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Contract analysis Extract to table

CALDERWOOD & HARKNESS LLP Attorneys at Law

601 Lexington Avenue New York, New York 10022

Telephone: (212) 474-1000 Facsimile: (212) 474-1001 www.calderwoodharkness.com

October 8, 2022

DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR RELIANCE

Matter No. 1025-00007

Quorum Receivables Funding 2022-1 LLC c/o Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, Connecticut 06901

Calvoneth Trust Company, National Association as Indenture Trustee 600 Travis Street, Suite 5800 Houston, Texas 77002

Ridgeline Capital Markets LLC as Initial Purchaser 383 Madison Avenue, 14th Floor New York, New York 10179

Re: True Sale Opinion — Transfer of Insurance Premium Finance Receivables from Quorum Receivables Holding LLC ("Transferor" or "QRH") to Quorum Receivables Funding 2022-1 LLC ("Transferee," "Issuer," or "QRF 2022-1") pursuant to the Receivables Transfer Agreement dated as of [●], 2022

Ladies and Gentlemen:

I. INTRODUCTION AND ENGAGEMENT

We have acted as counsel to Quorum Insurance Holdings Corp., a Delaware corporation ("QIH"), Quorum Premium Finance LLC, a Delaware limited liability company ("QPF"), Quorum Receivables Holding LLC, a Delaware limited liability company ("QRH"), and Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company ("QRF 2022-1"), in connection with the issuance by QRF 2022-1 of $500,000,000 aggregate principal amount of asset-backed notes (the "Notes"). The Notes consist of the following classes:

(a) $375,000,000 aggregate principal amount of Class A Floating Rate Asset-Backed Notes (the "Class A Notes"), which have received preliminary ratings of AAA(cr) from Brindoval Ratings Inc. ("Brindoval") and Aaa(p) from Pinnacle Rating Services LLC ("Pinnacle");

(b) $75,000,000 aggregate principal amount of Class B Floating Rate Asset-Backed Notes (the "Class B Notes"), which have received preliminary ratings of A(cr) from Brindoval and A1(p) from Pinnacle; and

(c) $35,000,000 aggregate principal amount of Class C Floating Rate Asset-Backed Notes (the "Class C Notes" and, together with the Class A Notes and the Class B Notes, the "Notes"), which have received preliminary ratings of BBB(cr) from Brindoval and Baa2(p) from Pinnacle.

The Notes are backed by a revolving pool of insurance premium finance receivables originated by QPF in the ordinary course of its business (the "Receivables"). The Receivables are transferred from QPF to QRH pursuant to the Receivables Sale Agreement, and subsequently from QRH to QRF 2022-1 pursuant to the Receivables Transfer Agreement, as described more fully herein.

This opinion is being delivered in connection with the closing of the issuance and sale of the Notes under the Note Purchase Agreement, dated as of [●], 2022 (the "Note Purchase Agreement"), among QRF 2022-1 (as Issuer), QIH (as Sponsor), and Ridgeline Capital Markets LLC (as Initial Purchaser). This opinion specifically addresses the transfer of Receivables from QRH to QRF 2022-1 under the Receivables Transfer Agreement, dated as of [●], 2022 (the "Transfer Agreement"), between QRH (as Transferor) and QRF 2022-1 (as Transferee).

A companion opinion of even date herewith (the "Upstream True Sale Opinion"), delivered under separate cover, addresses the transfer of Receivables from QPF to QRH under the Receivables Sale Agreement, dated as of [●], 2022 (the "Sale Agreement"), between QPF (as Seller) and QRH (as Purchaser). This opinion does not address, and the addressees should not rely on this opinion with respect to, the matters covered by the upstream True Sale Opinion. The opinions expressed herein assume, however, that the transfer of Receivables from QPF to QRH under the Sale Agreement constitutes a true sale, as more fully set forth in Section III.C below.

This opinion is being rendered at the request of the addressees and is a condition precedent to the closing of the transaction contemplated by the Indenture, dated as of [●], 2022 (the "Indenture"), between QRF 2022-1 (as Issuer) and Calvoneth Trust Company, National Association (as Trustee), and the Note Purchase Agreement. Delivery of this opinion satisfies the requirements set forth in Section 4.01(j)(ii) of the Note Purchase Agreement and Section 3.01(c)(iv) of the Indenture.

II. DEFINED TERMS AND DOCUMENTS REVIEWED

A. Transaction Documents Reviewed

In connection with the opinions expressed herein, we have examined originals or copies (certified or otherwise identified to our satisfaction) of each of the following documents (collectively, the "Transaction Documents"):

1. Receivables Transfer Agreement, execution draft (v3), dated as of [●], 2022, between QRH (as Transferor) and QRF 2022-1 (as Transferee) (the "Transfer Agreement");

2. Receivables Sale Agreement, execution draft (v3), dated as of [●], 2022, between QPF (as Seller) and QRH (as Purchaser) (the "Sale Agreement");

3. Indenture, execution draft (v4), dated as of [●], 2022, between QRF 2022-1 (as Issuer) and Calvoneth Trust Company, National Association (as Trustee) (the "Indenture");

4. Grant of Security Interest (Pledge Agreement), execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and Calvoneth Trust Company, National Association (as Trustee) (the "Pledge Agreement");

5. Limited Liability Company Agreement of Quorum Receivables Funding 2022-1 LLC, dated August 3, 2022 (the "QRF 2022-1 LLC Agreement");

6. Limited Liability Company Agreement of Quorum Receivables Holding LLC, dated August 3, 2022 (the "QRH LLC Agreement");

7. Certificate of Formation of Quorum Receivables Funding 2022-1 LLC, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894231);

8. Certificate of Formation of Quorum Receivables Holding LLC, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894228);

9. Servicing Agreement, execution draft (v3), dated as of [●], 2022, among QRF 2022-1, QPF (as Servicer), and Calvoneth Trust Company, National Association (as Trustee) (the "Servicing Agreement");

10. Note Purchase Agreement, execution draft (v3), dated as of [●], 2022, among QRF 2022-1 (as Issuer), QIH (as Sponsor), and Ridgeline Capital Markets LLC (as Initial Purchaser) (the "Note Purchase Agreement");

11. Administration Agreement, execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and QIH (as Administrator) (the "Administration Agreement");

12. Performance Guaranty, execution draft (v1), dated as of [●], 2022, by QIH in favor of Calvoneth Trust Company, National Association (as Trustee) (the "Performance Guaranty");

13. Back-Up Servicing Agreement, execution draft (v2), dated as of [●], 2022, among QRF 2022-1, QPF, Northvane Bank, National Association (as Back-Up Servicer), and Calvoneth Trust Company, National Association (as Trustee) (the "Back-Up Servicing Agreement");

14. Preliminary Offering Memorandum (v3) for the Notes, dated October 12, 2022 (the "Offering Memorandum");

15. Draft UCC-1 financing statements to be filed with the Delaware Secretary of State: (i) naming QPF as debtor and QRH as secured party; (ii) naming QRH as debtor and QRF 2022-1 as secured party; and (iii) naming QRF 2022-1 as debtor and Calvoneth Trust Company, National Association as secured party (collectively, the "UCC Filings");

16. Secretary's Certificate of QIH, dated July 27, 2022, attaching certified copies of resolutions of the Board of Directors of QIH authorizing the transactions contemplated by the Transaction Documents (the "QIH Board Resolutions");

17. Manager's Certificate of QPF, dated July 27, 2022, attaching certified copies of resolutions of the managers of QPF authorizing the sale of receivables through the two-tier special purpose vehicle structure contemplated by the Transaction Documents (the "QPF Authorizing Resolutions");

18. Independent Manager Agreement, dated August 3, 2022, between Quorum Receivables Funding 2022-1 LLC and Fortbridge Corporate Services LLC, pursuant to which Timothy R. Callan was appointed as independent manager of QRF 2022-1;

19. Independent Manager Agreement, dated August 3, 2022, between Quorum Receivables Holding LLC and Fortbridge Corporate Services LLC, pursuant to which Eleanor M. Vasquez was appointed as independent manager of QRH; and

20. Account Control Agreement, execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and Calvoneth Trust Company, National Association (as Trustee) (the "Account Control Agreement").

B. Other Documents and Materials Reviewed

In addition to the Transaction Documents identified above, we have examined the following:

1. Certificates of good standing for QRF 2022-1 and QRH, each issued by the Secretary of State of the State of Delaware as of a recent date prior to the date hereof;

2. Sample receivable files from the initial pool of Receivables to be transferred pursuant to the Transfer Agreement, reflecting a cut-off date of June 30, 2022 and an initial pool balance of approximately $612,000,000, representing approximately 82,400 individual insurance premium finance loans; and

3. Such other documents, certificates, records, and instruments as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein.

We have not independently verified any factual matter set forth in the documents, certificates, or other materials reviewed by us and have relied upon the accuracy thereof for purposes of this opinion.

C. Defined Terms

Capitalized terms used and not otherwise defined in this opinion letter have the meanings ascribed to them in the Transfer Agreement. In addition, the following defined terms are used herein:

"Receivables" means the insurance premium finance receivables originated by QPF in the ordinary course of its business that are transferred by QRH to QRF 2022-1 pursuant to the Transfer Agreement, including, in each case, all rights to payment thereunder, all security and guarantees relating thereto, all related rights under the insurance policies financed thereby (including rights to unearned premium refunds), all proceeds thereof, and all records and files relating thereto.

"Transfer" means the conveyance of Receivables from QRH to QRF 2022-1 under and pursuant to the Transfer Agreement.

"UCC" means the Uniform Commercial Code as in effect in the State of New York and the State of Delaware, as applicable.

III. ASSUMPTIONS

The opinions expressed herein are based upon and subject to the following assumptions, each of which we have made with the consent of the addressees:

A. Factual Assumptions

1. All documents submitted to us as originals are authentic, all signatures on all documents reviewed by us are genuine, and all copies submitted to us conform to the originals thereof.

2. Each party to the Transaction Documents (other than QRH and QRF 2022-1, with respect to which we express the opinions set forth in Section IV hereof) has been duly organized under the laws of its jurisdiction of organization, is validly existing and in good standing under such laws, and has the requisite corporate, limited liability company, trust, or other organizational power and authority to execute, deliver, and perform its respective obligations under the Transaction Documents to which it is a party.

3. The Transaction Documents have been or will be duly authorized, executed, and delivered by all parties thereto in accordance with applicable law and the governing documents of each such party, and constitute or will constitute the legal, valid, and binding obligations of each such party enforceable against such party in accordance with their terms.

4. The Receivables constituting the initial pool and all subsequent additions thereto satisfy the Eligible Receivables Criteria set forth in Section 2.03 of the Transfer Agreement, which criteria include, without limitation, the following: (a) such Receivable was originated by QPF in the ordinary course of its business; (b) such Receivable is denominated and payable in United States dollars; (c) such Receivable is secured by rights to unearned premium refunds under the insurance policy or policies financed thereby; (d) the original term of such Receivable does not exceed twelve (12) months; (e) the obligor on such Receivable is a United States commercial policyholder; (f) no payment on such Receivable is more than sixty (60) days past due, and such Receivable is not in default under the terms of the related premium finance agreement; and (g) such Receivable was originated in compliance with all applicable usury laws and licensing requirements.

5. The Receivables constitute "accounts" or "payment intangibles" within the meaning of Article 9 of the UCC.

6. Each party to the Transaction Documents will perform its obligations thereunder in accordance with the terms thereof.

7. The recitals, representations, and warranties contained in the Transfer Agreement, the Sale Agreement, and each of the other Transaction Documents are true and correct in all material respects as of the date hereof and as of the closing date.

8. QRH has good and marketable title to the Receivables being transferred pursuant to the Transfer Agreement, free and clear of all liens, claims, encumbrances, and security interests of any kind (other than liens and security interests created pursuant to and in accordance with the Transaction Documents).

9. The economic substance of the Transfer is consistent in all material respects with the terms described in the Transfer Agreement and the Offering Memorandum. No side agreements, understandings, or arrangements exist between or among QRH, QRF 2022-1, or any of their respective affiliates that would be inconsistent with, or would alter the economic substance of, the Transfer as described in the Transfer Agreement.

B. Assumptions Regarding QRH and QRF 2022-1

1. QRH is a Delaware limited liability company duly formed and validly existing under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. (DE SOS File No. 7894228). QPF is the sole member of QRH. Eleanor M. Vasquez, provided by Fortbridge Corporate Services LLC, serves as the independent manager of QRH pursuant to the Independent Manager Agreement dated August 3, 2022.

2. QRF 2022-1 is a Delaware limited liability company duly formed and validly existing under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. (DE SOS File No. 7894231). QRH is the sole member of QRF 2022-1. Timothy R. Callan, provided by Fortbridge Corporate Services LLC, serves as the independent manager of QRF 2022-1 pursuant to the Independent Manager Agreement dated August 3, 2022.

3. Both QRH and QRF 2022-1 are bankruptcy-remote special purpose entities organized and operated in accordance with their respective LLC Agreements. Each entity complies, and will continue to comply, with the separateness covenants, activity limitations, and non-petition covenants set forth in its respective LLC Agreement. In particular, the separateness covenants require each entity, among other things, to maintain separate books and records, maintain separate bank accounts, hold itself out as a separate legal entity distinct from its affiliates, refrain from commingling its assets with those of its affiliates, maintain adequate capitalization, conduct business in its own name, pay its own liabilities from its own assets, and observe all formalities required by its LLC Agreement and the Delaware Limited Liability Company Act.

4. Neither QRH nor QRF 2022-1 has any creditors (contingent or otherwise) other than as contemplated by the Transaction Documents, and neither entity has incurred any indebtedness or obligations other than as expressly contemplated by the Transaction Documents.

5. We have assumed the accuracy in all material respects of all factual matters set forth in the certificates and other documents delivered to us by officers of QIH, officers and managers of QPF, and the managers of QRH and QRF 2022-1, including the Secretary's Certificate of QIH dated July 27, 2022, the Manager's Certificate of QPF dated July 27, 2022, and the good standing certificates issued by the Delaware Secretary of State.

C. Assumptions Regarding Prior Transfer (QPF to QRH)

1. The transfer of Receivables from QPF to QRH under the Sale Agreement constitutes a "true sale" of such Receivables by QPF to QRH and not a pledge of, or the grant of a security interest in, such Receivables by QPF to secure a borrowing by QPF. This matter is addressed in our upstream True Sale Opinion of even date herewith, and the addressees should refer to that opinion for the analysis supporting this conclusion.

2. QPF had good and marketable title to the Receivables transferred to QRH under the Sale Agreement, free and clear of all liens, claims, encumbrances, and security interests of any kind (other than precautionary liens created in connection with the Transaction Documents).

IV. OPINIONS

Based upon and subject to the foregoing assumptions and the qualifications and limitations set forth in Section VI below, and having considered the matters discussed in Section V below, we are of the following opinions:

A. Primary True Sale Opinion

It is our opinion that the transfer of the Receivables by QRH to QRF 2022-1 pursuant to the Transfer Agreement constitutes a sale of such Receivables by QRH to QRF 2022-1 and not a pledge of, or the grant of a security interest in, such Receivables by QRH to secure a borrowing by QRH (a "true sale"), and that, accordingly, such Receivables would not constitute property of QRH or its estate in the event of a bankruptcy, insolvency, receivership, or similar proceeding commenced by or against QRH under Title 11 of the United States Code (the "Bankruptcy Code") or any other applicable federal or state insolvency law.

B. Back-Up Security Interest Opinion

In the event that, notwithstanding our opinion in Section IV.A above, a court of competent jurisdiction were to hold that the transfer of Receivables by QRH to QRF 2022-1 under the Transfer Agreement does not constitute a true sale but rather constitutes a pledge of, or the grant of a security interest in, such Receivables by QRH to secure an obligation of QRH, then it is our opinion that:

(i) the Transfer Agreement creates a valid security interest in the Receivables in favor of QRF 2022-1 under Article 9 of the UCC as in effect in the State of Delaware (QRH's jurisdiction of organization); and

(ii) upon the filing of UCC-1 financing statements with the office of the Secretary of State of the State of Delaware naming QRH as debtor and QRF 2022-1 as secured party, and describing the Receivables as collateral in a manner consistent with the requirements of Section 9-504 of the UCC, such security interest will be perfected by filing under Section 9-310 of the UCC.

V. DISCUSSION AND ANALYSIS

A. Legal Framework

The determination of whether a transfer of financial assets constitutes a "true sale" or, alternatively, a secured financing is a question of critical importance in the structured finance context. If the Transfer constitutes a true sale, QRF 2022-1 will own the Receivables outright, and such Receivables will not be available to satisfy the claims of QRH's creditors (or the creditors of any entity whose estate might be consolidated with QRH's estate) in the event of QRH's bankruptcy or insolvency. If, on the other hand, the Transfer were recharacterized as a secured financing, QRH would be treated as the owner of the Receivables, QRF 2022-1 would hold only a security interest therein, and the Receivables would be subject to the claims of QRH's creditors, the automatic stay provisions of Section 362 of the Bankruptcy Code, and the various other powers of a bankruptcy trustee or debtor-in-possession.

The Transfer Agreement is governed by the laws of the State of New York. Accordingly, we have analyzed the Transfer under New York law, supplemented by relevant principles of federal bankruptcy law. There is no bright-line statutory rule governing the distinction between a sale of receivables and a secured financing; rather, courts applying New York law examine the economic substance of the transaction rather than its form and apply a multi-factor balancing test that considers the totality of the circumstances. See, e.g., Major's Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538, 544 (3d Cir. 1979); Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063 (2d Cir. 1995); In re LTV Steel Co., 285 B.R. 259 (Bankr. N.D. Ohio 2002); In re Mortgage-Backed Securities Litigation, various opinions in the Southern District of New York.

The key factors that courts have identified and that bear upon the true sale analysis include, without limitation, the following:

(a) the intent of the parties as expressed in the governing documents and as demonstrated by their conduct;

(b) whether the transferee assumes the risks and benefits of ownership of the transferred assets, including credit risk, prepayment risk, and market risk;

(d) whether the purchase price paid by the transferee reflects fair value and constitutes reasonably equivalent value;

(e) the accounting treatment accorded to the transfer by the parties;

(f) the degree to which the transferor and transferee maintain their separateness as distinct legal entities; and

(g) other indicia of economic substance, including UCC filings, the transferor's retained interest (if any), and the transferee's ability to further pledge or dispose of the transferred assets.

No single factor is dispositive. Courts have consistently held that the analysis requires a weighing of all relevant factors in light of the overall structure and economics of the transaction. We have conducted such an analysis with respect to the Transfer, the results of which are set forth below.

B. True Sale Factors Analysis

1. Intent of the Parties. The intent of the parties is a central factor in the true sale analysis, and it is firmly established in the present transaction. The Transfer Agreement expressly provides, in Section 2.01(b) thereof, that:

"It is the intention of the parties hereto that the transfer of the Receivables by the Transferor to the Transferee under this Agreement shall constitute and be treated as a sale and absolute assignment of the Receivables by the Transferor to the Transferee, and not as a pledge of, or the grant of a security interest in, the Receivables by the Transferor to secure a borrowing or other obligation of the Transferor."

This express statement of intent is reinforced by the overall structure of the transaction and by the conduct of the parties. The Offering Memorandum, which was prepared by QIH and Ridgeline Capital Markets LLC in connection with the placement of the Notes, describes the transfer of Receivables from QRH to QRF 2022-1 as a sale. The offering materials consistently refer to QRF 2022-1 as the "owner" of the Receivables and to QRH as having "sold" and "transferred" the Receivables to QRF 2022-1.

The LLC Agreements of both QRH and QRF 2022-1 further reflect the separateness of the two entities and the sale characterization of the Transfer. The QRH LLC Agreement, at Section 7.04, provides that the transfer of Receivables to QRF 2022-1 under the Transfer Agreement is to be "treated as a sale for all purposes." The QRF 2022-1 LLC Agreement similarly provides, at Section 7.02, that the Receivables acquired by QRF 2022-1 shall be treated as assets owned by QRF 2022-1.

The board resolutions of QIH, certified as of July 27, 2022, and the manager resolutions of QPF, certified as of the same date, each expressly authorize the sale of Receivables through the two-tier special purpose vehicle structure, confirming that the parent entity and the originator both understood and intended the Transfer to constitute a sale and not a financing.

We note that the Transfer Agreement contains, at Section 2.01(c), a precautionary grant by QRH of a security interest in the Receivables in favor of QRF 2022-1, to take effect only in the event that the Transfer were determined by a court of competent jurisdiction not to constitute a true sale. This back-up security interest grant is included solely as a protective measure — a standard feature of securitization transactions — and does not, in our view, alter or undermine the parties' primary intent that the Transfer constitute a true sale. Courts have recognized that the inclusion of such precautionary language is customary in securitization transactions and does not negate the parties' primary intent. See Endico Potatoes, 67 F.3d at 1068 (noting that parties may intend a sale while also taking protective measures in the event a court disagrees); In re Commercial Money Center, Inc., 350 B.R. 465, 494 (B.A.P. 9th Cir. 2006).

2. Transfer of Risks and Benefits of Ownership. A hallmark of a true sale is the genuine transfer of the economic risks and benefits of ownership from the transferor to the transferee. In the present transaction, this element is clearly satisfied.

Pursuant to Section 2.01(a) of the Transfer Agreement, QRH transfers to QRF 2022-1 all of QRH's right, title, and interest in and to the Receivables, including all rights to payment thereunder, all security and guarantees relating thereto, all related rights under the insurance policies financed thereby (including rights to unearned premium refunds), all proceeds thereof, and all records and files relating thereto. Following the Transfer, QRF 2022-1 is the owner of the Receivables for all purposes and bears all of the economic risks associated therewith.

Specifically, upon the Transfer:

(a) Credit Risk. QRF 2022-1 bears the risk that obligors on the Receivables will fail to make payments when due. If an obligor defaults, the resulting loss is borne by QRF 2022-1 (and, ultimately, by the holders of the Notes in accordance with the priority of payments set forth in the Indenture), and not by QRH. QRH does not guarantee the collectibility of the Receivables and has no obligation to make QRF 2022-1 whole in respect of any credit losses.

(b) Prepayment Risk. QRF 2022-1 bears the risk that obligors will prepay their Receivables prior to the scheduled maturity date, thereby reducing the expected yield on the pool. Prepayments are a common feature of insurance premium finance receivables, which generally have short terms (not exceeding twelve months) and may be repaid early if the obligor cancels the underlying insurance policy. QRH does not compensate QRF 2022-1 for any reduction in yield resulting from prepayments.

(c) Other Economic Risks. QRF 2022-1 assumes all other economic risks associated with ownership of the Receivables, including risks relating to the performance of the Servicer, changes in applicable law, and any deterioration in the quality of the pool.

Conversely, QRF 2022-1, and not QRH, is the party that benefits from collections on the Receivables. All collections are remitted to QRF 2022-1 (through the Servicer) and applied in accordance with the waterfall provisions of the Indenture. QRH does not retain any residual interest in or claim upon the collections on transferred Receivables (other than in its capacity as holder of the membership interest in QRF 2022-1, which represents the overcollateralization amount and is structurally subordinated to all classes of Notes).

QRH does not retain any residual interest in or obligation with respect to the transferred Receivables other than the limited, customary repurchase obligations described in subsection 3 below, which arise solely from breaches of representations and warranties with respect to specific Receivables.

The genuine transfer of the risks and benefits of ownership from QRH to QRF 2022-1 weighs strongly in favor of true sale treatment.

3. Recourse. The presence or absence of recourse from the transferee to the transferor is a significant factor in the true sale analysis. General recourse — i.e., the ability of the transferee to require the transferor to make good on credit losses or performance shortfalls — is indicative of a secured financing, because it suggests that the transferor has retained the economic risk of ownership. Limited, asset-specific repurchase obligations tied to breaches of representations and warranties, by contrast, are generally consistent with true sale treatment.

In the present transaction, the Transfer Agreement does not provide QRF 2022-1 with general recourse to QRH. QRH does not guarantee the collectibility or performance of the transferred Receivables. QRH does not provide a make-whole, indemnity, or reserve fund for the benefit of QRF 2022-1 in respect of credit losses on the pool.

The Transfer Agreement does contain, at Section 3.04, a limited obligation of QRH to repurchase specific Receivables that are determined to have failed to satisfy the Eligible Receivables Criteria as of the date of their transfer, or with respect to which QRH's representations and warranties (set forth in Section 3.01 of the Transfer Agreement) are discovered to have been untrue in any material respect. This repurchase obligation is an asset-specific remedy — it applies only to the particular non-conforming Receivable, and the repurchase price is limited to the outstanding principal balance of such Receivable plus accrued and unpaid interest thereon. It is not a general guarantee of pool performance. Courts have consistently held that such limited, specific repurchase obligations are consistent with, and do not negate, true sale treatment. See, e.g., In re LTV Steel Co., 285 B.R. at 274; Endico Potatoes, 67 F.3d at 1067-68.

Moreover, we note that the repurchase obligation in Section 3.04 of the Transfer Agreement is subject to a cure period and a materiality threshold: QRH is not required to repurchase a Receivable unless (i) the breach of representation or warranty is material and adversely affects the value of such Receivable, and (ii) QRH has failed to cure such breach within sixty (60) days after receipt of written notice thereof from QRF 2022-1 or the Trustee. These features further support the characterization of the repurchase obligation as an asset-specific warranty remedy rather than a form of general recourse.

The absence of general recourse weighs strongly in favor of true sale treatment.

4. Purchase Price and Economic Substance. Courts examine whether the purchase price paid by the transferee reflects fair value and constitutes reasonably equivalent value for the transferred assets. A purchase price that is substantially below the face value of the receivables may suggest a true sale, because the discount compensates the buyer for assuming credit and other risks. Conversely, a "purchase price" that equals the face value plus a financing charge may suggest a secured lending arrangement.

In the present transaction, the purchase price paid by QRF 2022-1 for the Receivables is determined in accordance with Section 2.02 of the Transfer Agreement and reflects fair value. The pricing structure was established in consultation with Ridgeline Capital Markets LLC, acting as structuring agent for the transaction, and reflects arm's-length terms. The purchase price incorporates an appropriate discount from the aggregate outstanding principal balance of the Receivables, reflecting the credit risk, prepayment risk, servicing costs, and other economic attributes of the pool.

QRF 2022-1 funds the acquisition of the Receivables through the net proceeds of the Notes — consisting of $375,000,000 in Class A Notes, $75,000,000 in Class B Notes, and $35,000,000 in Class C Notes, for a total of $485,000,000 in rated notes — together with QIH's retained interest of approximately $15,000,000, which represents the initial overcollateralization amount. This funding structure, in which an issuing entity finances its acquisition of receivables through the issuance of multiple classes of notes with differing levels of credit enhancement, is the standard structure for securitization transactions and is entirely consistent with true sale treatment.

The arm's-length pricing and the exchange of reasonably equivalent value weigh in favor of true sale treatment.

5. Accounting Treatment. The accounting treatment accorded to the Transfer is a relevant, though not dispositive, factor in the true sale analysis. We understand that QIH and QPF treat the transfers of Receivables — both the upstream transfer from QPF to QRH and the subsequent transfer from QRH to QRF 2022-1 — as sales for financial accounting purposes under applicable accounting standards. This treatment is expected to be confirmed by Meridian Ledger LLP, QIH's independent auditor (Robert Falcone, engagement partner), in connection with the closing of the transaction. Upon consummation of the Transfer, QRF 2022-1 records the Receivables as assets on its own books and records, and the Receivables are removed from the books of QRH and, ultimately, from the consolidated balance sheet of QPF and QIH (subject to any consolidation requirements under applicable accounting standards relating to variable interest entities).

The sale treatment for accounting purposes reflects the parties' understanding that the Transfer constitutes a sale in economic substance, and this factor supports our true sale analysis.

6. Separateness and Bankruptcy Remoteness. The degree to which the transferor and transferee maintain their separateness as distinct legal entities is a critical factor in the true sale analysis. If the transferor and transferee are not genuinely distinct entities — if, for example, they commingle assets, fail to maintain separate books, or fail to observe corporate (or LLC) formalities — a court may be more inclined to disregard the form of the transaction and look to its substance, potentially concluding that the transfer is in reality a secured financing by a single economic unit.

In the present transaction, QRH and QRF 2022-1 are each organized as bankruptcy-remote special purpose entities under Delaware law. Each entity is governed by a separate LLC Agreement that imposes comprehensive separateness covenants and activity limitations. Specifically, the separateness covenants in the QRH LLC Agreement (Section 8.01) and the QRF 2022-1 LLC Agreement (Section 8.01) require each entity to:

(a) maintain its own separate books, records, and financial statements;

(b) maintain separate bank accounts in its own name and not commingle its funds with the funds of any affiliate;

(c) hold itself out to the public as a legal entity separate and distinct from any other entity, including its member, any affiliate, or any other Quorum entity;

(d) not commingle its assets with those of any affiliate or any other person;

(e) maintain adequate capitalization in light of its contemplated business operations;

(f) conduct its business in its own name and through its own authorized officers, managers, and agents;

(g) pay its own liabilities and expenses from its own funds;

(h) observe all formalities required by its LLC Agreement and the Delaware Limited Liability Company Act; and

(i) not hold itself out as being responsible for the debts or obligations of any other person.

In addition to these separateness covenants, each entity has an independent manager provided by Fortbridge Corporate Services LLC — a nationally recognized provider of independent manager and director services for special purpose entities in structured finance transactions. Eleanor M. Vasquez serves as the independent manager of QRH, and Timothy R. Callan serves as the independent manager of QRF 2022-1. Pursuant to the respective LLC Agreements and Independent Manager Agreements, the affirmative consent of the independent manager is required before either entity may file a voluntary petition for relief under the Bankruptcy Code or consent to the filing of any involuntary petition against it. This structural protection is designed to ensure that no bankruptcy filing is made for the benefit of affiliates or for strategic purposes inconsistent with the interests of the entity's own creditors.

Furthermore, the QRH LLC Agreement contains non-petition covenants that restrict QPF, as QRH's sole member, from filing an involuntary bankruptcy petition against QRH. Similarly, the QRF 2022-1 LLC Agreement restricts QRH, as QRF 2022-1's sole member, from filing an involuntary petition against QRF 2022-1.

These structural features — the separateness covenants, the independent manager requirements, and the non-petition covenants — collectively support a conclusion that QRH and QRF 2022-1 are genuinely separate legal entities and that the Transfer between them should be respected as a sale between two distinct legal persons. The robust bankruptcy-remoteness architecture of both entities substantially reduces the risk of recharacterization and weighs strongly in favor of true sale treatment.

7. UCC Filings. As noted in Section II.A above, a draft UCC-1 financing statement has been prepared naming QRH as debtor and QRF 2022-1 as secured party, to be filed with the Secretary of State of the State of Delaware in connection with the closing of the transaction. This financing statement provides public notice of the Transfer and, in the event that the Transfer were recharacterized as a secured financing, would serve to perfect the back-up security interest granted by QRH to QRF 2022-1 under Section 2.01(c) of the Transfer Agreement.

We note that the filing of a precautionary UCC-1 financing statement in connection with a securitization transaction is standard market practice and does not negate the parties' intent that the Transfer constitute a true sale. Section 9-109(a)(3) of the UCC expressly provides that Article 9 applies to "a sale of accounts, chattel paper, payment intangibles, or promissory notes," and Section 9-318 confirms that "a debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold." The precautionary UCC filing is thus consistent with, and does not undermine, the characterization of the Transfer as a true sale.

C. Conclusion of Analysis

Weighing all of the foregoing factors in the aggregate and considering the totality of the circumstances, it is our view that the transfer of Receivables from QRH to QRF 2022-1 under the Transfer Agreement possesses the hallmarks of a true sale:

(a) the parties have clearly and unambiguously expressed their intent that the Transfer constitute a sale, in the Transfer Agreement, the LLC Agreements, the Offering Memorandum, and the authorizing resolutions;

(b) QRF 2022-1 genuinely assumes the economic risks and benefits of ownership of the Receivables, including credit risk, prepayment risk, and other risks of loss;

(c) QRH does not retain general recourse to QRF 2022-1, and the limited repurchase obligation is an asset-specific warranty remedy that is entirely consistent with true sale treatment;

(d) the purchase price paid by QRF 2022-1 reflects fair value and was established on arm's-length terms;

(e) the parties treat the Transfer as a sale for financial accounting purposes;

(f) QRH and QRF 2022-1 are organized and operated as genuinely separate, bankruptcy-remote special purpose entities, with comprehensive separateness covenants, independent managers, and non-petition protections; and

(g) the precautionary UCC filing is consistent with market practice and does not alter the sale characterization.

Accordingly, for the reasons set forth above, and subject to the assumptions, qualifications, and limitations herein, we have concluded that the Transfer constitutes a true sale of the Receivables by QRH to QRF 2022-1, as set forth in our opinion in Section IV.A above.

VI. QUALIFICATIONS AND LIMITATIONS

The opinions set forth in Section IV above are subject to the following qualifications and limitations:

A. Governing Law

This opinion is limited to the laws of the State of New York and the federal laws of the United States of America, in each case as currently in effect on the date hereof. We have made no investigation of, and express no opinion with respect to, the laws of any other jurisdiction, including, without limitation, any state other than New York and any non-United States jurisdiction.

To the extent matters of Delaware law are relevant to the opinions expressed herein — including, without limitation, the formation, governance, and valid existence of QRH and QRF 2022-1 as Delaware limited liability companies, and the enforceability of the separateness covenants, non-petition covenants, and independent manager requirements set forth in the respective LLC Agreements — we have assumed, with the consent of the addressees, that Delaware law is consistent with the law of the State of New York with respect to the true sale analysis. We express no opinion as to Delaware law. We note that separate opinions of counsel as to the due formation, valid existence, and authorization of QRH and QRF 2022-1 under Delaware law are being delivered in connection with the closing by Bramwell & Penrose LLP, as Delaware counsel.

B. Bankruptcy and Insolvency Qualifications

The opinions expressed herein are subject to the effects of:

(i) applicable bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance, fraudulent transfer, and other similar laws affecting the rights and remedies of creditors generally, including, without limitation, the Bankruptcy Code, the Uniform Fraudulent Transfer Act (as enacted in any relevant jurisdiction), and any applicable state receivership or insolvency statutes; and

(ii) general principles of equity (whether considered in proceedings at law or in equity), including, without limitation, principles governing the availability of specific performance, injunctive relief, and other equitable remedies, and the exercise of judicial discretion.

No assurance can be given that a bankruptcy court would not, in the exercise of its broad equitable powers under Section 105(a) of the Bankruptcy Code or otherwise, decline to respect the form of the Transfer or recharacterize it as a secured financing. As noted above, the question of whether a transfer of receivables constitutes a true sale or a secured financing is inherently fact-intensive, and courts exercise substantial discretion in making this determination. Our opinion represents our professional judgment, based on our review of the Transaction Documents and our analysis of applicable law, as to the most likely outcome if the issue were presented to a court of competent jurisdiction, but it is not a guarantee of any particular result. We note that there can be no assurance that a court would agree with our analysis or reach the same conclusion.

The opinions expressed herein do not address the substantive consolidation of QRH with any other Quorum entity, including QPF, QIH, or QRF 2022-1. The question of substantive consolidation — i.e., whether a bankruptcy court might consolidate the assets and liabilities of QRH with those of an affiliate, thereby potentially subjecting the Receivables to the claims of the affiliate's creditors — is addressed in our separate non-consolidation opinions dated October 5, 2022, delivered to the addressees under separate cover.

The opinions expressed herein assume that the Transfer was not made with actual intent to hinder, delay, or defraud any creditor of QRH within the meaning of Section 548(a)(1)(A) of the Bankruptcy Code or any comparable provision of applicable state fraudulent transfer law, and that reasonably equivalent value was given and received in connection with the Transfer within the meaning of Section 548(a)(1)(B) of the Bankruptcy Code.

C. Scope Limitations

The opinions expressed herein are subject to the following scope limitations:

1. This opinion is limited to the specific transfer of Receivables from QRH to QRF 2022-1 under the Transfer Agreement. This opinion does not address the transfer of Receivables from QPF to QRH under the Sale Agreement, which is the subject of our separate upstream True Sale Opinion of even date herewith.

2. This opinion does not address the grant of a security interest by QRF 2022-1 in the Receivables and other assets in favor of Calvoneth Trust Company, National Association, as Trustee, under the Pledge Agreement or the Indenture, the enforceability of such security interest, or the priority thereof. Such matters are addressed in our separate UCC perfection opinion and Indenture enforceability opinion, each of even date herewith.

3. This opinion does not address the enforceability of the Indenture, the Notes, the Note Purchase Agreement, the Servicing Agreement, the Administration Agreement, the Performance Guaranty, the Back-Up Servicing Agreement, the Account Control Agreement, or any other Transaction Document.

4. This opinion does not address any federal, state, or local tax matters, including, without limitation, the characterization of the Transfer or the Notes for federal income tax purposes.

5. This opinion does not address any federal or state regulatory matters, including, without limitation, compliance with the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any state insurance, banking, or lending regulatory requirements.

6. This opinion does not address any securities law matters, including, without limitation, the exemption of the Notes from registration under the Securities Act of 1933 or the qualification of the Indenture under the Trust Indenture Act of 1939.

7. We have not been asked to, and do not, opine on the characterization of the Receivables as "accounts" or "payment intangibles" (or any other category of collateral) under Article 9 of the UCC. Such characterization is assumed for purposes of this opinion and is addressed in our separate UCC perfection opinion of even date herewith.

8. This opinion does not address the effect of any future amendments, supplements, or modifications to the Transfer Agreement or any of the other Transaction Documents, or any deviation by the parties from the terms of the Transfer Agreement or any of the other Transaction Documents. Any material amendment to the Transfer Agreement, or any material change in the structure, economics, or terms of the Transfer, could affect the conclusions expressed herein, and we express no opinion as to the effect of any such amendment or change.

9. This opinion is rendered as of the date hereof and is based upon the laws and regulations in effect, the facts in existence, and the documents in the forms reviewed by us, as of the date hereof. We assume no obligation, and undertake no responsibility, to advise the addressees or any other person of any change in applicable law, any change in fact, or any other development occurring after the date hereof that might affect the opinions expressed herein, whether or not such change or development comes to our attention.

D. Reliance. This opinion is furnished solely for the benefit of the addressees hereof — namely, Quorum Receivables Funding 2022-1 LLC, Calvoneth Trust Company, National Association, as Indenture Trustee, and Ridgeline Capital Markets LLC, as Initial Purchaser — and their respective successors and assigns, in connection with the transaction described herein. This opinion may not be relied upon by any other person, or for any purpose other than the transaction described herein, without our prior written consent.

Notwithstanding the foregoing, the following additional parties may rely upon this opinion as if it were addressed directly to them:

(a) Calloway & Brandt LLP, as counsel to Ridgeline Capital Markets LLC, in connection with the delivery of its opinion to Ridgeline Capital Markets LLC with respect to the transaction;

(b) Ashfield & Greer LLP, as counsel to Calvoneth Trust Company, National Association, in connection with the delivery of its opinion to Calvoneth Trust Company, National Association with respect to the transaction; and

(c) Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812) and Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347), solely for purposes of their respective rating analyses of the Notes.

No other person or entity may rely on this opinion without our prior written consent.

VII. CONCLUSION

Based upon the foregoing, and subject in all respects to the assumptions, qualifications, and limitations set forth herein, it is our opinion that the Transfer constitutes a true sale of the Receivables by QRH to QRF 2022-1, as more fully set forth in Section IV above.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Douglas Carmichael

Title: Partner (Responsible Partner)

Prepared by: Sylvia Hartwell, Partner (Tax) Yuki Nakamura, Associate

DRAFT — Subject to revision and finalization. This draft opinion has not been executed and is not effective. Circulated for discussion purposes only.

This draft was prepared in connection with Calderwood & Harkness LLP Matter No. 1025-00007.

Note: This opinion was never finalized. The QRF 2022-1 transaction was shelved in November 2022 following spread widening in the asset-backed securities market that rendered the transaction economics unworkable. The transaction was placed in dormant status on November 18, 2022, and no closing occurred.

CALDERWOOD & HARKNESS LLP Attorneys at Law
601 Lexington Avenue New York, New York 10022
Telephone: (212) 474-1000 Facsimile: (212) 474-1001 www.calderwoodharkness.com
October 8, 2022
DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR RELIANCE
Matter No. 1025-00007
Quorum Receivables Funding 2022-1 LLC c/o Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, Connecticut 06901
Calvoneth Trust Company, National Association as Indenture Trustee 600 Travis Street, Suite 5800 Houston, Texas 77002
Ridgeline Capital Markets LLC as Initial Purchaser 383 Madison Avenue, 14th Floor New York, New York 10179
Re: True Sale Opinion — Transfer of Insurance Premium Finance Receivables from Quorum Receivables Holding LLC ("Transferor" or "QRH") to Quorum Receivables Funding 2022-1 LLC ("Transferee," "Issuer," or "QRF 2022-1") pursuant to the Receivables Transfer Agreement dated as of [●], 2022
Ladies and Gentlemen:
I. INTRODUCTION AND ENGAGEMENT
We have acted as counsel to Quorum Insurance Holdings Corp., a Delaware corporation ("QIH"), Quorum Premium Finance LLC, a Delaware limited liability company ("QPF"), Quorum Receivables Holding LLC, a Delaware limited liability company ("QRH"), and Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company ("QRF 2022-1"), in connection with the issuance by QRF 2022-1 of $500,000,000 aggregate principal amount of asset-backed notes (the "Notes"). The Notes consist of the following classes:
(a) $375,000,000 aggregate principal amount of Class A Floating Rate Asset-Backed Notes (the "Class A Notes"), which have received preliminary ratings of AAA(cr) from Brindoval Ratings Inc. ("Brindoval") and Aaa(p) from Pinnacle Rating Services LLC ("Pinnacle");
(b) $75,000,000 aggregate principal amount of Class B Floating Rate Asset-Backed Notes (the "Class B Notes"), which have received preliminary ratings of A(cr) from Brindoval and A1(p) from Pinnacle; and
(c) $35,000,000 aggregate principal amount of Class C Floating Rate Asset-Backed Notes (the "Class C Notes" and, together with the Class A Notes and the Class B Notes, the "Notes"), which have received preliminary ratings of BBB(cr) from Brindoval and Baa2(p) from Pinnacle.
The Notes are backed by a revolving pool of insurance premium finance receivables originated by QPF in the ordinary course of its business (the "Receivables"). The Receivables are transferred from QPF to QRH pursuant to the Receivables Sale Agreement, and subsequently from QRH to QRF 2022-1 pursuant to the Receivables Transfer Agreement, as described more fully herein.
This opinion is being delivered in connection with the closing of the issuance and sale of the Notes under the Note Purchase Agreement, dated as of [●], 2022 (the "Note Purchase Agreement"), among QRF 2022-1 (as Issuer), QIH (as Sponsor), and Ridgeline Capital Markets LLC (as Initial Purchaser). This opinion specifically addresses the transfer of Receivables from QRH to QRF 2022-1 under the Receivables Transfer Agreement, dated as of [●], 2022 (the "Transfer Agreement"), between QRH (as Transferor) and QRF 2022-1 (as Transferee).
A companion opinion of even date herewith (the "Upstream True Sale Opinion"), delivered under separate cover, addresses the transfer of Receivables from QPF to QRH under the Receivables Sale Agreement, dated as of [●], 2022 (the "Sale Agreement"), between QPF (as Seller) and QRH (as Purchaser). This opinion does not address, and the addressees should not rely on this opinion with respect to, the matters covered by the upstream True Sale Opinion. The opinions expressed herein assume, however, that the transfer of Receivables from QPF to QRH under the Sale Agreement constitutes a true sale, as more fully set forth in Section III.C below.
This opinion is being rendered at the request of the addressees and is a condition precedent to the closing of the transaction contemplated by the Indenture, dated as of [●], 2022 (the "Indenture"), between QRF 2022-1 (as Issuer) and Calvoneth Trust Company, National Association (as Trustee), and the Note Purchase Agreement. Delivery of this opinion satisfies the requirements set forth in Section 4.01(j)(ii) of the Note Purchase Agreement and Section 3.01(c)(iv) of the Indenture.
II. DEFINED TERMS AND DOCUMENTS REVIEWED
A. Transaction Documents Reviewed
In connection with the opinions expressed herein, we have examined originals or copies (certified or otherwise identified to our satisfaction) of each of the following documents (collectively, the "Transaction Documents"):
1. Receivables Transfer Agreement, execution draft (v3), dated as of [●], 2022, between QRH (as Transferor) and QRF 2022-1 (as Transferee) (the "Transfer Agreement");
2. Receivables Sale Agreement, execution draft (v3), dated as of [●], 2022, between QPF (as Seller) and QRH (as Purchaser) (the "Sale Agreement");
3. Indenture, execution draft (v4), dated as of [●], 2022, between QRF 2022-1 (as Issuer) and Calvoneth Trust Company, National Association (as Trustee) (the "Indenture");
4. Grant of Security Interest (Pledge Agreement), execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and Calvoneth Trust Company, National Association (as Trustee) (the "Pledge Agreement");
5. Limited Liability Company Agreement of Quorum Receivables Funding 2022-1 LLC, dated August 3, 2022 (the "QRF 2022-1 LLC Agreement");
6. Limited Liability Company Agreement of Quorum Receivables Holding LLC, dated August 3, 2022 (the "QRH LLC Agreement");
7. Certificate of Formation of Quorum Receivables Funding 2022-1 LLC, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894231);
8. Certificate of Formation of Quorum Receivables Holding LLC, filed with the Secretary of State of the State of Delaware on August 3, 2022 (DE SOS File No. 7894228);
9. Servicing Agreement, execution draft (v3), dated as of [●], 2022, among QRF 2022-1, QPF (as Servicer), and Calvoneth Trust Company, National Association (as Trustee) (the "Servicing Agreement");
10. Note Purchase Agreement, execution draft (v3), dated as of [●], 2022, among QRF 2022-1 (as Issuer), QIH (as Sponsor), and Ridgeline Capital Markets LLC (as Initial Purchaser) (the "Note Purchase Agreement");
11. Administration Agreement, execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and QIH (as Administrator) (the "Administration Agreement");
12. Performance Guaranty, execution draft (v1), dated as of [●], 2022, by QIH in favor of Calvoneth Trust Company, National Association (as Trustee) (the "Performance Guaranty");
13. Back-Up Servicing Agreement, execution draft (v2), dated as of [●], 2022, among QRF 2022-1, QPF, Northvane Bank, National Association (as Back-Up Servicer), and Calvoneth Trust Company, National Association (as Trustee) (the "Back-Up Servicing Agreement");
14. Preliminary Offering Memorandum (v3) for the Notes, dated October 12, 2022 (the "Offering Memorandum");
15. Draft UCC-1 financing statements to be filed with the Delaware Secretary of State: (i) naming QPF as debtor and QRH as secured party; (ii) naming QRH as debtor and QRF 2022-1 as secured party; and (iii) naming QRF 2022-1 as debtor and Calvoneth Trust Company, National Association as secured party (collectively, the "UCC Filings");
16. Secretary's Certificate of QIH, dated July 27, 2022, attaching certified copies of resolutions of the Board of Directors of QIH authorizing the transactions contemplated by the Transaction Documents (the "QIH Board Resolutions");
17. Manager's Certificate of QPF, dated July 27, 2022, attaching certified copies of resolutions of the managers of QPF authorizing the sale of receivables through the two-tier special purpose vehicle structure contemplated by the Transaction Documents (the "QPF Authorizing Resolutions");
18. Independent Manager Agreement, dated August 3, 2022, between Quorum Receivables Funding 2022-1 LLC and Fortbridge Corporate Services LLC, pursuant to which Timothy R. Callan was appointed as independent manager of QRF 2022-1;
19. Independent Manager Agreement, dated August 3, 2022, between Quorum Receivables Holding LLC and Fortbridge Corporate Services LLC, pursuant to which Eleanor M. Vasquez was appointed as independent manager of QRH; and
20. Account Control Agreement, execution draft (v2), dated as of [●], 2022, between QRF 2022-1 and Calvoneth Trust Company, National Association (as Trustee) (the "Account Control Agreement").
B. Other Documents and Materials Reviewed
In addition to the Transaction Documents identified above, we have examined the following:
1. Certificates of good standing for QRF 2022-1 and QRH, each issued by the Secretary of State of the State of Delaware as of a recent date prior to the date hereof;
2. Sample receivable files from the initial pool of Receivables to be transferred pursuant to the Transfer Agreement, reflecting a cut-off date of June 30, 2022 and an initial pool balance of approximately $612,000,000, representing approximately 82,400 individual insurance premium finance loans; and
3. Such other documents, certificates, records, and instruments as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein.
We have not independently verified any factual matter set forth in the documents, certificates, or other materials reviewed by us and have relied upon the accuracy thereof for purposes of this opinion.
C. Defined Terms
Capitalized terms used and not otherwise defined in this opinion letter have the meanings ascribed to them in the Transfer Agreement. In addition, the following defined terms are used herein:
"Receivables" means the insurance premium finance receivables originated by QPF in the ordinary course of its business that are transferred by QRH to QRF 2022-1 pursuant to the Transfer Agreement, including, in each case, all rights to payment thereunder, all security and guarantees relating thereto, all related rights under the insurance policies financed thereby (including rights to unearned premium refunds), all proceeds thereof, and all records and files relating thereto.
"Transfer" means the conveyance of Receivables from QRH to QRF 2022-1 under and pursuant to the Transfer Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of New York and the State of Delaware, as applicable.
III. ASSUMPTIONS
The opinions expressed herein are based upon and subject to the following assumptions, each of which we have made with the consent of the addressees:
A. Factual Assumptions
1. All documents submitted to us as originals are authentic, all signatures on all documents reviewed by us are genuine, and all copies submitted to us conform to the originals thereof.
2. Each party to the Transaction Documents (other than QRH and QRF 2022-1, with respect to which we express the opinions set forth in Section IV hereof) has been duly organized under the laws of its jurisdiction of organization, is validly existing and in good standing under such laws, and has the requisite corporate, limited liability company, trust, or other organizational power and authority to execute, deliver, and perform its respective obligations under the Transaction Documents to which it is a party.
3. The Transaction Documents have been or will be duly authorized, executed, and delivered by all parties thereto in accordance with applicable law and the governing documents of each such party, and constitute or will constitute the legal, valid, and binding obligations of each such party enforceable against such party in accordance with their terms.
4. The Receivables constituting the initial pool and all subsequent additions thereto satisfy the Eligible Receivables Criteria set forth in Section 2.03 of the Transfer Agreement, which criteria include, without limitation, the following: (a) such Receivable was originated by QPF in the ordinary course of its business; (b) such Receivable is denominated and payable in United States dollars; (c) such Receivable is secured by rights to unearned premium refunds under the insurance policy or policies financed thereby; (d) the original term of such Receivable does not exceed twelve (12) months; (e) the obligor on such Receivable is a United States commercial policyholder; (f) no payment on such Receivable is more than sixty (60) days past due, and such Receivable is not in default under the terms of the related premium finance agreement; and (g) such Receivable was originated in compliance with all applicable usury laws and licensing requirements.
5. The Receivables constitute "accounts" or "payment intangibles" within the meaning of Article 9 of the UCC.
6. Each party to the Transaction Documents will perform its obligations thereunder in accordance with the terms thereof.
7. The recitals, representations, and warranties contained in the Transfer Agreement, the Sale Agreement, and each of the other Transaction Documents are true and correct in all material respects as of the date hereof and as of the closing date.
8. QRH has good and marketable title to the Receivables being transferred pursuant to the Transfer Agreement, free and clear of all liens, claims, encumbrances, and security interests of any kind (other than liens and security interests created pursuant to and in accordance with the Transaction Documents).
9. The economic substance of the Transfer is consistent in all material respects with the terms described in the Transfer Agreement and the Offering Memorandum. No side agreements, understandings, or arrangements exist between or among QRH, QRF 2022-1, or any of their respective affiliates that would be inconsistent with, or would alter the economic substance of, the Transfer as described in the Transfer Agreement.
B. Assumptions Regarding QRH and QRF 2022-1
1. QRH is a Delaware limited liability company duly formed and validly existing under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. (DE SOS File No. 7894228). QPF is the sole member of QRH. Eleanor M. Vasquez, provided by Fortbridge Corporate Services LLC, serves as the independent manager of QRH pursuant to the Independent Manager Agreement dated August 3, 2022.
2. QRF 2022-1 is a Delaware limited liability company duly formed and validly existing under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. (DE SOS File No. 7894231). QRH is the sole member of QRF 2022-1. Timothy R. Callan, provided by Fortbridge Corporate Services LLC, serves as the independent manager of QRF 2022-1 pursuant to the Independent Manager Agreement dated August 3, 2022.
3. Both QRH and QRF 2022-1 are bankruptcy-remote special purpose entities organized and operated in accordance with their respective LLC Agreements. Each entity complies, and will continue to comply, with the separateness covenants, activity limitations, and non-petition covenants set forth in its respective LLC Agreement. In particular, the separateness covenants require each entity, among other things, to maintain separate books and records, maintain separate bank accounts, hold itself out as a separate legal entity distinct from its affiliates, refrain from commingling its assets with those of its affiliates, maintain adequate capitalization, conduct business in its own name, pay its own liabilities from its own assets, and observe all formalities required by its LLC Agreement and the Delaware Limited Liability Company Act.
4. Neither QRH nor QRF 2022-1 has any creditors (contingent or otherwise) other than as contemplated by the Transaction Documents, and neither entity has incurred any indebtedness or obligations other than as expressly contemplated by the Transaction Documents.
5. We have assumed the accuracy in all material respects of all factual matters set forth in the certificates and other documents delivered to us by officers of QIH, officers and managers of QPF, and the managers of QRH and QRF 2022-1, including the Secretary's Certificate of QIH dated July 27, 2022, the Manager's Certificate of QPF dated July 27, 2022, and the good standing certificates issued by the Delaware Secretary of State.
C. Assumptions Regarding Prior Transfer (QPF to QRH)
1. The transfer of Receivables from QPF to QRH under the Sale Agreement constitutes a "true sale" of such Receivables by QPF to QRH and not a pledge of, or the grant of a security interest in, such Receivables by QPF to secure a borrowing by QPF. This matter is addressed in our upstream True Sale Opinion of even date herewith, and the addressees should refer to that opinion for the analysis supporting this conclusion.
2. QPF had good and marketable title to the Receivables transferred to QRH under the Sale Agreement, free and clear of all liens, claims, encumbrances, and security interests of any kind (other than precautionary liens created in connection with the Transaction Documents).
IV. OPINIONS
Based upon and subject to the foregoing assumptions and the qualifications and limitations set forth in Section VI below, and having considered the matters discussed in Section V below, we are of the following opinions:
A. Primary True Sale Opinion
It is our opinion that the transfer of the Receivables by QRH to QRF 2022-1 pursuant to the Transfer Agreement constitutes a sale of such Receivables by QRH to QRF 2022-1 and not a pledge of, or the grant of a security interest in, such Receivables by QRH to secure a borrowing by QRH (a "true sale"), and that, accordingly, such Receivables would not constitute property of QRH or its estate in the event of a bankruptcy, insolvency, receivership, or similar proceeding commenced by or against QRH under Title 11 of the United States Code (the "Bankruptcy Code") or any other applicable federal or state insolvency law.
B. Back-Up Security Interest Opinion
In the event that, notwithstanding our opinion in Section IV.A above, a court of competent jurisdiction were to hold that the transfer of Receivables by QRH to QRF 2022-1 under the Transfer Agreement does not constitute a true sale but rather constitutes a pledge of, or the grant of a security interest in, such Receivables by QRH to secure an obligation of QRH, then it is our opinion that:
(i) the Transfer Agreement creates a valid security interest in the Receivables in favor of QRF 2022-1 under Article 9 of the UCC as in effect in the State of Delaware (QRH's jurisdiction of organization); and
(ii) upon the filing of UCC-1 financing statements with the office of the Secretary of State of the State of Delaware naming QRH as debtor and QRF 2022-1 as secured party, and describing the Receivables as collateral in a manner consistent with the requirements of Section 9-504 of the UCC, such security interest will be perfected by filing under Section 9-310 of the UCC.
V. DISCUSSION AND ANALYSIS
A. Legal Framework
The determination of whether a transfer of financial assets constitutes a "true sale" or, alternatively, a secured financing is a question of critical importance in the structured finance context. If the Transfer constitutes a true sale, QRF 2022-1 will own the Receivables outright, and such Receivables will not be available to satisfy the claims of QRH's creditors (or the creditors of any entity whose estate might be consolidated with QRH's estate) in the event of QRH's bankruptcy or insolvency. If, on the other hand, the Transfer were recharacterized as a secured financing, QRH would be treated as the owner of the Receivables, QRF 2022-1 would hold only a security interest therein, and the Receivables would be subject to the claims of QRH's creditors, the automatic stay provisions of Section 362 of the Bankruptcy Code, and the various other powers of a bankruptcy trustee or debtor-in-possession.
The Transfer Agreement is governed by the laws of the State of New York. Accordingly, we have analyzed the Transfer under New York law, supplemented by relevant principles of federal bankruptcy law. There is no bright-line statutory rule governing the distinction between a sale of receivables and a secured financing; rather, courts applying New York law examine the economic substance of the transaction rather than its form and apply a multi-factor balancing test that considers the totality of the circumstances. See, e.g., Major's Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538, 544 (3d Cir. 1979); Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063 (2d Cir. 1995); In re LTV Steel Co., 285 B.R. 259 (Bankr. N.D. Ohio 2002); In re Mortgage-Backed Securities Litigation, various opinions in the Southern District of New York.
The key factors that courts have identified and that bear upon the true sale analysis include, without limitation, the following:
(a) the intent of the parties as expressed in the governing documents and as demonstrated by their conduct;
(b) whether the transferee assumes the risks and benefits of ownership of the transferred assets, including credit risk, prepayment risk, and market risk;
(c) whether the transferor retains recourse to the transferee or provides a guarantee of asset performance;
(d) whether the purchase price paid by the transferee reflects fair value and constitutes reasonably equivalent value;
(e) the accounting treatment accorded to the transfer by the parties;
(f) the degree to which the transferor and transferee maintain their separateness as distinct legal entities; and
(g) other indicia of economic substance, including UCC filings, the transferor's retained interest (if any), and the transferee's ability to further pledge or dispose of the transferred assets.
No single factor is dispositive. Courts have consistently held that the analysis requires a weighing of all relevant factors in light of the overall structure and economics of the transaction. We have conducted such an analysis with respect to the Transfer, the results of which are set forth below.
B. True Sale Factors Analysis
1. Intent of the Parties. The intent of the parties is a central factor in the true sale analysis, and it is firmly established in the present transaction. The Transfer Agreement expressly provides, in Section 2.01(b) thereof, that:
"It is the intention of the parties hereto that the transfer of the Receivables by the Transferor to the Transferee under this Agreement shall constitute and be treated as a sale and absolute assignment of the Receivables by the Transferor to the Transferee, and not as a pledge of, or the grant of a security interest in, the Receivables by the Transferor to secure a borrowing or other obligation of the Transferor."
This express statement of intent is reinforced by the overall structure of the transaction and by the conduct of the parties. The Offering Memorandum, which was prepared by QIH and Ridgeline Capital Markets LLC in connection with the placement of the Notes, describes the transfer of Receivables from QRH to QRF 2022-1 as a sale. The offering materials consistently refer to QRF 2022-1 as the "owner" of the Receivables and to QRH as having "sold" and "transferred" the Receivables to QRF 2022-1.
The LLC Agreements of both QRH and QRF 2022-1 further reflect the separateness of the two entities and the sale characterization of the Transfer. The QRH LLC Agreement, at Section 7.04, provides that the transfer of Receivables to QRF 2022-1 under the Transfer Agreement is to be "treated as a sale for all purposes." The QRF 2022-1 LLC Agreement similarly provides, at Section 7.02, that the Receivables acquired by QRF 2022-1 shall be treated as assets owned by QRF 2022-1.
The board resolutions of QIH, certified as of July 27, 2022, and the manager resolutions of QPF, certified as of the same date, each expressly authorize the sale of Receivables through the two-tier special purpose vehicle structure, confirming that the parent entity and the originator both understood and intended the Transfer to constitute a sale and not a financing.
We note that the Transfer Agreement contains, at Section 2.01(c), a precautionary grant by QRH of a security interest in the Receivables in favor of QRF 2022-1, to take effect only in the event that the Transfer were determined by a court of competent jurisdiction not to constitute a true sale. This back-up security interest grant is included solely as a protective measure — a standard feature of securitization transactions — and does not, in our view, alter or undermine the parties' primary intent that the Transfer constitute a true sale. Courts have recognized that the inclusion of such precautionary language is customary in securitization transactions and does not negate the parties' primary intent. See Endico Potatoes, 67 F.3d at 1068 (noting that parties may intend a sale while also taking protective measures in the event a court disagrees); In re Commercial Money Center, Inc., 350 B.R. 465, 494 (B.A.P. 9th Cir. 2006).
2. Transfer of Risks and Benefits of Ownership. A hallmark of a true sale is the genuine transfer of the economic risks and benefits of ownership from the transferor to the transferee. In the present transaction, this element is clearly satisfied.
Pursuant to Section 2.01(a) of the Transfer Agreement, QRH transfers to QRF 2022-1 all of QRH's right, title, and interest in and to the Receivables, including all rights to payment thereunder, all security and guarantees relating thereto, all related rights under the insurance policies financed thereby (including rights to unearned premium refunds), all proceeds thereof, and all records and files relating thereto. Following the Transfer, QRF 2022-1 is the owner of the Receivables for all purposes and bears all of the economic risks associated therewith.
Specifically, upon the Transfer:
(a) Credit Risk. QRF 2022-1 bears the risk that obligors on the Receivables will fail to make payments when due. If an obligor defaults, the resulting loss is borne by QRF 2022-1 (and, ultimately, by the holders of the Notes in accordance with the priority of payments set forth in the Indenture), and not by QRH. QRH does not guarantee the collectibility of the Receivables and has no obligation to make QRF 2022-1 whole in respect of any credit losses.
(b) Prepayment Risk. QRF 2022-1 bears the risk that obligors will prepay their Receivables prior to the scheduled maturity date, thereby reducing the expected yield on the pool. Prepayments are a common feature of insurance premium finance receivables, which generally have short terms (not exceeding twelve months) and may be repaid early if the obligor cancels the underlying insurance policy. QRH does not compensate QRF 2022-1 for any reduction in yield resulting from prepayments.
(c) Other Economic Risks. QRF 2022-1 assumes all other economic risks associated with ownership of the Receivables, including risks relating to the performance of the Servicer, changes in applicable law, and any deterioration in the quality of the pool.
Conversely, QRF 2022-1, and not QRH, is the party that benefits from collections on the Receivables. All collections are remitted to QRF 2022-1 (through the Servicer) and applied in accordance with the waterfall provisions of the Indenture. QRH does not retain any residual interest in or claim upon the collections on transferred Receivables (other than in its capacity as holder of the membership interest in QRF 2022-1, which represents the overcollateralization amount and is structurally subordinated to all classes of Notes).
QRH does not retain any residual interest in or obligation with respect to the transferred Receivables other than the limited, customary repurchase obligations described in subsection 3 below, which arise solely from breaches of representations and warranties with respect to specific Receivables.
The genuine transfer of the risks and benefits of ownership from QRH to QRF 2022-1 weighs strongly in favor of true sale treatment.
3. Recourse. The presence or absence of recourse from the transferee to the transferor is a significant factor in the true sale analysis. General recourse — i.e., the ability of the transferee to require the transferor to make good on credit losses or performance shortfalls — is indicative of a secured financing, because it suggests that the transferor has retained the economic risk of ownership. Limited, asset-specific repurchase obligations tied to breaches of representations and warranties, by contrast, are generally consistent with true sale treatment.
In the present transaction, the Transfer Agreement does not provide QRF 2022-1 with general recourse to QRH. QRH does not guarantee the collectibility or performance of the transferred Receivables. QRH does not provide a make-whole, indemnity, or reserve fund for the benefit of QRF 2022-1 in respect of credit losses on the pool.
The Transfer Agreement does contain, at Section 3.04, a limited obligation of QRH to repurchase specific Receivables that are determined to have failed to satisfy the Eligible Receivables Criteria as of the date of their transfer, or with respect to which QRH's representations and warranties (set forth in Section 3.01 of the Transfer Agreement) are discovered to have been untrue in any material respect. This repurchase obligation is an asset-specific remedy — it applies only to the particular non-conforming Receivable, and the repurchase price is limited to the outstanding principal balance of such Receivable plus accrued and unpaid interest thereon. It is not a general guarantee of pool performance. Courts have consistently held that such limited, specific repurchase obligations are consistent with, and do not negate, true sale treatment. See, e.g., In re LTV Steel Co., 285 B.R. at 274; Endico Potatoes, 67 F.3d at 1067-68.
Moreover, we note that the repurchase obligation in Section 3.04 of the Transfer Agreement is subject to a cure period and a materiality threshold: QRH is not required to repurchase a Receivable unless (i) the breach of representation or warranty is material and adversely affects the value of such Receivable, and (ii) QRH has failed to cure such breach within sixty (60) days after receipt of written notice thereof from QRF 2022-1 or the Trustee. These features further support the characterization of the repurchase obligation as an asset-specific warranty remedy rather than a form of general recourse.
The absence of general recourse weighs strongly in favor of true sale treatment.
4. Purchase Price and Economic Substance. Courts examine whether the purchase price paid by the transferee reflects fair value and constitutes reasonably equivalent value for the transferred assets. A purchase price that is substantially below the face value of the receivables may suggest a true sale, because the discount compensates the buyer for assuming credit and other risks. Conversely, a "purchase price" that equals the face value plus a financing charge may suggest a secured lending arrangement.
In the present transaction, the purchase price paid by QRF 2022-1 for the Receivables is determined in accordance with Section 2.02 of the Transfer Agreement and reflects fair value. The pricing structure was established in consultation with Ridgeline Capital Markets LLC, acting as structuring agent for the transaction, and reflects arm's-length terms. The purchase price incorporates an appropriate discount from the aggregate outstanding principal balance of the Receivables, reflecting the credit risk, prepayment risk, servicing costs, and other economic attributes of the pool.
QRF 2022-1 funds the acquisition of the Receivables through the net proceeds of the Notes — consisting of $375,000,000 in Class A Notes, $75,000,000 in Class B Notes, and $35,000,000 in Class C Notes, for a total of $485,000,000 in rated notes — together with QIH's retained interest of approximately $15,000,000, which represents the initial overcollateralization amount. This funding structure, in which an issuing entity finances its acquisition of receivables through the issuance of multiple classes of notes with differing levels of credit enhancement, is the standard structure for securitization transactions and is entirely consistent with true sale treatment.
The arm's-length pricing and the exchange of reasonably equivalent value weigh in favor of true sale treatment.
5. Accounting Treatment. The accounting treatment accorded to the Transfer is a relevant, though not dispositive, factor in the true sale analysis. We understand that QIH and QPF treat the transfers of Receivables — both the upstream transfer from QPF to QRH and the subsequent transfer from QRH to QRF 2022-1 — as sales for financial accounting purposes under applicable accounting standards. This treatment is expected to be confirmed by Meridian Ledger LLP, QIH's independent auditor (Robert Falcone, engagement partner), in connection with the closing of the transaction. Upon consummation of the Transfer, QRF 2022-1 records the Receivables as assets on its own books and records, and the Receivables are removed from the books of QRH and, ultimately, from the consolidated balance sheet of QPF and QIH (subject to any consolidation requirements under applicable accounting standards relating to variable interest entities).
The sale treatment for accounting purposes reflects the parties' understanding that the Transfer constitutes a sale in economic substance, and this factor supports our true sale analysis.
6. Separateness and Bankruptcy Remoteness. The degree to which the transferor and transferee maintain their separateness as distinct legal entities is a critical factor in the true sale analysis. If the transferor and transferee are not genuinely distinct entities — if, for example, they commingle assets, fail to maintain separate books, or fail to observe corporate (or LLC) formalities — a court may be more inclined to disregard the form of the transaction and look to its substance, potentially concluding that the transfer is in reality a secured financing by a single economic unit.
In the present transaction, QRH and QRF 2022-1 are each organized as bankruptcy-remote special purpose entities under Delaware law. Each entity is governed by a separate LLC Agreement that imposes comprehensive separateness covenants and activity limitations. Specifically, the separateness covenants in the QRH LLC Agreement (Section 8.01) and the QRF 2022-1 LLC Agreement (Section 8.01) require each entity to:
(a) maintain its own separate books, records, and financial statements;
(b) maintain separate bank accounts in its own name and not commingle its funds with the funds of any affiliate;
(c) hold itself out to the public as a legal entity separate and distinct from any other entity, including its member, any affiliate, or any other Quorum entity;
(d) not commingle its assets with those of any affiliate or any other person;
(e) maintain adequate capitalization in light of its contemplated business operations;
(f) conduct its business in its own name and through its own authorized officers, managers, and agents;
(g) pay its own liabilities and expenses from its own funds;
(h) observe all formalities required by its LLC Agreement and the Delaware Limited Liability Company Act; and
(i) not hold itself out as being responsible for the debts or obligations of any other person.
In addition to these separateness covenants, each entity has an independent manager provided by Fortbridge Corporate Services LLC — a nationally recognized provider of independent manager and director services for special purpose entities in structured finance transactions. Eleanor M. Vasquez serves as the independent manager of QRH, and Timothy R. Callan serves as the independent manager of QRF 2022-1. Pursuant to the respective LLC Agreements and Independent Manager Agreements, the affirmative consent of the independent manager is required before either entity may file a voluntary petition for relief under the Bankruptcy Code or consent to the filing of any involuntary petition against it. This structural protection is designed to ensure that no bankruptcy filing is made for the benefit of affiliates or for strategic purposes inconsistent with the interests of the entity's own creditors.
Furthermore, the QRH LLC Agreement contains non-petition covenants that restrict QPF, as QRH's sole member, from filing an involuntary bankruptcy petition against QRH. Similarly, the QRF 2022-1 LLC Agreement restricts QRH, as QRF 2022-1's sole member, from filing an involuntary petition against QRF 2022-1.
These structural features — the separateness covenants, the independent manager requirements, and the non-petition covenants — collectively support a conclusion that QRH and QRF 2022-1 are genuinely separate legal entities and that the Transfer between them should be respected as a sale between two distinct legal persons. The robust bankruptcy-remoteness architecture of both entities substantially reduces the risk of recharacterization and weighs strongly in favor of true sale treatment.
7. UCC Filings. As noted in Section II.A above, a draft UCC-1 financing statement has been prepared naming QRH as debtor and QRF 2022-1 as secured party, to be filed with the Secretary of State of the State of Delaware in connection with the closing of the transaction. This financing statement provides public notice of the Transfer and, in the event that the Transfer were recharacterized as a secured financing, would serve to perfect the back-up security interest granted by QRH to QRF 2022-1 under Section 2.01(c) of the Transfer Agreement.
We note that the filing of a precautionary UCC-1 financing statement in connection with a securitization transaction is standard market practice and does not negate the parties' intent that the Transfer constitute a true sale. Section 9-109(a)(3) of the UCC expressly provides that Article 9 applies to "a sale of accounts, chattel paper, payment intangibles, or promissory notes," and Section 9-318 confirms that "a debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold." The precautionary UCC filing is thus consistent with, and does not undermine, the characterization of the Transfer as a true sale.
C. Conclusion of Analysis
Weighing all of the foregoing factors in the aggregate and considering the totality of the circumstances, it is our view that the transfer of Receivables from QRH to QRF 2022-1 under the Transfer Agreement possesses the hallmarks of a true sale:
(a) the parties have clearly and unambiguously expressed their intent that the Transfer constitute a sale, in the Transfer Agreement, the LLC Agreements, the Offering Memorandum, and the authorizing resolutions;
(b) QRF 2022-1 genuinely assumes the economic risks and benefits of ownership of the Receivables, including credit risk, prepayment risk, and other risks of loss;
(c) QRH does not retain general recourse to QRF 2022-1, and the limited repurchase obligation is an asset-specific warranty remedy that is entirely consistent with true sale treatment;
(d) the purchase price paid by QRF 2022-1 reflects fair value and was established on arm's-length terms;
(e) the parties treat the Transfer as a sale for financial accounting purposes;
(f) QRH and QRF 2022-1 are organized and operated as genuinely separate, bankruptcy-remote special purpose entities, with comprehensive separateness covenants, independent managers, and non-petition protections; and
(g) the precautionary UCC filing is consistent with market practice and does not alter the sale characterization.
Accordingly, for the reasons set forth above, and subject to the assumptions, qualifications, and limitations herein, we have concluded that the Transfer constitutes a true sale of the Receivables by QRH to QRF 2022-1, as set forth in our opinion in Section IV.A above.
VI. QUALIFICATIONS AND LIMITATIONS
The opinions set forth in Section IV above are subject to the following qualifications and limitations:
A. Governing Law
This opinion is limited to the laws of the State of New York and the federal laws of the United States of America, in each case as currently in effect on the date hereof. We have made no investigation of, and express no opinion with respect to, the laws of any other jurisdiction, including, without limitation, any state other than New York and any non-United States jurisdiction.
To the extent matters of Delaware law are relevant to the opinions expressed herein — including, without limitation, the formation, governance, and valid existence of QRH and QRF 2022-1 as Delaware limited liability companies, and the enforceability of the separateness covenants, non-petition covenants, and independent manager requirements set forth in the respective LLC Agreements — we have assumed, with the consent of the addressees, that Delaware law is consistent with the law of the State of New York with respect to the true sale analysis. We express no opinion as to Delaware law. We note that separate opinions of counsel as to the due formation, valid existence, and authorization of QRH and QRF 2022-1 under Delaware law are being delivered in connection with the closing by Bramwell & Penrose LLP, as Delaware counsel.
B. Bankruptcy and Insolvency Qualifications
The opinions expressed herein are subject to the effects of:
(i) applicable bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance, fraudulent transfer, and other similar laws affecting the rights and remedies of creditors generally, including, without limitation, the Bankruptcy Code, the Uniform Fraudulent Transfer Act (as enacted in any relevant jurisdiction), and any applicable state receivership or insolvency statutes; and
(ii) general principles of equity (whether considered in proceedings at law or in equity), including, without limitation, principles governing the availability of specific performance, injunctive relief, and other equitable remedies, and the exercise of judicial discretion.
No assurance can be given that a bankruptcy court would not, in the exercise of its broad equitable powers under Section 105(a) of the Bankruptcy Code or otherwise, decline to respect the form of the Transfer or recharacterize it as a secured financing. As noted above, the question of whether a transfer of receivables constitutes a true sale or a secured financing is inherently fact-intensive, and courts exercise substantial discretion in making this determination. Our opinion represents our professional judgment, based on our review of the Transaction Documents and our analysis of applicable law, as to the most likely outcome if the issue were presented to a court of competent jurisdiction, but it is not a guarantee of any particular result. We note that there can be no assurance that a court would agree with our analysis or reach the same conclusion.
The opinions expressed herein do not address the substantive consolidation of QRH with any other Quorum entity, including QPF, QIH, or QRF 2022-1. The question of substantive consolidation — i.e., whether a bankruptcy court might consolidate the assets and liabilities of QRH with those of an affiliate, thereby potentially subjecting the Receivables to the claims of the affiliate's creditors — is addressed in our separate non-consolidation opinions dated October 5, 2022, delivered to the addressees under separate cover.
The opinions expressed herein assume that the Transfer was not made with actual intent to hinder, delay, or defraud any creditor of QRH within the meaning of Section 548(a)(1)(A) of the Bankruptcy Code or any comparable provision of applicable state fraudulent transfer law, and that reasonably equivalent value was given and received in connection with the Transfer within the meaning of Section 548(a)(1)(B) of the Bankruptcy Code.
C. Scope Limitations
The opinions expressed herein are subject to the following scope limitations:
1. This opinion is limited to the specific transfer of Receivables from QRH to QRF 2022-1 under the Transfer Agreement. This opinion does not address the transfer of Receivables from QPF to QRH under the Sale Agreement, which is the subject of our separate upstream True Sale Opinion of even date herewith.
2. This opinion does not address the grant of a security interest by QRF 2022-1 in the Receivables and other assets in favor of Calvoneth Trust Company, National Association, as Trustee, under the Pledge Agreement or the Indenture, the enforceability of such security interest, or the priority thereof. Such matters are addressed in our separate UCC perfection opinion and Indenture enforceability opinion, each of even date herewith.
3. This opinion does not address the enforceability of the Indenture, the Notes, the Note Purchase Agreement, the Servicing Agreement, the Administration Agreement, the Performance Guaranty, the Back-Up Servicing Agreement, the Account Control Agreement, or any other Transaction Document.
4. This opinion does not address any federal, state, or local tax matters, including, without limitation, the characterization of the Transfer or the Notes for federal income tax purposes.
5. This opinion does not address any federal or state regulatory matters, including, without limitation, compliance with the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any state insurance, banking, or lending regulatory requirements.
6. This opinion does not address any securities law matters, including, without limitation, the exemption of the Notes from registration under the Securities Act of 1933 or the qualification of the Indenture under the Trust Indenture Act of 1939.
7. We have not been asked to, and do not, opine on the characterization of the Receivables as "accounts" or "payment intangibles" (or any other category of collateral) under Article 9 of the UCC. Such characterization is assumed for purposes of this opinion and is addressed in our separate UCC perfection opinion of even date herewith.
8. This opinion does not address the effect of any future amendments, supplements, or modifications to the Transfer Agreement or any of the other Transaction Documents, or any deviation by the parties from the terms of the Transfer Agreement or any of the other Transaction Documents. Any material amendment to the Transfer Agreement, or any material change in the structure, economics, or terms of the Transfer, could affect the conclusions expressed herein, and we express no opinion as to the effect of any such amendment or change.
9. This opinion is rendered as of the date hereof and is based upon the laws and regulations in effect, the facts in existence, and the documents in the forms reviewed by us, as of the date hereof. We assume no obligation, and undertake no responsibility, to advise the addressees or any other person of any change in applicable law, any change in fact, or any other development occurring after the date hereof that might affect the opinions expressed herein, whether or not such change or development comes to our attention.
D. Reliance. This opinion is furnished solely for the benefit of the addressees hereof — namely, Quorum Receivables Funding 2022-1 LLC, Calvoneth Trust Company, National Association, as Indenture Trustee, and Ridgeline Capital Markets LLC, as Initial Purchaser — and their respective successors and assigns, in connection with the transaction described herein. This opinion may not be relied upon by any other person, or for any purpose other than the transaction described herein, without our prior written consent.
Notwithstanding the foregoing, the following additional parties may rely upon this opinion as if it were addressed directly to them:
(a) Calloway & Brandt LLP, as counsel to Ridgeline Capital Markets LLC, in connection with the delivery of its opinion to Ridgeline Capital Markets LLC with respect to the transaction;
(b) Ashfield & Greer LLP, as counsel to Calvoneth Trust Company, National Association, in connection with the delivery of its opinion to Calvoneth Trust Company, National Association with respect to the transaction; and
(c) Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812) and Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347), solely for purposes of their respective rating analyses of the Notes.
No other person or entity may rely on this opinion without our prior written consent.
VII. CONCLUSION
Based upon the foregoing, and subject in all respects to the assumptions, qualifications, and limitations set forth herein, it is our opinion that the Transfer constitutes a true sale of the Receivables by QRH to QRF 2022-1, as more fully set forth in Section IV above.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Douglas Carmichael
Title: Partner (Responsible Partner)
Prepared by: Sylvia Hartwell, Partner (Tax) Yuki Nakamura, Associate
DRAFT — Subject to revision and finalization. This draft opinion has not been executed and is not effective. Circulated for discussion purposes only.
This draft was prepared in connection with Calderwood & Harkness LLP Matter No. 1025-00007.
Note: This opinion was never finalized. The QRF 2022-1 transaction was shelved in November 2022 following spread widening in the asset-backed securities market that rendered the transaction economics unworkable. The transaction was placed in dormant status on November 18, 2022, and no closing occurred.

CALDERWOOD & HARKNESS LLP Attorneys at Law

I. INTRODUCTION AND ENGAGEMENT

II. DEFINED TERMS AND DOCUMENTS REVIEWED

III. ASSUMPTIONS

IV. OPINIONS

V. DISCUSSION AND ANALYSIS

VI. QUALIFICATIONS AND LIMITATIONS

VII. CONCLUSION

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts