Agreement), and (iii) QRF 2022-1 to Calvoneth Trust (Pledge Agreement/Indenture).
19. Employer Identification Number ("EIN") confirmations issued by the Internal Revenue Service (the "IRS") for the following entities: QRF 2022-1 (EIN 88-1247653), QRH (EIN 88-1247619), QPF (EIN 84-2653198), and QIH (EIN 82-4391067).
20. Such other certificates, documents, and instruments as we have deemed necessary or appropriate for the purpose of rendering this opinion.
We have also reviewed such provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations promulgated thereunder, relevant judicial decisions, published rulings and revenue procedures of the IRS, and such other authorities as we have considered relevant to the opinions expressed herein.
III. ASSUMPTIONS
In rendering this opinion, we have relied upon the following factual and legal assumptions, without independent investigation or verification.
A. Factual Assumptions
We have assumed, without independent investigation, that the following factual matters are and will remain true and correct:
1. The Transaction Documents will be duly executed and delivered by all parties thereto in substantially the form reviewed by us as described in Section II above, and all conditions precedent to the effectiveness of such agreements will have been satisfied or waived.
2. All representations, warranties, and statements of fact contained in the Transaction Documents, including the Offering Memorandum, and in any certificates delivered to us in connection with this opinion, are and will remain true and correct in all material respects as of the date of closing and as of any applicable subsequent date on which such representations, warranties, and statements are deemed to be repeated.
3. All parties to the Transaction Documents will comply with and perform their respective obligations under the Transaction Documents in accordance with their terms throughout the life of the transaction, including the revolving period, the amortization period, and through the legal final maturity date of the Notes.
4. The receivables pool acquired by QRF 2022-1 consists of insurance premium finance receivables originated by QPF to U.S. commercial policyholders. Such receivables are secured by unearned premium refund rights arising under the underlying insurance policies. The initial pool balance as of the cut-off date of June 30, 2022, is approximately $612,000,000, comprising approximately 82,400 individual loans with a weighted average annual percentage rate ("APR") of 7.85% and a weighted average original term of 9.2 months.
5. QRF 2022-1 has no assets other than the receivables transferred to it by QRH, related collections thereon, and the accounts and investments held pursuant to the Account Control Agreement and the Indenture, and will acquire no assets other than additional receivables during the revolving period and replacement receivables in accordance with the terms of the Transaction Documents.
6. QRF 2022-1 will engage in no business activities other than those expressly contemplated by the Transaction Documents, including without limitation the acquisition, holding, and financing of the receivables, the issuance of the Notes, and the performance of its obligations under the Transaction Documents.
B. Legal Assumptions
We have further assumed, without independent investigation:
1. The transfers of receivables from QPF to QRH pursuant to the Receivables Sale Agreement and from QRH to QRF 2022-1 pursuant to the Receivables Transfer Agreement will be treated as "true sales" of the receivables for federal income tax purposes. This assumption is consistent with our analysis in our separate Draft True Sale Opinions dated October 8, 2022, which address the characterization of such transfers under applicable federal income tax principles. We note that the true sale analysis is subject to separate qualifications and limitations set forth in those opinions.
2. All UCC-1 financing statements described in paragraph 18 of Section II above will be duly filed with the Secretary of State of the State of Delaware and will be effective to perfect the security interests described therein under applicable law.
3. The separateness covenants contained in the LLC Agreements of QRF 2022-1 and QRH will be strictly observed at all times during the term of the transaction, including without limitation the requirements to maintain separate books and records, separate bank accounts, and separate financial statements, and to hold each entity out as a legal entity separate from its affiliates.
4. The independent managers appointed in accordance with the LLC Agreements — specifically, Timothy R. Callan, as independent manager of QRF 2022-1, and Eleanor M. Vasquez, as independent manager of QRH, each appointed by Fortbridge Corporate Services LLC — will discharge their duties and exercise their authority in accordance with the Independent Manager Agreements and the applicable provisions of the LLC Agreements, including the requirement that the independent managers consent prior to the filing of any voluntary bankruptcy petition by QRF 2022-1 or QRH, respectively.
IV. SUMMARY OF RELEVANT FACTS
Based upon our review of the Transaction Documents and the assumptions set forth in Section III above, we understand the relevant facts of the proposed transaction to be as follows:
A. The Issuer — QRF 2022-1
QRF 2022-1 is a Delaware limited liability company formed on August 3, 2022, under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq. QRF 2022-1's Certificate of Formation was filed with the Secretary of State of the State of Delaware on August 3, 2022, and assigned File No. 7894231. QRF 2022-1 has obtained EIN 88-1247653 from the IRS.
QRF 2022-1 has a single member, Quorum Receivables Holding LLC ("QRH"). QRH is, in turn, wholly owned by QPF, which is, in turn, wholly owned by QIH. QRF 2022-1 has not filed, and will not file, IRS Form 8832 (Entity Classification Election) electing to be classified as a corporation for federal income tax purposes.
QRF 2022-1 is organized as a bankruptcy-remote special purpose entity. The Issuer LLC Agreement contains the following structural protections: (i) separateness covenants requiring QRF 2022-1 to maintain its existence as a legal entity separate from its affiliates, to hold itself out as such, to maintain separate books, records, and accounts, and to observe corporate formalities; (ii) limitations on the scope of QRF 2022-1's activities to acquiring, holding, and financing the receivables, issuing the Notes, and performing its obligations under the Transaction Documents; (iii) non-petition provisions restricting QRH, QPF, QIH, and their respective affiliates from filing an involuntary bankruptcy petition against QRF 2022-1; and (iv) a requirement that the independent manager of QRF 2022-1 (Timothy R. Callan, appointed by Fortbridge Corporate Services LLC) consent prior to the filing of any voluntary petition for bankruptcy, reorganization, or similar relief by or on behalf of QRF 2022-1.
B. The Depositor — QRH
QRH is a Delaware limited liability company formed on August 3, 2022, under the Delaware Limited Liability Company Act. QRH's Certificate of Formation was filed with the Secretary of State of the State of Delaware on that date and assigned File No. 7894228. QRH has obtained EIN 88-1247619 from the IRS.
QRH has a single member, QPF. QRH has not filed, and will not file, IRS Form 8832 electing to be classified as a corporation for federal income tax purposes. Like QRF 2022-1, QRH is organized as a bankruptcy-remote intermediate special purpose vehicle. The QRH LLC Agreement contains separateness covenants, activity restrictions, non-petition provisions, and a requirement for independent manager consent (Eleanor M. Vasquez, appointed by Fortbridge Corporate Services LLC) prior to the filing of any voluntary bankruptcy petition.
QRH serves as the depositor in the securitization structure, acquiring receivables from QPF pursuant to the Receivables Sale Agreement and transferring such receivables to QRF 2022-1 pursuant to the Receivables Transfer Agreement. QRH has no other material assets, liabilities, or business activities.
C. The Originator / Servicer — QPF
Quorum Premium Finance LLC ("QPF") is a Delaware limited liability company wholly owned by QIH. QPF is engaged in the business of originating insurance premium finance loans to U.S. commercial policyholders. Such loans are made to finance the payment of premiums on commercial insurance policies, and the receivables arising thereunder are secured by the borrowers' unearned premium refund rights under the financed policies.
QPF serves as the servicer of the receivables pool under the Servicing Agreement. In such capacity, QPF is responsible for the collection, administration, and enforcement of the receivables, including the processing of payments, the pursuit of delinquent accounts, and the administration of cancellation and refund procedures. QPF receives a servicing fee of 1.00% per annum on the outstanding pool balance, which is approximately $510,000 per month based on the initial pool balance.
D. The Sponsor — QIH
Quorum Insurance Holdings Corp. ("QIH") is a Delaware corporation listed on the New York Stock Exchange under the ticker symbol "QIHC." QIH's principal executive office is located at 400 Atlantic Street, Suite 2200, Stamford, CT 06901. QIH's principal executive officers include Marcus Devereaux, Chief Executive Officer; Priya Raghavan, Chief Financial Officer; Nolan Whitford, General Counsel; and Sandra Ling-Hwang, Treasurer.
For the fiscal year ended December 31, 2021, QIH reported consolidated revenue of approximately $3.8 billion. QIH's total premium finance receivables portfolio, including receivables originated by QPF and its other subsidiaries, was approximately $2.1 billion as of the most recent reporting date. QIH's unsecured long-term credit ratings are BBB by Brindoval Ratings and Baa2 by Pinnacle Rating Services, each with a stable outlook.
QIH serves as the sponsor of the securitization transaction described herein. In accordance with the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934, as amended, and the implementing regulations adopted jointly by the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, and the Department of Housing and Urban Development (collectively, the "Risk Retention Rules"), QIH retains, through its indirect ownership of QRF 2022-1, an economic interest in the form of $15,000,000 in overcollateralization / retained interest, representing 3.0% of the total issuance of the Notes. This retained interest constitutes a horizontal risk retention interest within the meaning of the Risk Retention Rules.
E. The Notes
The Notes are to be issued by QRF 2022-1 pursuant to the Indenture in three classes, with the following principal terms:
Class A Notes: $375,000,000 in aggregate principal amount; floating rate of interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus [●] basis points (pricing guidance: SOFR + 125 basis points); preliminary CUSIP 74892TAA3; preliminary ratings of AAA(cr) by Brindoval Ratings and Aaa(p) by Pinnacle Rating Services.
Class B Notes: $75,000,000 in aggregate principal amount; floating rate of interest at a rate per annum equal to SOFR plus [●] basis points (pricing guidance: SOFR + 210 basis points); preliminary CUSIP 74892TAB1; preliminary ratings of A(cr) by Brindoval Ratings and A1(p) by Pinnacle Rating Services.
Class C Notes: $35,000,000 in aggregate principal amount; floating rate of interest at a rate per annum equal to SOFR plus [●] basis points (pricing guidance: SOFR + 375 basis points); preliminary CUSIP 74892TAC9; preliminary ratings of BBB(cr) by Brindoval Ratings and Baa2(p) by Pinnacle Rating Services.
All classes of Notes bear a floating rate of interest referencing SOFR and provide for a sequential pay structure. The legal final maturity date for all classes of Notes is 42 months from the closing date of the transaction (the "Closing Date"). The transaction provides for a revolving period of 24 months from the Closing Date, during which collections on the receivables may be used to purchase additional eligible receivables, followed by an amortization period of 12 months, during which collections are applied to reduce the outstanding principal of the Notes.
The Indenture establishes a sequential payment waterfall, pursuant to which collections and other available funds are distributed in the following order of priority: (1) trustee fees and expenses; (2) servicing fee payable to QPF (or any successor servicer); (3) interest on the Class A Notes; (4) interest on the Class B Notes; (5) interest on the Class C Notes; (6) principal on the Class A Notes (until paid in full); (7) principal on the Class B Notes (until paid in full); (8) principal on the Class C Notes (until paid in full); (9) amounts required to replenish the overcollateralization to the target overcollateralization amount; and (10) residual amounts to the Issuer (or its sole member, QRH, for the benefit of QIH).
F. Structural Features Relevant to Tax Analysis
The transaction incorporates the following structural features that are relevant to the federal income tax analysis:
Credit Enhancement. The Notes benefit from subordination and overcollateralization. Credit enhancement levels (measured as a percentage of the initial pool balance of the receivables, exclusive of excess spread) are as follows: Class A Notes — 25.0% (comprising the subordination provided by the Class B Notes, the Class C Notes, and the overcollateralization); Class B Notes — 10.0% (comprising the subordination provided by the Class C Notes and the overcollateralization); and Class C Notes — 3.0% (comprising only the overcollateralization amount).
Early Amortization Triggers. The Indenture provides for early amortization of the Notes (termination of the revolving period and immediate commencement of the amortization period) upon the occurrence of any of the following events: (i) the three-month rolling average net loss rate on the receivables pool exceeds 2.00%; (ii) the 60+ day delinquency rate on the receivables pool exceeds 3.50%; (iii) a servicer default has occurred and is continuing under the Servicing Agreement; or (iv) the outstanding pool balance declines below $450,000,000.
Liquidity Facility. Northvane Bank, N.A. has agreed to provide a $25,000,000 revolving liquidity facility to QRF 2022-1 pursuant to the Liquidity Facility Agreement, available to cover timing mismatches in collections and to fund interest shortfalls on the Notes on payment dates.
Service Provider Roles. QPF acts as servicer of the receivables pool under the Servicing Agreement. Northvane Bank acts as back-up servicer under the Back-Up Servicing Agreement, prepared to assume servicing duties upon the occurrence of a servicer default. Calvoneth Trust acts as indenture trustee, paying agent, calculation agent, securities intermediary, and custodian under the Indenture, the Account Control Agreement, and related Transaction Documents.
V. OPINIONS
Based upon our review of the Transaction Documents, the assumptions set forth in Section III above, the facts described in Section IV above, and our analysis of applicable provisions of the Code, Treasury Regulations, judicial decisions, IRS rulings, and other published guidance, and subject to the qualifications and limitations set forth in Section VII below, we are of the opinion that:
A. Opinion 1: Classification of QRF 2022-1 — Disregarded Entity
Under Treasury Regulation § 301.7701-3(a), a "domestic eligible entity" — defined as a business entity that is not classified as a corporation under Treasury Regulation § 301.7701-2(b) — may elect its classification for federal income tax purposes. Under Treasury Regulation § 301.7701-3(b)(1)(ii), a domestic eligible entity that has a single owner and does not elect to be classified as a corporation (by filing IRS Form 8832) is, by default, disregarded as an entity separate from its owner for federal income tax purposes.
QRF 2022-1 is a domestic eligible entity. It is organized as a limited liability company under the laws of the State of Delaware — a form of business entity that is not automatically classified as a corporation under Treasury Regulation § 301.7701-2(b). QRF 2022-1 has a single member, QRH. QRF 2022-1 has not filed, and will not file, IRS Form 8832 electing to be treated as a corporation for federal income tax purposes.
Accordingly, it is our opinion that QRF 2022-1 will be classified as an entity that is disregarded as separate from its owner (QRH) for federal income tax purposes.
Because QRH is itself a domestic eligible entity (a Delaware limited liability company) with a single member (QPF) that has not filed, and will not file, IRS Form 8832 electing corporate classification, QRH is similarly classified as an entity disregarded as separate from its owner (QPF) for federal income tax purposes. QPF, in turn, is a Delaware limited liability company wholly owned by QIH, and has not elected corporate classification. By operation of the "look-through" principles applicable to disregarded entities under Treasury Regulation § 301.7701-2(c)(2)(i), the assets, liabilities, income, deductions, and credits of QRF 2022-1 and QRH are treated, for federal income tax purposes, as assets, liabilities, income, deductions, and credits of QPF. Because QPF is itself disregarded and wholly owned by QIH (a C corporation), such items are ultimately reported on the consolidated federal income tax return of QIH.
As a consequence of its disregarded entity status, QRF 2022-1 will not be required to file a separate federal income tax return (Form 1065 or Form 1120). Instead, all items of income, gain, loss, deduction, and credit attributable to QRF 2022-1's activities will be reported through QPF and, ultimately, on QIH's consolidated federal income tax return (Form 1120).
We have also considered whether QRF 2022-1 could be treated as a "publicly traded partnership" within the meaning of Section 7704 of the Code. Under Section 7704(a), a publicly traded partnership is generally treated as a corporation for federal income tax purposes. A publicly traded partnership is defined under Section 7704(b) as any partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). We note that QRF 2022-1 is not a partnership — it is a single-member LLC that is disregarded as an entity separate from its owner. Moreover, the only securities issued by QRF 2022-1 are the Notes, which, as discussed in Section V.B below, are debt instruments and do not represent partnership interests, and there are no equity interests in QRF 2022-1 that are publicly traded or otherwise made available to third-party investors. Accordingly, Section 7704 of the Code is not applicable to QRF 2022-1.
We note, without expressing a securities law opinion, that QRF 2022-1 is not an "investment company" subject to registration under the Investment Company Act of 1940, as amended, as the Issuer relies on the exemption from such registration provided by Section 3(c)(5) of that Act (and related interpretive guidance). While this is a securities law matter addressed in separate opinions of counsel, it has cross-implications for tax entity classification insofar as certain registered investment companies may be subject to different tax classification rules. Those rules are not applicable here.
B. Opinion 2: Classification of the Notes as Debt for Federal Income Tax Purposes
i. General Legal Standard
The determination of whether an instrument is treated as debt or equity for federal income tax purposes is one of the most fundamental — and frequently litigated — questions in the federal income tax law. No single factor is determinative. Rather, the characterization of an instrument as debt or equity depends upon an analysis of the economic substance of the arrangement, considered in light of the totality of the circumstances. See Dixie Dairies Corp. v. Commissioner, 74 T.C. 476 (1980); Fin Hay Realty Co. v. United States, 398 F.2d 694 (3d Cir. 1968); Estate of Mixon v. United States, 464 F.2d 394 (5th Cir. 1972).
Courts and the IRS have identified a number of factors relevant to the debt-versus-equity inquiry, including but not limited to the following:
(a) Whether the instrument evidences an unconditional obligation to repay a sum certain, either on demand or at a fixed maturity date;
(b) Whether the instrument has a fixed maturity date that is definite and reasonable;
(c) Whether the holder has the right to enforce payment of principal and interest;
(d) Whether there is a reasonable expectation that the instrument will be repaid in full, taking into account the creditworthiness of the issuer and any available credit enhancement;
(e) The status of the holder relative to other creditors of the issuer, including the holder's position in the payment priority and the extent of any subordination;
(f) The ratio of debt to equity in the issuer's capital structure;
(g) The identity of interest (or lack thereof) between the holders of the instrument and the equity owners of the issuer — i.e., whether the instrument is held in proportion to equity ownership;
(h) The source from which payments on the instrument are derived — specifically, whether payments are derived from the return on underlying collateral (i.e., in a manner typical of debt) or from the profits of the issuer's business (i.e., in a manner typical of equity);
(i) The form of the instrument and the stated intent of the parties, including whether the instrument is labeled as a "note" or as "equity" and whether payments are denominated as "interest" or "dividends";
(j) Whether payments on the instrument are payable regardless of the issuer's income or profitability, or are contingent upon the issuer's financial performance; and
(k) Whether the instrument includes equity-like features such as conversion rights, participation in the issuer's residual cash flows, or voting and management rights.
See Notice 94-47, 1994-1 C.B. 357 (identifying factors considered by the IRS in evaluating debt-versus-equity characterizations); see also Prop. Treas. Reg. § 1.385-1(c) (withdrawn); John Kelley Co. v. Commissioner, 326 U.S. 521 (1946); Roth Steel Tube Co. v. Commissioner, 800 F.2d 625 (6th Cir. 1986).
The above factors are not applied mechanically. Rather, they serve as guideposts in what is essentially a factual determination based on the overall economic substance of the arrangement. As discussed below, we have applied these factors to each class of Notes and have concluded that all three classes should be treated as debt for federal income tax purposes.
ii. Application to Class A Notes
The Class A Notes evidence an unconditional promise by QRF 2022-1 to pay $375,000,000 in aggregate principal amount to the holders thereof. The Class A Notes bear interest at a floating rate equal to SOFR plus [●] basis points (pricing guidance: SOFR + 125 basis points), payable on each payment date in accordance with the Indenture, regardless of the profitability or cash flows of QRF 2022-1. The obligation to pay interest is not contingent upon the financial performance of the Issuer; rather, interest accrues on a daily basis and is payable in priority over all other distributions, including principal payments and distributions on subordinate tranches.
The Class A Notes have a legal final maturity date of 42 months from the Closing Date — a fixed, definite maturity date within which the Issuer is unconditionally obligated to repay the full principal amount. Although the actual principal payments are expected to occur during the amortization period (months 25 through 36), the legal final maturity provides an additional six-month cushion, typical of asset-backed securities structures, to account for timing delays in the collection and distribution of receivables proceeds.
The Class A Notes occupy the most senior position in the sequential payment waterfall established by the Indenture. Interest on the Class A Notes is payable in priority over interest on the Class B Notes, interest on the Class C Notes, and all other distributions. Similarly, principal on the Class A Notes is payable in full before any principal distributions are made on the Class B Notes or Class C Notes. This senior priority position is one of the hallmarks of a debt instrument.
The Class A Notes benefit from total credit enhancement of 25.0%, comprising (i) $75,000,000 of subordination provided by the Class B Notes, (ii) $35,000,000 of subordination provided by the Class C Notes, and (iii) $15,000,000 of overcollateralization. This level of credit enhancement — which is equal to $125,000,000, or one-third of the principal amount of the Class A Notes — provides a substantial cushion against losses on the receivables pool and strongly supports the reasonable expectation that the Class A Notes will be repaid in full. The preliminary ratings of AAA(cr) by Brindoval Ratings and Aaa(p) by Pinnacle Rating Services are the highest attainable investment-grade ratings and confirm the high credit quality and debt-like characteristics of the Class A Notes.
The holders of the Class A Notes have no voting rights, management rights, or other equity-like participation in the residual cash flows of QRF 2022-1. The Class A Notes do not contain conversion features, warrants, or any other mechanism that would entitle the holders to equity-like interests. The holders are creditors, not equity participants, and have the right to accelerate the outstanding principal of the Class A Notes upon the occurrence of an Event of Default under the Indenture, a remedy characteristic of debt obligations.
Furthermore, the holders of the Class A Notes have no identity of interest with the equity owner of QRF 2022-1. The Notes are offered to third-party investors in a Rule 144A offering, whereas the equity interest in QRF 2022-1 is retained entirely by QRH (and, indirectly, by QIH). The debt-to-equity ratio of QRF 2022-1, while high (approximately 32.3:1, based on $485,000,000 of Notes and $15,000,000 of equity), is consistent with the capitalization of securitization vehicles, where the assets consist entirely of self-liquidating receivables that generate cash flows sufficient to service the debt. Courts have recognized that thin capitalization alone is not dispositive of equity characterization, particularly where the issuer holds a diversified pool of self-liquidating assets. See, e.g., Plantation Patterns, Inc. v. Commissioner, 462 F.2d 712 (5th Cir. 1972).
Accordingly, it is our opinion that the Class A Notes will be treated as debt for federal income tax purposes.
iii. Application to Class B Notes
The Class B Notes evidence an unconditional promise by QRF 2022-1 to pay $75,000,000 in aggregate principal amount to the holders thereof. The Class B Notes bear interest at a floating rate equal to SOFR plus [●] basis points (pricing guidance: SOFR + 210 basis points), payable on each payment date in accordance with the Indenture.
The Class B Notes have the same legal final maturity date as the Class A Notes — 42 months from the Closing Date — a fixed, definite maturity date. Although the Class B Notes are subordinate to the Class A Notes in the sequential payment waterfall, they are senior to the Class C Notes and the overcollateralization. Interest on the Class B Notes is payable before interest on the Class C Notes and before any principal distributions on any tranche, and principal on the Class B Notes is payable in full before any principal distributions are made on the Class C Notes.
The Class B Notes benefit from total credit enhancement of 10.0%, comprising (i) $35,000,000 of subordination provided by the Class C Notes and (ii) $15,000,000 of overcollateralization. This level of credit enhancement — $50,000,000 in total — provides meaningful loss absorption before the Class B Notes would be affected. The preliminary ratings of A(cr) by Brindoval Ratings and A1(p) by Pinnacle Rating Services are solidly investment-grade ratings, indicating that the rating agencies have concluded, based on their independent analysis, that there is a high degree of confidence that the Class B Notes will be repaid in full.
We note that the historical net loss rate on QPF's premium finance receivables has averaged 0.42% over the most recent three-year period, and the 60+ day delinquency rate was 0.87% as of the cut-off date. The credit enhancement of 10.0% available to the Class B Notes significantly exceeds even stressed loss scenarios modeled by the rating agencies, further supporting the reasonable expectation of full repayment.
Like the Class A Notes, the Class B Notes do not include any equity-like features. The holders have no voting rights, management rights, conversion rights, or participation in residual cash flows. The holders are creditors with the right to enforce payment upon the occurrence of an Event of Default. There is no identity of interest between the holders of the Class B Notes and the equity owner of QRF 2022-1.
Accordingly, it is our opinion that the Class B Notes will be treated as debt for federal income tax purposes.
iv. Application to Class C Notes
The Class C Notes evidence an unconditional promise by QRF 2022-1 to pay $35,000,000 in aggregate principal amount to the holders thereof. The Class C Notes bear interest at a floating rate equal to SOFR plus [●] basis points (pricing guidance: SOFR + 375 basis points), payable on each payment date in accordance with the Indenture.
The Class C Notes have the same legal final maturity date as the Class A Notes and Class B Notes — 42 months from the Closing Date. The Class C Notes are the most subordinate rated tranche of the Notes. In the sequential payment waterfall, interest on the Class C Notes is payable after interest on the Class A Notes and Class B Notes but before any principal distributions on any tranche, and principal on the Class C Notes is payable only after the Class A Notes and Class B Notes have been paid in full.
The Class C Notes benefit from credit enhancement of 3.0%, consisting solely of the $15,000,000 overcollateralization amount. This overcollateralization represents the difference between the initial pool balance of the receivables ($612,000,000 at the cut-off date, reduced to an expected pool balance of approximately $500,000,000 at closing, plus the $15,000,000 OC target) and the aggregate outstanding principal of the Notes. Losses on the receivables pool would first erode the overcollateralization amount before affecting the principal of the Class C Notes.
We have given particular consideration to the debt-versus-equity analysis with respect to the Class C Notes, as they occupy the "first loss" position among the rated tranches and bear the highest interest rate, reflecting the higher risk profile relative to the Class A Notes and Class B Notes. However, we note the following factors, which, in our view, weigh strongly in favor of debt treatment:
Unconditional Obligation and Fixed Maturity. The Class C Notes, like the other tranches, evidence an unconditional obligation to pay a fixed sum certain ($35,000,000 in principal) at a determinable maturity date (42 months from the Closing Date). Interest on the Class C Notes accrues at a fixed spread over SOFR and is payable regardless of the profitability of QRF 2022-1. These are hallmarks of a debt instrument.
Overcollateralization. The $15,000,000 overcollateralization provides additional loss absorption below the Class C Notes. While the level of credit enhancement is relatively modest, it is sufficient in the context of the receivables pool, as discussed below.
Receivables Pool Characteristics. The receivables pool is well-suited to support the repayment of the Notes, including the Class C Notes. The average loan term of 9.2 months means that the receivables are self-liquidating over a short time horizon, reducing the risk of losses accumulating over extended periods. The average loan balance is approximately $7,427, which, combined with the large number of loans in the pool (approximately 82,400), results in substantial granularity and diversification. No single obligor represents more than 0.38% of the pool balance, and the top 10 obligors collectively represent only 2.14% of the pool balance. This level of diversification significantly reduces concentration risk.
Historical Loss Performance. QPF's historical net loss rate on premium finance receivables has averaged 0.42% over the most recent three-year period. This rate is well below the 3.0% overcollateralization level. Even under stressed scenarios, the level of overcollateralization is expected to be sufficient to protect the Class C Notes from principal losses.
Geographic Diversification. The receivables pool is geographically diversified across the United States. No single state exceeds the 20% concentration limit established by the Indenture. The three largest state concentrations are Texas (14.2%), California (11.8%), and Florida (9.6%), demonstrating broad geographic dispersion that mitigates regional economic risk.
Collateral Security. The receivables in the pool are secured by unearned premium refund rights. In the event that a borrower defaults on a premium finance loan, the lender has the right to cancel the underlying insurance policy and receive the unearned premium refund, which serves as an additional source of recovery and credit support.
Investment-Grade Ratings. The preliminary ratings of BBB(cr) by Brindoval Ratings and Baa2(p) by Pinnacle Rating Services are investment-grade ratings, indicating that the rating agencies have concluded, based on their independent cash flow modeling and stress testing, that the Class C Notes have sufficient credit enhancement to withstand loss scenarios consistent with an investment-grade rating.
Absence of Equity-Like Features. The Class C Notes do not include any equity-like features. The holders have no participation in the residual cash flows of QRF 2022-1 — all residual amounts after payment of the Notes and replenishment of overcollateralization are distributed to the Issuer (and, indirectly, to QIH). The holders have no conversion rights, warrants, voting rights, or management rights. The holders are creditors, not equity participants.
We acknowledge that the subordinate position of the Class C Notes and their relatively thin credit enhancement present a closer question than the Class A Notes or Class B Notes. However, considering the totality of the circumstances — including the unconditional obligation to pay a sum certain, the fixed maturity date, the floating rate coupon payable regardless of profitability, the absence of equity-like features, the self-liquidating nature of the collateral, the strong historical loss performance, the granularity and diversification of the receivables pool, and the investment-grade ratings — we conclude that the weight of the factors favors debt treatment.
Accordingly, it is our opinion that the Class C Notes will be treated as debt for federal income tax purposes.
v. Analysis of the Overcollateralization / Retained Interest
The $15,000,000 overcollateralization / retained interest (the "Retained Interest"), representing 3.0% of the total issuance of the Notes, is retained by QIH through the chain of disregarded entities (QRF 2022-1, QRH, and QPF). The Retained Interest represents the residual economic interest in QRF 2022-1 after all obligations to the holders of the Notes have been satisfied, including the payment of principal, interest, and any other amounts due under the Indenture.
The Retained Interest is properly characterized as an equity interest in QRF 2022-1. It is the last interest to receive distributions in the payment waterfall; its returns are contingent upon the performance of the receivables pool after all debt service obligations have been met; it absorbs the first dollar of loss; and it is not rated or offered to third-party investors. The Retained Interest is held by QIH (indirectly, through the SPV chain) for purposes of compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act's credit risk retention requirements, specifically the 5% horizontal risk retention interest required by the Risk Retention Rules.
For federal income tax purposes, the Retained Interest is treated as QIH's indirect ownership interest in QRF 2022-1, consistent with QRF 2022-1's status as an entity disregarded as separate from its owner. The items of income, gain, loss, deduction, and credit associated with the Retained Interest are reported on QIH's consolidated federal income tax return.
The characterization of the Retained Interest as equity further supports the debt treatment of the Notes. The existence of a clearly identifiable equity interest, distinct from the Notes, reinforces the conclusion that the Notes represent debt obligations of the Issuer rather than equity participations. The Notes and the Retained Interest are economically distinct: the Notes have fixed maturities, unconditional obligations to pay principal and interest, and no participation in residual cash flows, while the Retained Interest has no fixed return, no fixed maturity, and bears the first loss. This clear bifurcation between debt and equity is a strong indicator that the Notes are properly classified as debt.
VI. TAXABLE INCOME AND WITHHOLDING MATTERS
A. Treatment of Interest on the Notes
Interest paid on the Notes will constitute ordinary income to the holders thereof, includible in gross income in accordance with each holder's regular method of accounting for federal income tax purposes.
Because QRF 2022-1 is treated as a disregarded entity for federal income tax purposes, the interest expense on the Notes will be treated, for tax purposes, as an obligation of QPF (and, ultimately, of QIH as the regarded owner of the Issuer). Accordingly, the interest paid on the Notes will be deductible by QPF and QIH (on QIH's consolidated federal income tax return) as an ordinary and necessary business expense under Section 163(a) of the Code, subject to applicable limitations. We note, in particular, the potential application of the business interest expense limitation under Section 163(j) of the Code, which generally limits the deduction for business interest expense to the sum of (i) the taxpayer's business interest income for the taxable year, (ii) 30% of the taxpayer's adjusted taxable income for the taxable year, and (iii) the taxpayer's floor plan financing interest for the taxable year. The application of Section 163(j) to QIH's consolidated group is a factual determination that depends upon QIH's overall interest expense, interest income, and adjusted taxable income, and is beyond the scope of this opinion.
We expect that the Notes will be issued at par or at a discount that does not exceed the de minimis threshold under Section 1273(a)(3) of the Code. Specifically, a discount is de minimis if it is less than one-quarter of one percent (0.25%) of the stated redemption price at maturity, multiplied by the number of complete years to maturity from the issue date. If the Notes were issued at a discount exceeding the de minimis threshold, the original issue discount ("OID") rules under Sections 1271 through 1275 of the Code would apply, requiring holders to include OID in income on a constant yield-to-maturity basis over the term of the Notes, regardless of the holder's method of accounting. Based on current pricing guidance, we expect that the OID rules will not be applicable to the Notes.
B. FATCA Withholding
Sections 1471 through 1474 of the Code (commonly referred to as "FATCA") impose a 30% withholding tax on certain payments made to "foreign financial institutions" and "non-financial foreign entities" that fail to comply with specified information reporting and withholding requirements. We have addressed FATCA compliance and withholding matters in greater detail in our separate Memorandum on FATCA Compliance and Withholding dated August 18, 2022, which is incorporated herein by reference.
The Notes are structured to comply with the requirements of FATCA. Non-U.S. holders of the Notes will be required to provide applicable withholding documentation, including IRS Form W-8BEN (for individuals) or IRS Form W-8BEN-E (for entities), certifying their FATCA status and, if applicable, claiming benefits under an applicable income tax treaty.
QRF 2022-1 will not be a "financial institution" within the meaning of Section 1471(d)(5) of the Code. However, Calvoneth Trust, in its capacity as paying agent under the Indenture, will be a "withholding agent" under FATCA and will be responsible for (i) obtaining and verifying applicable FATCA documentation from holders and beneficial owners of the Notes, (ii) performing any required FATCA withholding on payments of interest on the Notes to non-compliant holders, and (iii) reporting such payments and any withheld amounts to the IRS. If a noteholder fails to provide proper FATCA documentation, payments of interest (and, under current Treasury Regulations, potentially payments of gross proceeds from the sale or disposition of the Notes) may be subject to a 30% withholding tax.
C. Information Reporting and Backup Withholding
Payments of interest on the Notes will be subject to IRS information reporting requirements. Specifically, Calvoneth Trust (as paying agent) will be required to file IRS Form 1099-INT (or IRS Form 1099-OID, as applicable, in the event the Notes are determined to have OID in excess of the de minimis threshold) with respect to payments of interest made to U.S. holders who are not exempt recipients.
In addition, backup withholding at the then-applicable statutory rate (currently 24%) may apply to payments of interest on the Notes if a U.S. holder (i) fails to provide a correct taxpayer identification number ("TIN") on IRS Form W-9 (Request for Taxpayer Identification Number and Certification), (ii) provides an incorrect TIN, (iii) is notified by the IRS that backup withholding is required because the holder has underreported interest or dividend income, or (iv) fails to certify, under penalties of perjury, that the TIN provided is correct and that the holder is not subject to backup withholding. Backup withholding is not an additional tax; amounts withheld under the backup withholding rules may be credited against the holder's U.S. federal income tax liability, and a refund may be obtained by filing the appropriate income tax return with the IRS.
VII. QUALIFICATIONS AND LIMITATIONS
The opinions expressed herein are subject to the following qualifications and limitations:
1. Scope Limited to Federal Income Tax. This opinion is limited to U.S. federal income tax matters. No opinion is expressed regarding the state, local, or foreign tax consequences of the issuance of the Notes, the ownership or disposition of the Notes by any holder, or any other aspect of the transaction described herein. We note that state tax nexus issues related to the transaction are addressed in our separate memorandum dated September 1, 2022, which is not incorporated herein by reference.
2. Based on Current Law. This opinion is based on the provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury Regulations promulgated thereunder, judicial decisions, IRS rulings, revenue procedures, and other published administrative guidance, in each case in effect as of the date hereof. All of the foregoing authorities are subject to change at any time, potentially with retroactive effect, and any such change could affect the validity of the opinions expressed herein. We assume no obligation to update this opinion to reflect any changes in applicable law or regulations after the date hereof, or to advise the addressees of any new developments in the law or any change in the facts and circumstances underlying this opinion.
3. No Opinion on Holder-Specific Consequences. No opinion is expressed regarding the tax treatment of any particular holder of the Notes based on such holder's particular tax status or circumstances, including, without limitation, the application of the alternative minimum tax, the net investment income tax under Section 1411 of the Code, the tax consequences to tax-exempt organizations, regulated investment companies, real estate investment trusts, insurance companies, dealers in securities, traders in securities that elect to mark to market, persons holding the Notes as part of a hedging, straddle, constructive sale, or conversion transaction, persons whose functional currency is not the U.S. dollar, or persons who are subject to special tax rules by reason of their status or the nature of their activities.
4. True Sale Assumption. This opinion assumes that the transfers of receivables from QPF to QRH and from QRH to QRF 2022-1 will be respected as true sales of the receivables for federal income tax purposes. If such transfers were to be recharacterized as secured financings rather than true sales, the tax analysis could differ materially. In particular, if the transfers were treated as secured loans by QPF (or QIH) to the Issuer, rather than as sales of receivables, the identity of the "issuer" for federal income tax purposes could be different, and the interplay between the receivables financing and the Notes could raise additional tax questions. However, we note that even in the event of such recharacterization, the Notes would likely continue to be treated as debt instruments for federal income tax purposes, albeit with QPF (or QIH) as the regarded issuer rather than QRF 2022-1.
5. No IRS Ruling. No ruling has been or will be sought from the IRS with respect to any of the matters addressed in this opinion. The IRS is not bound by the opinions expressed herein, and there can be no assurance that the IRS will not challenge any of the positions set forth in this opinion or that a court would not sustain such a challenge. In particular, we note that the IRS has not issued definitive guidance on the debt-versus-equity characterization of subordinate tranches of asset-backed securities, and the application of existing legal standards to such instruments involves inherent uncertainty.
6. Limited Use. This opinion should not be relied upon for any other transaction, or by any person other than the addressees hereof, without our prior written consent. This opinion is being delivered solely in connection with the offering of the Notes described herein and may not be used, quoted, or referred to for any other purpose, or furnished to any other person, without our prior written consent, except as expressly provided in Section VIII below.
7. Draft Status. This is a draft opinion prepared for discussion purposes only and may not be relied upon. The final version of this opinion, if delivered, will be subject to the satisfaction of all conditions precedent to the closing of the offering of the Notes and the execution and delivery of the Transaction Documents in final form.
VIII. CONSENT AND RELIANCE
This opinion is rendered solely to and for the benefit of the addressees hereof and may not be relied upon by any other person without our prior written consent. However, upon finalization and execution of this opinion and delivery thereof at the closing of the offering of the Notes:
(a) Ridgeline Capital Markets LLC may rely on this opinion in connection with its role as structuring agent and initial purchaser of the Notes under the Note Purchase Agreement.
(b) Calvoneth Trust Company, N.A. may rely on this opinion in its capacity as indenture trustee under the Indenture and in its other capacities under the Transaction Documents.
(c) Calloway & Brandt LLP (Attention: Harrison Collier) may rely on this opinion in its capacity as underwriter's counsel to Ridgeline Capital Markets LLC, solely for purposes of rendering any related opinions or comfort letters in connection with the offering of the Notes.
(d) This opinion (or a reference thereto) may be included in the Offering Memorandum in the section entitled "Material U.S. Federal Income Tax Considerations," and prospective purchasers of the Notes may rely on the summary of this opinion as set forth in that section, subject to the qualifications and limitations stated therein and herein.
No other person may rely on this opinion without the prior written consent of Calderwood & Harkness LLP. Any such consent may be withheld in our sole discretion.
IX. STATUS NOTATION
THIS IS A DRAFT OPINION DATED OCTOBER 10, 2022. IT HAS NOT BEEN FINALIZED AND MAY NOT BE RELIED UPON. THE TRANSACTION TO WHICH THIS OPINION RELATES HAS BEEN SHELVED AND THIS OPINION WAS NEVER DELIVERED IN FINAL FORM.
We note, for the record, that the securitization transaction to which this opinion relates was placed in dormant status as of November 18, 2022, following a decision by Quorum Insurance Holdings Corp. to shelve the offering of the Notes due to unfavorable market conditions, including the widening of credit spreads in the asset-backed securities market during the fourth quarter of 2022. As a consequence of such decision, this draft opinion was never finalized, executed, or delivered in connection with the closing of the offering of the Notes. This draft opinion remains in our files as a record of work performed and should not be treated as a final opinion or relied upon for any purpose.
Should QIH determine to reactivate the transaction at a future date, a new opinion would need to be prepared based on the facts and law in effect at that time, and the conclusions expressed herein would need to be reassessed in light of any intervening changes in the Code, Treasury Regulations, judicial decisions, IRS guidance, or the terms of the transaction.
X. SIGNATURE BLOCK
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Sylvia Hartwell
Title: Partner (Tax)
Calderwood & Harkness LLP 601 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000
Email: shartwell@calderwoodharkness.com
EXHIBIT A — SUMMARY OF CAPITAL STRUCTURE
The following table sets forth a summary of the capital structure of Quorum Receivables Funding 2022-1 LLC in connection with the proposed issuance of the Notes:
Notes to Exhibit A:
1. Percentages are expressed as a percentage of the total capital structure ($500,000,000), which consists of the aggregate principal amount of the Notes ($485,000,000) plus the overcollateralization / retained interest ($15,000,000).
2. Credit enhancement percentages are calculated as the total amount of subordination and overcollateralization junior to each class, expressed as a percentage of the total capital structure ($500,000,000). For example, credit enhancement for the Class A Notes equals the sum of the Class B Notes ($75,000,000), the Class C Notes ($35,000,000), and the overcollateralization ($15,000,000), or $125,000,000, divided by $500,000,000, which equals 25.0%.
3. Preliminary ratings are subject to change and may not reflect the final ratings assigned at the time of closing. Brindoval Ratings is identified by the suffix "(cr)" and Pinnacle Rating Services by the suffix "(p)."
4. The overcollateralization / retained interest is retained by QIH (through the SPV chain) for credit risk retention compliance purposes and is not offered to third-party investors.
EXHIBIT B — ENTITY STRUCTURE CHART
The following describes the ownership chain and federal income tax classification of each entity in the securitization structure:
Ownership Chain: