1025-00007 · Quorum Insurance Holdings · Regulatory & Compliance

reg-ab-ii-applicability-memo.docx DOCUMENT M&A / Corporate

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Douglas Carmichael, Partner; Francesca Morano, Partner; Carlos Espinoza, Associate

FROM: Yuki Nakamura, Associate

DATE: July 20, 2022

RE: Regulation AB II Applicability and Exemptions — Quorum Receivables Funding 2022-1 LLC — $500,000,000 Insurance Premium Finance ABS Issuance

Matter No.: 1025-00007

CLIENT: Quorum Insurance Holdings Corp.

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I. Executive Summary

This memorandum analyzes whether Regulation AB II (adopted by the Securities and Exchange Commission in 2014, amending Regulation AB under the Securities Act of 1933, as amended (the "Securities Act")) applies to the proposed $500,000,000 asset-backed securities issuance by Quorum Receivables Funding 2022-1 LLC (the "Issuer" or "QRF 2022-1"), a bankruptcy-remote Delaware limited liability company, backed by insurance premium finance receivables originated by Quorum Premium Finance LLC ("QPF"). The proposed transaction involves the issuance of three tranches of notes (collectively, the "Notes"):

• Class A Notes — $375,000,000 aggregate principal amount, rated AAA(cr) by Brindoval Ratings Inc. ("Brindoval Ratings") and Aaa(p) by Pinnacle Rating Services LLC ("Pinnacle Rating Services");

• Class B Notes — $75,000,000 aggregate principal amount, rated A(cr) by Brindoval Ratings and A1(p) by Pinnacle Rating Services; and

• Class C Notes — $35,000,000 aggregate principal amount, rated BBB(cr) by Brindoval Ratings and Baa2(p) by Pinnacle Rating Services;

plus an additional $15,000,000 in overcollateralization and retained interest held by the sponsor or its affiliates, for a total capital structure of $500,000,000. Ridgeline Capital Markets LLC ("Ridgeline") is serving as structuring agent and lead bookrunner, and Calloway & Brandt LLP is acting as underwriter's counsel.

The proposed offering is structured as a Rule 144A / Regulation S private placement and is not a registered offering under the Securities Act. No registration statement will be filed with the SEC in connection with the issuance and sale of the Notes.

Conclusion. Regulation AB II's core requirements — which apply to offerings of asset-backed securities registered under the Securities Act — do not apply to the QRF 2022-1 transaction because the Notes will not be registered with the SEC. However, certain provisions of Regulation AB II inform market expectations and best-practice disclosure standards for Rule 144A offerings of asset-backed securities. In addition, certain limited reporting obligations arising under the Securities Exchange Act of 1934, as amended (the "Exchange Act") — most notably the repurchase request reporting requirement under Rule 15Ga-1 and Form ABS-15G — may apply to the sponsor regardless of the exempt status of the offering. Separately, the risk retention requirements under Regulation RR (implementing Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")) apply to both registered and unregistered securitizations and are addressed in a separate memorandum being prepared by Carlos Espinoza, dated August 1, 2022.

This memorandum recommends that the Issuer and sponsor voluntarily adopt certain Reg AB II-type disclosure practices in the Offering Memorandum and in the contractual reporting provisions of the transaction documents to meet investor and rating agency expectations, mitigate anti-fraud litigation risk, and position the program for potential future conversion to a registered offering platform.

II. Background on the Transaction

A. Transaction Structure

The QRF 2022-1 transaction involves a conventional multi-step securitization of insurance premium finance receivables originated by QPF. The principal transaction parties and their roles are described below.

Sponsor/Parent. Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation publicly traded on the New York Stock Exchange (ticker: QIHC), serves as the sponsor of the securitization. QIH is headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. Key officers of QIH relevant to the transaction include: Marcus Devereaux, Chief Executive Officer; Priya Raghavan, Chief Financial Officer; Nolan Whitford, General Counsel; and Sandra Ling-Hwang, Treasurer. QIH is a diversified insurance holding company with fiscal year 2021 consolidated revenues of approximately $3.8 billion. QIH's senior unsecured credit ratings are BBB from Brindoval Ratings and Baa2 from Pinnacle Rating Services.

Originator/Seller/Servicer. Quorum Premium Finance LLC ("QPF"), a Delaware limited liability company and a wholly owned subsidiary of QIH, originates and services insurance premium finance loans to commercial policyholders across all 50 states and the District of Columbia. QPF's total managed receivables portfolio is approximately $2.1 billion as of the date of this memorandum. QPF will serve as the originator and seller of the receivables to the depositor and will act as the initial servicer of the receivables under a Servicing Agreement to be entered into in connection with the closing of the transaction.

Depositor/Intermediate SPV. Quorum Receivables Holding LLC ("QRH"), a Delaware limited liability company, serves as the depositor in the transaction. QRH is a bankruptcy-remote special purpose entity whose sole member is QPF. An independent manager, Eleanor M. Vasquez of Fortbridge Corporate Services LLC, has been appointed to QRH's board of managers to support the separateness and bankruptcy-remote status of the entity. QRH serves as an intermediate entity in the two-step true sale structure, acquiring the receivables from QPF and subsequently transferring or contributing them to the Issuer.

Issuer. Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"), a Delaware limited liability company, is the issuing entity for the Notes. QRF 2022-1 is a bankruptcy-remote special purpose entity whose sole member is QRH. An independent manager, Timothy R. Callan of Fortbridge Corporate Services LLC, has been appointed to QRF 2022-1's board of managers. QRF 2022-1 has been organized solely for the purpose of acquiring the receivables, issuing the Notes, and engaging in related activities.

Transaction Flow. The receivables flow through the transaction structure as follows: QPF originates insurance premium finance loans in the ordinary course of its business. On or prior to the closing date, QPF will sell and transfer the initial receivables to QRH pursuant to a Receivables Sale Agreement (the "RSA"). This transfer is intended to constitute a "true sale" of the receivables for bankruptcy purposes. QRH will then transfer and contribute the receivables to QRF 2022-1 pursuant to a Receivables Transfer Agreement (the "RTA"). QRF 2022-1 will issue the Notes, secured by the receivables and certain related collateral, under an Indenture entered into with the Indenture Trustee. Proceeds from the sale of the Notes will flow back through the structure to QPF as consideration for the receivables.

Indenture Trustee / Paying Agent. Calvoneth Trust Company, N.A. will serve as the Indenture Trustee, paying agent, note registrar, and securities intermediary under the Indenture.

Back-Up Servicer / Liquidity Provider. Northvane Bank, N.A. has been engaged to serve as the back-up servicer under a separate Back-Up Servicing Agreement and may also provide certain liquidity support to the transaction, the terms of which are currently under negotiation.

B. Receivables Pool

The initial pool of receivables to be securitized has the following characteristics as of the statistical cut-off date of June 30, 2022:

• Initial Pool Balance: Approximately $612,000,000

• Number of Loans: Approximately 82,400 individual insurance premium finance loans

• Average Loan Balance: Approximately $7,427

• Weighted Average Annual Percentage Rate (APR): 7.85%

• Weighted Average Original Term: 9.2 months

• Weighted Average Remaining Term: 5.7 months

• Historical Net Loss Rate (2019–2021 Three-Year Average): 0.42%

• 60+ Day Delinquency Rate as of Cut-Off Date: 0.87%

The receivables are secured by the borrowers' unearned premium refund rights. Under a standard insurance premium finance arrangement, the borrower assigns to QPF the right to cancel the financed insurance policy and receive any unearned premium refund from the insurance carrier in the event the borrower defaults on the premium finance loan. This unearned premium refund right serves as the primary source of credit support at the loan level and is a distinguishing feature of insurance premium finance receivables relative to other consumer or commercial receivable asset classes.

The pool exhibits substantial diversification by geography, insurance carrier, obligor concentration, and loan balance. A detailed stratification of the receivables pool will be included in the Offering Memorandum, as discussed further in Section VI.B of this memorandum.

C. Offering Format

The Notes will be offered and sold in a private placement exempt from registration under the Securities Act, as follows:

• Rule 144A Offering. The Notes will be offered and sold to qualified institutional buyers ("QIBs") in the United States pursuant to Rule 144A under the Securities Act.

• Regulation S Offering. The Notes will also be offered and sold to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act.

• No SEC Registration. No registration statement will be filed with the SEC under the Securities Act in connection with the offering. The Notes will constitute "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act.

• Offering Memorandum. A Preliminary Offering Memorandum will be prepared as the primary disclosure document for the offering. This document is not, and will not be, a prospectus within the meaning of Section 2(a)(10) of the Securities Act.

• Initial Purchaser. Ridgeline Capital Markets LLC will act as the sole initial purchaser of the Notes under a Note Purchase Agreement to be entered into on the pricing date. Ridgeline will resell the Notes to QIBs and non-U.S. persons in the manner described above.

Calderwood & Harkness LLP will provide a legal opinion, expected to be dated as of the closing date (currently anticipated to be October 18, 2022), confirming that no registration of the Notes under the Securities Act is required under the circumstances of the offering.

III. Overview of Regulation AB II

A. Regulatory History

Regulation AB was originally adopted by the SEC in 2004 pursuant to Securities Act Release No. 33-8518 (the "2004 Adopting Release"). The 2004 Adopting Release established a comprehensive registration, disclosure, and reporting framework for asset-backed securities that were publicly offered and registered under the Securities Act. Among other things, the original Regulation AB defined key terms applicable to asset-backed securities, established eligibility criteria for shelf registration on Form S-3, prescribed disclosure requirements for prospectuses and periodic reports, and required servicer compliance assessments and related accounting attestations.

In the years following the 2008 financial crisis, the SEC undertook a comprehensive review of the regulatory framework governing asset-backed securities. The SEC identified significant deficiencies in the transparency and quality of information available to investors in ABS transactions, which had contributed to the mispricing of risk and the cascading failures that characterized the crisis. Following an extensive rulemaking process that included multiple proposing releases, comment periods, and re-proposals, the SEC adopted Regulation AB II in August 2014 pursuant to Securities Act Release No. 33-9638 (the "2014 Adopting Release" or "Reg AB II").

Regulation AB II significantly amended the framework established by the original Regulation AB. The key goals of Reg AB II, as articulated by the SEC in the 2014 Adopting Release, were to: (i) enhance transparency in the ABS market by requiring more granular and standardized disclosure, including asset-level data for certain asset classes; (ii) improve investor protections by imposing a CEO certification requirement and enhanced repurchase request reporting; (iii) require more rigorous and standardized disclosure and reporting requirements for registered ABS offerings, including through the introduction of new registration forms (Forms SF-1 and SF-3) specifically designed for asset-backed securities; and (iv) promote greater accountability among securitization participants, including sponsors, depositors, and servicers.

B. Key Requirements of Regulation AB II (for Registered Offerings)

The principal requirements imposed by Regulation AB II on offerings of asset-backed securities that are registered under the Securities Act are summarized below. This summary is provided for reference and context in evaluating the applicability of these requirements to the QRF 2022-1 offering.

Asset-Level Disclosure (Rule 17g-7, Item 1111(h) of Regulation S-K). Regulation AB II requires issuers of registered ABS to file asset-level data with the SEC on EDGAR using a standardized XML format (Schedule AL). This requirement applies to offerings in certain enumerated asset classes, including residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), auto loans and leases, credit cards, student loans, equipment loans and leases, floorplan financings, and a residual "other" category. Insurance premium finance receivables are not specifically enumerated as a standalone asset class, and would likely fall within the "other" category if the offering were registered. The asset-level data requirements mandate the disclosure of loan-level information including, among other things, obligor credit characteristics, collateral descriptions, payment histories, and modification data.

CEO Certification (Rule 193). Regulation AB II introduced a requirement that the chief executive officer of the depositor (or, in certain cases, the sponsor) execute a certification in connection with each takedown from a shelf registration statement. The certification requires the CEO to confirm that he or she has reviewed the prospectus and the transaction and that, based on such review, the prospectus does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made not misleading. This certification requirement was designed to promote accountability and diligence at the senior management level.

Shelf Registration Requirements (Rules 424/430D; Forms SF-1 and SF-3). Regulation AB II replaced the prior Form S-3 shelf registration process for ABS with two new registration forms: Form SF-1, for use by non-seasoned ABS issuers, and Form SF-3, for use by seasoned ABS issuers that meet certain eligibility criteria. Both forms impose continuous reporting obligations, including the filing of annual reports on Form 10-K, distribution reports on Form 10-D, current reports on Form 8-K, and asset-backed securitizer reports on Form ABS-15G. Form SF-3 imposes additional eligibility criteria, including a requirement that the sponsor have a minimum track record of ABS reporting and that the depositor's CEO provide the certification described above.

Servicer Compliance Statement (Item 1121 of Regulation S-K). Each servicer that services pool assets for a registered ABS offering is required to deliver an annual compliance statement affirming that it has fulfilled its obligations under the applicable servicing agreement in all material respects.

Attestation Report on Assessment of Compliance (Item 1122 of Regulation S-K). In addition to the servicer compliance statement, each servicer must deliver an annual assessment of compliance with the servicing criteria established in Item 1122, together with an attestation report from an independent registered public accounting firm on such assessment. This requirement is intended to provide investors with independent assurance that the servicer's operations meet established servicing standards.

Third-Party Repurchase Request Dispute Resolution (Rule 15Ga-1; Form ABS-15G). Regulation AB II, in conjunction with provisions of the Dodd-Frank Act, requires securitizers of ABS to report on fulfilled and unfulfilled repurchase requests on Form ABS-15G. This reporting obligation, which is discussed in greater detail in Section V.A below, is notable because it may apply to both registered and unregistered securitizations.

Investor Communication Platform (Rule 17g-10). Regulation AB II contemplated mechanisms for investor communication regarding repurchase requests and other matters. Rule 17g-10 addresses the provision of a mechanism through which investors can communicate regarding repurchase requests for pool assets.

Waterfall Computer Program (Proposed but Not Adopted). In the rulemaking process leading to Regulation AB II, the SEC proposed a requirement that issuers of registered ABS provide a downloadable waterfall computer program that would allow investors to model the cash flow waterfall of a securitization transaction. This requirement was ultimately not adopted in the final rules, although the SEC indicated that it would continue to consider this concept.

Risk Retention (Cross-Reference to Dodd-Frank Section 941). While risk retention is a separate regulatory requirement imposed under Regulation RR (jointly adopted by the SEC, the Federal banking agencies, the Federal Housing Finance Agency, and the Department of Housing and Urban Development), Regulation AB II cross-references the risk retention framework and certain aspects of the Reg AB II disclosure requirements relate to the manner in which risk retention is satisfied. The risk retention requirements applicable to the QRF 2022-1 transaction are addressed in a separate memorandum being prepared by Carlos Espinoza, dated August 1, 2022.

C. Scope of Application

Regulation AB II applies to offerings of asset-backed securities that are registered under the Securities Act of 1933. The registration framework — specifically, the requirement to file a registration statement on Form SF-1 or Form SF-3 (or, for non-ABS securities, Form S-1 or Form S-3) — is the gateway to the applicability of Reg AB II's requirements. If no registration statement is filed with the SEC, the core requirements of Regulation AB II — including asset-level data filing, CEO certification, ongoing SEC periodic reporting, servicer compliance assessment and accounting attestation, and shelf eligibility standards — do not apply as a matter of law.

Form SF-3, the shelf registration form available to seasoned ABS issuers, requires full compliance with all Reg AB II requirements, including asset-level data disclosure, the CEO certification, and ongoing periodic reporting on Forms 10-K, 10-D, 8-K, and ABS-15G. Form SF-1, available to non-seasoned issuers, is also subject to Regulation AB II, though with different eligibility requirements and without the seasoning criteria applicable to Form SF-3.

It is important to note, however, that the non-applicability of Reg AB II to an unregistered offering does not relieve the sponsor, depositor, issuer, or other transaction participants from compliance with all other applicable legal requirements, including the anti-fraud provisions of the federal securities laws, risk retention requirements, and any specific Exchange Act reporting obligations that apply regardless of registration status. These matters are addressed in Section V below.

IV. Analysis: Inapplicability of Reg AB II to the QRF 2022-1 Offering

A. The Offering Is Exempt from Registration

The QRF 2022-1 Notes will be offered and sold in a private placement that is exempt from the registration requirements of Section 5 of the Securities Act. The offering relies upon the following exemptions and safe harbors:

Section 4(a)(2) of the Securities Act. The statutory exemption from registration under Section 4(a)(2) of the Securities Act provides that the registration requirements of Section 5 do not apply to "transactions by an issuer not involving any public offering." The initial sale of the Notes by QRF 2022-1 to Ridgeline Capital Markets LLC as initial purchaser is structured as a private placement in reliance on Section 4(a)(2). The transaction satisfies the criteria traditionally associated with the Section 4(a)(2) exemption: the offering is being made to a single sophisticated institutional purchaser (Ridgeline), there will be no general solicitation or general advertising, and the Notes will be "restricted securities" subject to transfer restrictions. Although the transaction could alternatively be structured to comply with the conditions of Rule 506 of Regulation D under the Securities Act, the parties have determined that reliance on Section 4(a)(2) directly — without specifically relying on the Rule 506 safe harbor — is appropriate in the circumstances of this offering, consistent with standard market practice for institutional ABS private placements.

Rule 144A. Ridgeline will resell the Notes to investors in the United States pursuant to Rule 144A under the Securities Act. Rule 144A provides a safe harbor from the registration requirements of the Securities Act for resales of restricted securities to QIBs. The Notes satisfy the conditions for Rule 144A resales: (i) the Notes are "restricted securities" within the meaning of Rule 144(a)(3); (ii) the Notes will be offered and sold only to persons that the seller reasonably believes are QIBs; (iii) the Notes will not be of the same class as securities listed on a national securities exchange or quoted in an automated inter-dealer quotation system; and (iv) the holder and any prospective purchaser designated by the holder will have the right to obtain from the Issuer, upon request, certain information regarding the Issuer and the Notes, to the extent that the Issuer is not an SEC reporting company.

Regulation S. The Notes will also be offered and sold in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act. Regulation S provides a safe harbor from the registration requirements of the Securities Act for offers and sales of securities that occur outside the United States. The offering is a Category 3 offering under Regulation S, and the Notes will be subject to a distribution compliance period of 40 days following the later of the closing date and the date on which the Notes are first offered to persons other than distributors.

No Registration Statement. No registration statement on Form SF-1, Form SF-3, Form S-1, or any other form will be filed with the SEC in connection with the offering. Calderwood & Harkness LLP will provide a draft legal opinion (expected to be dated October 18, 2022) confirming that no registration of the Notes under the Securities Act is required in connection with the offering, subject to customary assumptions and qualifications.

B. Reg AB II Requirements That Do Not Apply

Because the QRF 2022-1 offering is exempt from registration under the Securities Act and no registration statement will be filed with the SEC, the following core Regulation AB II requirements do not apply to the transaction:

Asset-Level Data Filing on EDGAR. The requirement to file asset-level data on EDGAR using XML format (Schedule AL) applies only to registered ABS offerings. QRF 2022-1 will have no obligation to file any asset-level data with the SEC. As discussed in Section VI.B below, however, we recommend that the Issuer voluntarily provide granular pool-level and, where feasible, asset-level data to investors as a best-practice measure.

CEO Certification under Rule 193. The depositor CEO certification requirement applies only to takedowns from registered shelf offerings under Forms SF-1 and SF-3. No CEO certification under Rule 193 is required for the QRF 2022-1 offering. We note, however, that the Note Purchase Agreement with Ridgeline may contain customary representations and certifications by QIH and QRH officers regarding the accuracy of the Offering Memorandum, which serve a functionally analogous purpose.

Ongoing SEC Reporting (Forms 10-D, 10-K, 8-K). QRF 2022-1 will not be an SEC reporting company. It will have no obligation to file periodic reports under Section 13 or 15(d) of the Exchange Act. Accordingly, Forms 10-D (distribution reports), 10-K (annual reports), and 8-K (current reports) are not required. As discussed in Section VI.B below, however, we recommend that the transaction documents contractually require periodic investor reporting that is functionally comparable to the information that would be filed on Form 10-D.

Form ABS-15G (Repurchase Request Reporting). The applicability of the Form ABS-15G repurchase request reporting requirement is discussed separately in Section V.A below, as this requirement may apply regardless of the registration status of the offering.

Servicer Compliance Assessment (Items 1121/1122 of Regulation S-K). The annual servicer compliance statement and independent accounting firm attestation requirements under Items 1121 and 1122 of Regulation S-K do not apply to unregistered offerings as a regulatory matter. However, the Servicing Agreement (currently being drafted for execution, version 3) will include contractual reporting obligations imposed on QPF as servicer, including provisions requiring periodic reporting on servicing performance, collections, delinquencies, and losses. These contractual obligations are discussed further in Section VI.B below.

Shelf Eligibility Standards. The shelf eligibility standards applicable to Forms SF-1 and SF-3, including the seasoning requirements, transaction history requirements, and CEO certification obligations associated with shelf registration, are not applicable because no shelf registration statement is being filed.

C. Statutory Basis for Exemption

The statutory and regulatory basis for the exemption from registration is summarized as follows:

The primary exemption basis is Section 4(a)(2) of the Securities Act, which exempts from registration "transactions by an issuer not involving any public offering." Although the transaction could also be structured to comply with the conditions of Rule 506 of Regulation D (which provides a non-exclusive safe harbor for private placements), the parties have elected to rely on Section 4(a)(2) directly rather than on Rule 506, consistent with the standard market practice for institutional ABS private placements. Reliance on Section 4(a)(2) directly avoids the need to comply with certain conditions of Rule 506, including the specific information delivery requirements of Rule 502(b), and avoids the filing of Form D with the SEC (although QIH may nonetheless elect to file a Form D as a precautionary measure).

Rule 144A under the Securities Act permits resales of restricted securities to QIBs without registration. The Notes must be "restricted securities" within the meaning of Rule 144(a)(3) and must not be of the same class as securities listed on a national securities exchange or quoted in an automated inter-dealer quotation system. The Notes satisfy these conditions. Rule 144A does not, by itself, provide an issuer exemption; rather, it provides a resale exemption to holders of restricted securities. Ridgeline, as the initial purchaser, will resell the Notes in reliance on Rule 144A.

Regulation S under the Securities Act provides a safe harbor from registration for offers and sales of securities that occur outside the United States to non-U.S. persons. The Regulation S offering will be conducted in compliance with the conditions of Rule 903 and Rule 904 thereunder.

The legal opinion to be delivered by Calderwood & Harkness LLP will confirm the availability of these exemptions from registration, subject to customary assumptions and qualifications. A draft of this opinion is expected to be circulated on or about October 8, 2022 for review by all parties.

V. Limited Regulatory Requirements That May Apply Despite Exempt Status

While the core requirements of Regulation AB II do not apply to the QRF 2022-1 offering, certain regulatory requirements arising under the Exchange Act and the Dodd-Frank Act may apply regardless of whether the offering is registered or unregistered. These requirements are discussed below.

A. Form ABS-15G — Repurchase Request Reporting

Section 15E(s)(4)(A) of the Exchange Act (added by Section 943 of the Dodd-Frank Act) and Rule 15Ga-1 promulgated thereunder require each "securitizer" of asset-backed securities to disclose, on an ongoing basis, fulfilled and unfulfilled repurchase requests with respect to the securitized assets. This disclosure is made by filing Form ABS-15G with the SEC.

Critically, this reporting requirement applies regardless of whether the offering of asset-backed securities is registered or unregistered under the Securities Act. The text of Section 15E(s)(4)(A) and Rule 15Ga-1 is not limited to registered offerings. The SEC confirmed this interpretation in the 2014 Adopting Release, stating that the repurchase request reporting requirement applies to "all securitizers of asset-backed securities."

The term "securitizer" is defined in Rule 15Ga-1 to mean the depositor of the asset-backed securities or the sponsor of the securitization transaction. QIH, as the sponsor of the QRF 2022-1 securitization, falls within the definition of "securitizer." Accordingly, QIH may be required to file Form ABS-15G with the SEC if repurchase or substitution demands are made with respect to the receivables included in the QRF 2022-1 pool.

Form ABS-15G requires the securitizer to disclose, for each reporting period, information regarding: (i) the total number and dollar amount of repurchase requests received; (ii) the number and dollar amount of repurchase requests that were fulfilled; (iii) the number and dollar amount of repurchase requests that were unfulfilled; and (iv) the reasons for any unfulfilled repurchase requests. Form ABS-15G must be filed with the SEC on an annual basis, with filings due by February 14 of each year for the prior calendar year reporting period.

Recommendation. QIH should be prepared to file Form ABS-15G with the SEC on an annual basis, even though the Notes are offered and sold under Rule 144A and Regulation S. QIH's legal and compliance functions should establish internal procedures to track and record any repurchase or substitution requests made with respect to the securitized receivables throughout the life of the transaction. The Receivables Sale Agreement and the Receivables Transfer Agreement should include representations, warranties, and repurchase and substitution mechanisms that contemplate this reporting obligation, and the transaction documents should require QPF (as servicer) to provide timely notice to QIH of any repurchase or substitution demands received from the Indenture Trustee, noteholders, or other parties with standing to make such demands.

B. Regulation RR — Risk Retention

Although technically separate from Regulation AB II, the risk retention rules under Regulation RR (jointly adopted by the SEC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Department of Housing and Urban Development, implementing Section 941 of the Dodd-Frank Act, codified at 17 CFR Part 246) apply to both registered and unregistered securitizations. The risk retention requirements are not conditioned on the filing of a registration statement and apply broadly to all sponsors of securitization transactions.

Under Regulation RR, QIH, as the sponsor of the QRF 2022-1 securitization, is required to retain an economic interest in the credit risk of the securitized assets equal to not less than 5% of the aggregate fair value of the ABS interests issued in the transaction. This risk retention requirement may be satisfied through various methods specified in Regulation RR, including horizontal risk retention (retention of a first-loss tranche or residual interest), vertical risk retention (retention of a pro rata strip of each tranche), or an L-shaped combination thereof.

In the current transaction structure, the $15,000,000 overcollateralization and retained interest represents approximately 3.0% of the total $500,000,000 issuance. Standing alone, the $15,000,000 overcollateralization would not satisfy the full 5% risk retention requirement. Accordingly, the total eligible horizontal interest must be supplemented through additional structural mechanisms — such as an increase in the retained subordinate interest, the retention of a vertical strip of each tranche, or a combination of horizontal and vertical risk retention — to satisfy the full 5% requirement under Regulation RR.

A detailed analysis of the risk retention requirements and the structuring alternatives available to satisfy the 5% requirement is being prepared by Carlos Espinoza in a separate memorandum dated August 1, 2022, and is not repeated here. We note, however, that the risk retention analysis is a critical structuring consideration that must be resolved prior to pricing and closing, and that the Offering Memorandum must include disclosure regarding the manner in which the risk retention requirement is being satisfied.

C. Anti-Fraud Provisions

The anti-fraud provisions of the federal securities laws apply to all offerings of securities, whether registered or unregistered. Specifically:

Section 10(b) and Rule 10b-5 of the Exchange Act. Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder make it unlawful for any person, in connection with the purchase or sale of any security, to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Section 17(a) of the Securities Act. Section 17(a) of the Securities Act similarly makes it unlawful for any person, in the offer or sale of any securities, to employ any device, scheme, or artifice to defraud, to obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary in order to make the statements made not misleading, or to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

These provisions are not contingent upon registration of the securities and apply with equal force to offerings conducted under Rule 144A, Regulation S, and Section 4(a)(2). Accordingly, the Offering Memorandum prepared in connection with the QRF 2022-1 offering must be accurate and complete in all material respects and must not contain any material misstatements or omissions. While no SEC staff review of the Offering Memorandum will occur (as would be the case for a registration statement), the document must meet the same anti-fraud standards applicable to a registered prospectus. The anti-fraud provisions provide the baseline legal standard against which the adequacy of the Offering Memorandum's disclosure will be measured in the event of litigation or regulatory enforcement action.

This consideration further supports the recommendation, discussed in Section VI below, that the Offering Memorandum adopt disclosure practices that approach the quality and comprehensiveness of a registered offering, notwithstanding the technical inapplicability of Reg AB II.

VI. Best-Practice Disclosure Standards for Rule 144A ABS Offerings

A. Market Expectations

Despite the technical inapplicability of Regulation AB II to the QRF 2022-1 offering, the institutional investor market for Rule 144A asset-backed securities has increasingly expected disclosure that is comparable to, or that approaches, the standards applicable to registered offerings. This trend has accelerated since the adoption of Reg AB II in 2014, as institutional investors have become accustomed to the enhanced disclosure and transparency that Reg AB II requires in the registered market and have come to expect similar disclosure quality in the unregistered market.

Ridgeline Capital Markets LLC (Julian Weatherstone, Managing Director, and Rebecca Tran, Vice President, ABS Capital Markets Group) has confirmed in discussions with our team that investors in insurance premium finance ABS expect robust and detailed disclosure in the Offering Memorandum. Ridgeline has indicated that a number of the larger institutional investors that participate in the Rule 144A ABS market have internal investment guidelines or due diligence protocols that require disclosure comparable to registered offering standards as a condition of investment. Failure to provide such disclosure may limit the potential investor base for the Notes and could adversely affect execution and pricing.

In addition, the rating agencies — Brindoval Ratings and Pinnacle Rating Services — condition their ratings on the adequacy of the disclosure provided to investors and on the structural protections incorporated into the transaction. Many of the disclosure and structural requirements imposed by the rating agencies mirror or overlap with the standards established by Reg AB II. Satisfying rating agency requirements will, as a practical matter, result in disclosure that substantially conforms to Reg AB II standards in most respects.

B. Recommended Voluntary Disclosure Practices

Based on the foregoing considerations, we recommend that the Issuer and sponsor voluntarily adopt the following disclosure practices in connection with the QRF 2022-1 offering. These recommendations are designed to meet investor and rating agency expectations, mitigate anti-fraud litigation risk, and position the transaction for a potential future conversion to a registered offering platform.

Pool-Level Data Tables. The Offering Memorandum (version 3, dated October 12, 2022) and the Issuer Supplement should include detailed stratification tables presenting the characteristics of the receivables pool as of the statistical cut-off date of June 30, 2022. These tables should stratify the pool by, at a minimum, the following dimensions: geographic distribution by state, insurance carrier concentration, remaining term to maturity, APR band, original loan balance, current loan balance, delinquency status, and policy type. This level of pool-level data disclosure is analogous to the pool data requirements of Regulation AB II and is consistent with the expectations of institutional investors and rating agencies.

Key pool metrics that should be prominently disclosed include:

• Initial Pool Balance: $612,000,000 as of the June 30, 2022 cut-off date

• Geographic Concentration: Texas 14.2%, California 11.8%, Florida 9.6% (top three states in aggregate: 35.6% of pool balance)

• Largest Single Obligor: 0.38% of pool balance ($2,325,600)

• Top 10 Obligors: 2.14% of pool balance ($13,096,800)

• Concentration Limits: Single obligor ≤ 0.75% of pool balance; single state ≤ 20% of pool balance; single insurance carrier ≤ 15% of pool balance

These concentration limits should be disclosed as eligibility criteria in the Offering Memorandum and as contractual covenants in the transaction documents, providing investors with assurance regarding the diversification of the pool.

Asset-Level Data. While the filing of asset-level data on EDGAR in XML format is not required for an unregistered offering, we recommend that QIH and QPF consider providing asset-level data, or at a minimum granular loan-level stratification data, to investors under nondisclosure agreements upon request. This approach is increasingly common in the Rule 144A ABS market, particularly for asset classes (such as insurance premium finance) where investors may be less familiar with the underlying collateral characteristics and may desire additional granularity for purposes of their own credit analysis and modeling. Veristead Analytics LLC (Katharine Drummond, Senior Managing Director) has been engaged as a third-party verification agent to perform stratification analysis and tape reconciliation of the receivables pool, which will support the preparation of accurate and reliable pool-level and asset-level data for investor distribution.

Static Pool Data. The Offering Memorandum should include historical performance data for QPF's prior originations. Specifically, the Offering Memorandum should present static pool performance data for vintage cohorts of QPF's insurance premium finance receivables portfolio over a historical period of not less than three years (2019, 2020, and 2021), including net loss rates, delinquency trends, prepayment speeds, and recovery rates. As noted above, QPF's three-year average historical net loss rate for the 2019–2021 period is 0.42%, a level that reflects the generally low-risk profile of insurance premium finance receivables secured by unearned premium refund rights. The inclusion of static pool data is a Reg AB II-type disclosure that investors and rating agencies routinely expect in both registered and unregistered ABS offerings and is essential for investors to assess the creditworthiness of the receivables pool and the adequacy of the credit enhancement structure.

Servicer Disclosure. The Offering Memorandum should include a comprehensive description of QPF's servicing operations, including its organizational structure, staffing, technology platform, origination procedures, underwriting criteria, collection procedures, loss mitigation strategies, and historical servicing performance. The Servicer Operational Diligence Memorandum being prepared by Carlos Espinoza (dated September 8, 2022) should serve as the primary source for this disclosure. In addition, the following specific servicing terms should be disclosed:

• Servicing Fee: 1.00% per annum, calculated on the outstanding pool balance, payable monthly

• Back-Up Servicer: Northvane Bank, N.A., engaged under a separate Back-Up Servicing Agreement to be entered into on the closing date

• Servicer Termination Events: The Offering Memorandum and the Servicing Agreement should describe the events that would constitute a servicer event of default and the procedures for the transition of servicing to the back-up servicer

This level of servicer disclosure is consistent with Reg AB II standards and is necessary to satisfy rating agency criteria for the assigned ratings.

Sponsor/Originator Disclosure. The Offering Memorandum should include a description of QIH's financial condition, business operations, credit ratings, and material financial metrics, as well as a description of QPF's origination operations, lending criteria, and portfolio size. Specifically, the Offering Memorandum should disclose:

• QIH's senior unsecured credit ratings: BBB from Brindoval Ratings; Baa2 from Pinnacle Rating Services

• QIH's fiscal year 2021 consolidated revenue: approximately $3.8 billion

• QPF's total managed receivables portfolio: approximately $2.1 billion as of the date of the Offering Memorandum

• QPF's licensing status and regulatory compliance across all 50 states and the District of Columbia

Risk Factor Disclosure. The Offering Memorandum should include a comprehensive risk factors section that identifies and describes all material risks associated with an investment in the Notes. The risk factors should be prepared at a level of detail and specificity consistent with the standards applicable to registered offerings and should address, at a minimum, the following categories of risk:

• Asset performance risk: Risks related to the performance of the underlying receivables, including default risk, delinquency risk, prepayment risk, concentration risk, and the enforceability of unearned premium refund rights

• Servicer risk: Risks related to the performance and financial condition of QPF as servicer, including servicing disruption risk, commingling risk, and the adequacy of the back-up servicing arrangement

• Structural risk: Risks related to the transaction structure, including the adequacy of credit enhancement, the priority of payments under the waterfall, the potential for early amortization events, and the bankruptcy-remoteness of the issuer

• Market risk: Risks related to interest rate fluctuations, liquidity risk, and market conditions affecting the trading value of the Notes

• Legal risk: Risks related to the enforceability of the transaction documents, the perfection and priority of the security interest in the receivables, true sale analysis, and potential regulatory changes

• Tax risk: Risks related to the federal, state, and local tax treatment of the Notes and the Issuer, including the characterization of the Issuer as a disregarded entity or partnership for tax purposes

Ongoing Investor Reporting. Although QRF 2022-1 will not be an SEC reporting company, the Indenture and the Servicing Agreement should contractually require the Issuer and the servicer to provide periodic investor reports that are comparable to the type and frequency of information that would be filed on Form 10-D in a registered offering. Specifically, we recommend that the transaction documents require:

• Monthly Servicer Reports: Within 15 business days following the end of each collection period, QPF as servicer should deliver a monthly servicer report to the Indenture Trustee and noteholders (or their representatives) containing detailed information regarding collections, delinquencies, defaults, losses, recoveries, prepayments, pool composition, and the performance of the credit enhancement mechanisms

• Payment Date Reports: On each payment date, the Indenture Trustee should deliver a payment date report to the noteholders describing the distributions made on such payment date, the sources of funds for such distributions, the outstanding balances of each class of Notes, and the status of the reserve account, overcollateralization, and other credit enhancement features

• Annual Pool Performance Data: On an annual basis, QPF should deliver updated static pool performance data and a report on the overall condition of the receivables pool

These contractual reporting obligations should be structured to approximate the substance, if not the form, of SEC periodic reporting and should provide investors with the transparency and information flow that they would receive in a registered offering.

Repurchase and Substitution Disclosure. The Receivables Sale Agreement and the Offering Memorandum should describe in detail the representations and warranties made by QPF regarding the receivables, the conditions under which QPF is obligated to repurchase or substitute receivables that breach such representations and warranties, the procedures for requesting repurchase or substitution, the timeframes within which QPF must cure a breach or repurchase a non-conforming receivable, and any dispute resolution mechanisms available to investors or the Indenture Trustee. This disclosure is consistent with the spirit of Reg AB II's investor protection framework and supports the Form ABS-15G reporting obligation discussed in Section V.A above.

C. Comfort Letter and Agreed-Upon Procedures

Meridian Ledger LLP (Robert Falcone, engagement partner), serving as QIH's independent registered public accounting firm, will provide an agreed-upon procedures letter and a comfort letter in connection with the offering. The comfort letter will address, among other things, the financial information of QIH and QPF included in the Offering Memorandum, the accuracy of certain statistical data regarding the receivables pool, and the consistency of certain financial statements with the audited financial statements of QIH.

While a comfort letter is not a specific requirement of Regulation AB II, it is standard practice in Rule 144A ABS offerings and is typically required by the initial purchaser under the Note Purchase Agreement. Ridgeline has confirmed that it will require a comfort letter from Meridian Ledger LLP as a condition to closing. We recommend that the scope of the comfort letter be sufficiently comprehensive to address the principal financial and statistical disclosures in the Offering Memorandum and to provide the initial purchaser and investors with a level of assurance comparable to that provided in a registered offering.

VII. Interaction with Other Regulatory Frameworks

A. Investment Company Act of 1940

QRF 2022-1, as the issuing entity for the Notes, must qualify for an exclusion from the definition of "investment company" under the Investment Company Act of 1940, as amended (the "1940 Act"). Absent an available exclusion, QRF 2022-1 could be characterized as an investment company, which would subject it to the registration, governance, and operational requirements of the 1940 Act — requirements that are incompatible with the structure and operation of a securitization vehicle.

Two principal exclusions are available. First, Section 3(c)(5) of the 1940 Act excludes from the definition of "investment company" any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the small denomination type, or interests in unit investment trusts, and who is primarily engaged in the business of purchasing or otherwise acquiring "notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, services, or other commodities" (Section 3(c)(5)(A)) or "mortgages and other liens on and interests in real estate" (Section 3(c)(5)(C)). The receivables-based exclusion under Section 3(c)(5)(A) may be available for the insurance premium finance receivables held by QRF 2022-1, as insurance premium finance loans may constitute "obligations representing part or all of the sales price of ... insurance."

Second, Section 3(c)(7) of the 1940 Act excludes from the definition of "investment company" any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition, are "qualified purchasers" as defined in Section 2(a)(51) of the 1940 Act, and who does not make and does not propose to make a public offering of its securities. Because the Notes are being offered and sold exclusively to QIBs under Rule 144A (and most QIBs will also qualify as qualified purchasers), the structuring of the transaction as a Rule 144A offering supports reliance on the Section 3(c)(7) exclusion.

The determination of the appropriate 1940 Act exclusion for QRF 2022-1 is being addressed in the preparation of the transaction documents and the related legal opinions, and a detailed analysis is beyond the scope of this memorandum. However, we note that the choice between Section 3(c)(5) and Section 3(c)(7) may have implications for the transferability of the Notes and the eligible investor universe, and should be coordinated with Ridgeline and Calloway & Brandt LLP.

B. Volcker Rule

A separate memorandum is being prepared by the undersigned (Yuki Nakamura, expected date July 22, 2022) addressing whether QRF 2022-1 constitutes a "covered fund" under the Volcker Rule (Section 619 of the Dodd-Frank Act, codified at 12 U.S.C. § 1851, and the implementing regulations at 12 CFR Part 248 and related provisions) and the availability of the "loan securitization" exclusion from the covered fund definition.

The Regulation AB II analysis intersects with Volcker Rule considerations in several respects. Most notably, the type of offering — registered versus unregistered — can affect the characterization of the issuing entity under the Volcker Rule. An issuer that relies on Section 3(c)(1) or Section 3(c)(7) of the 1940 Act (as discussed in Section VII.A above) may be deemed a "covered fund" absent an available exclusion. The loan securitization exclusion under the Volcker Rule implementing regulations is available for issuers that hold only "loans" (as defined therein) and certain related assets, and that satisfy other specified conditions. The characterization of insurance premium finance receivables as "loans" for purposes of the loan securitization exclusion requires careful analysis and will be addressed in the separate Volcker Rule memorandum.

C. Dodd-Frank Risk Retention

As noted in Section V.B above, the risk retention requirements under Regulation RR are addressed in a separate memorandum being prepared by Carlos Espinoza (August 1, 2022). Regulation AB II and Regulation RR are complementary but distinct regulatory regimes. Both apply to securitizations, but they address different aspects of the securitization process: Reg AB II primarily addresses registration, disclosure, and reporting, while Regulation RR addresses the retention of economic interest by the sponsor. Importantly, while Reg AB II applies only to registered offerings, Regulation RR applies regardless of whether the offering is registered or unregistered. The interplay between these two regimes means that the QRF 2022-1 transaction, although exempt from Reg AB II, must nonetheless comply with the risk retention requirements of Regulation RR.

VIII. Recommendations

Based on the analysis set forth in this memorandum, we recommend the following:

1. No SEC registration is required or contemplated. The QRF 2022-1 offering will proceed as a private placement under Rule 144A and Regulation S, exempt from registration under Section 4(a)(2) of the Securities Act. The core Regulation AB II requirements — including asset-level data filing on EDGAR, CEO certification under Rule 193, and periodic SEC reporting on Forms 10-D, 10-K, and 8-K — will not apply to the transaction. Calderwood & Harkness LLP will deliver a legal opinion confirming that no registration is required.

2. Prepare for Form ABS-15G filing obligation. QIH, as the securitizer of the QRF 2022-1 transaction, should establish internal procedures to track and record all repurchase and substitution requests related to the securitized receivables. QIH should be prepared to file Form ABS-15G with the SEC on an annual basis (with filings due by February 14 of each year for the prior calendar year period), reporting on fulfilled and unfulfilled repurchase requests, even though the Notes are offered under Rule 144A and Regulation S. The transaction documents should be drafted to facilitate compliance with this obligation.

3. Adopt voluntary best-practice disclosure. The Offering Memorandum should include pool stratification data, historical static pool performance data, comprehensive servicer disclosure, sponsor and originator financial information, and detailed risk factors at a level of quality and comprehensiveness approaching registered offering standards. This recommendation is driven by market expectations, rating agency requirements, and the anti-fraud liability standards applicable to all securities offerings.

4. Contractual reporting obligations. The Indenture and the Servicing Agreement should include robust monthly servicer reporting and payment date reporting obligations to noteholders, approximating the type and frequency of information that would be filed on Form 10-D in a registered ABS offering. These contractual reporting obligations should be clearly set forth in the transaction documents and should be described in the Offering Memorandum.

5. Coordinate with rating agencies. Brindoval Ratings (Andrew Petrosian, lead analyst; Engagement No. CR-SF-2022-08812) and Pinnacle Rating Services (Monica Sung, lead analyst; Engagement No. PRS-2022-ABS-3347) each impose disclosure and structural requirements that substantially overlap with Reg AB II standards. Satisfying rating agency criteria will largely achieve compliance with the recommended best practices described in this memorandum. The transaction team should coordinate closely with the rating agencies throughout the pre-sale and rating process to ensure that all rating agency requirements are addressed in the Offering Memorandum and the transaction documents.

6. Coordinate with underwriter's counsel. Calloway & Brandt LLP (Harrison Collier, partner, and Megan O'Shaughnessy, counsel) should be consulted on Ridgeline's specific expectations for disclosure quality in the Offering Memorandum and any particular items that Ridgeline's internal compliance function requires as a condition to conducting Rule 144A sales. The Note Purchase Agreement should include customary representations, warranties, and indemnification provisions addressing the accuracy and completeness of the Offering Memorandum.

7. Monitor for regulatory developments. The SEC has periodically considered extending certain Reg AB II requirements — including asset-level data disclosure, CEO certification, and enhanced reporting — to unregistered ABS offerings. Any future rulemaking in this area should be monitored by QIH and its counsel, particularly if the QRF 2022-1 transaction is relaunched after any dormancy period or if QIH contemplates future securitizations on a registered offering platform. We will continue to monitor SEC rulemaking developments and will advise QIH promptly of any proposed or adopted rule changes that could affect the regulatory framework applicable to this transaction.

IX. Conclusion

The QRF 2022-1 Notes offering, structured as a Rule 144A / Regulation S private placement of $500,000,000 in aggregate principal amount of asset-backed notes secured by insurance premium finance receivables, is not subject to Regulation AB II's registration-based requirements. Because no registration statement will be filed with the SEC, the core requirements of Reg AB II — including asset-level data filing on EDGAR, CEO certification, shelf registration eligibility standards, and ongoing SEC periodic reporting — do not apply as a matter of law.

Certain limited regulatory obligations may apply regardless of the registration status of the offering. Most notably, QIH, as the securitizer of the transaction, may be required to file Form ABS-15G with the SEC on an annual basis to report on repurchase and substitution requests related to the securitized receivables. In addition, the risk retention requirements of Regulation RR apply to the QRF 2022-1 transaction irrespective of its unregistered status, and the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Exchange Act and Section 17(a) of the Securities Act apply to all securities offerings, whether registered or unregistered.

Market practice, rating agency expectations, and the anti-fraud liability standards applicable to all securities offerings effectively require disclosure that approaches registered offering quality. The institutional investor market for Rule 144A ABS has increasingly expected comprehensive and transparent disclosure comparable to the standards established by Reg AB II, and both Brindoval Ratings and Pinnacle Rating Services condition their ratings on the adequacy of the disclosure and structural protections provided to investors.

Calderwood & Harkness LLP recommends that QIH and the Issuer voluntarily adopt the best-practice disclosure measures described in Section VI of this memorandum, including detailed pool stratification data, historical static pool performance, comprehensive servicer and sponsor disclosure, and robust contractual investor reporting obligations in the Indenture and Servicing Agreement. These measures will serve to meet investor and rating agency expectations, mitigate litigation risk under the anti-fraud provisions of the federal securities laws, and position the Quorum securitization program for a potential future conversion to a registered offer

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Douglas Carmichael, Partner; Francesca Morano, Partner; Carlos Espinoza, Associate
FROM: Yuki Nakamura, Associate
DATE: July 20, 2022
RE: Regulation AB II Applicability and Exemptions — Quorum Receivables Funding 2022-1 LLC — $500,000,000 Insurance Premium Finance ABS Issuance
Matter No.: 1025-00007
CLIENT: Quorum Insurance Holdings Corp.
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I. Executive Summary
This memorandum analyzes whether Regulation AB II (adopted by the Securities and Exchange Commission in 2014, amending Regulation AB under the Securities Act of 1933, as amended (the "Securities Act")) applies to the proposed $500,000,000 asset-backed securities issuance by Quorum Receivables Funding 2022-1 LLC (the "Issuer" or "QRF 2022-1"), a bankruptcy-remote Delaware limited liability company, backed by insurance premium finance receivables originated by Quorum Premium Finance LLC ("QPF"). The proposed transaction involves the issuance of three tranches of notes (collectively, the "Notes"):
• Class A Notes — $375,000,000 aggregate principal amount, rated AAA(cr) by Brindoval Ratings Inc. ("Brindoval Ratings") and Aaa(p) by Pinnacle Rating Services LLC ("Pinnacle Rating Services");
• Class B Notes — $75,000,000 aggregate principal amount, rated A(cr) by Brindoval Ratings and A1(p) by Pinnacle Rating Services; and
• Class C Notes — $35,000,000 aggregate principal amount, rated BBB(cr) by Brindoval Ratings and Baa2(p) by Pinnacle Rating Services;
plus an additional $15,000,000 in overcollateralization and retained interest held by the sponsor or its affiliates, for a total capital structure of $500,000,000. Ridgeline Capital Markets LLC ("Ridgeline") is serving as structuring agent and lead bookrunner, and Calloway & Brandt LLP is acting as underwriter's counsel.
The proposed offering is structured as a Rule 144A / Regulation S private placement and is not a registered offering under the Securities Act. No registration statement will be filed with the SEC in connection with the issuance and sale of the Notes.
Conclusion. Regulation AB II's core requirements — which apply to offerings of asset-backed securities registered under the Securities Act — do not apply to the QRF 2022-1 transaction because the Notes will not be registered with the SEC. However, certain provisions of Regulation AB II inform market expectations and best-practice disclosure standards for Rule 144A offerings of asset-backed securities. In addition, certain limited reporting obligations arising under the Securities Exchange Act of 1934, as amended (the "Exchange Act") — most notably the repurchase request reporting requirement under Rule 15Ga-1 and Form ABS-15G — may apply to the sponsor regardless of the exempt status of the offering. Separately, the risk retention requirements under Regulation RR (implementing Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")) apply to both registered and unregistered securitizations and are addressed in a separate memorandum being prepared by Carlos Espinoza, dated August 1, 2022.
This memorandum recommends that the Issuer and sponsor voluntarily adopt certain Reg AB II-type disclosure practices in the Offering Memorandum and in the contractual reporting provisions of the transaction documents to meet investor and rating agency expectations, mitigate anti-fraud litigation risk, and position the program for potential future conversion to a registered offering platform.
II. Background on the Transaction
A. Transaction Structure
The QRF 2022-1 transaction involves a conventional multi-step securitization of insurance premium finance receivables originated by QPF. The principal transaction parties and their roles are described below.
Sponsor/Parent. Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation publicly traded on the New York Stock Exchange (ticker: QIHC), serves as the sponsor of the securitization. QIH is headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. Key officers of QIH relevant to the transaction include: Marcus Devereaux, Chief Executive Officer; Priya Raghavan, Chief Financial Officer; Nolan Whitford, General Counsel; and Sandra Ling-Hwang, Treasurer. QIH is a diversified insurance holding company with fiscal year 2021 consolidated revenues of approximately $3.8 billion. QIH's senior unsecured credit ratings are BBB from Brindoval Ratings and Baa2 from Pinnacle Rating Services.
Originator/Seller/Servicer. Quorum Premium Finance LLC ("QPF"), a Delaware limited liability company and a wholly owned subsidiary of QIH, originates and services insurance premium finance loans to commercial policyholders across all 50 states and the District of Columbia. QPF's total managed receivables portfolio is approximately $2.1 billion as of the date of this memorandum. QPF will serve as the originator and seller of the receivables to the depositor and will act as the initial servicer of the receivables under a Servicing Agreement to be entered into in connection with the closing of the transaction.
Depositor/Intermediate SPV. Quorum Receivables Holding LLC ("QRH"), a Delaware limited liability company, serves as the depositor in the transaction. QRH is a bankruptcy-remote special purpose entity whose sole member is QPF. An independent manager, Eleanor M. Vasquez of Fortbridge Corporate Services LLC, has been appointed to QRH's board of managers to support the separateness and bankruptcy-remote status of the entity. QRH serves as an intermediate entity in the two-step true sale structure, acquiring the receivables from QPF and subsequently transferring or contributing them to the Issuer.
Issuer. Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"), a Delaware limited liability company, is the issuing entity for the Notes. QRF 2022-1 is a bankruptcy-remote special purpose entity whose sole member is QRH. An independent manager, Timothy R. Callan of Fortbridge Corporate Services LLC, has been appointed to QRF 2022-1's board of managers. QRF 2022-1 has been organized solely for the purpose of acquiring the receivables, issuing the Notes, and engaging in related activities.
Transaction Flow. The receivables flow through the transaction structure as follows: QPF originates insurance premium finance loans in the ordinary course of its business. On or prior to the closing date, QPF will sell and transfer the initial receivables to QRH pursuant to a Receivables Sale Agreement (the "RSA"). This transfer is intended to constitute a "true sale" of the receivables for bankruptcy purposes. QRH will then transfer and contribute the receivables to QRF 2022-1 pursuant to a Receivables Transfer Agreement (the "RTA"). QRF 2022-1 will issue the Notes, secured by the receivables and certain related collateral, under an Indenture entered into with the Indenture Trustee. Proceeds from the sale of the Notes will flow back through the structure to QPF as consideration for the receivables.
Indenture Trustee / Paying Agent. Calvoneth Trust Company, N.A. will serve as the Indenture Trustee, paying agent, note registrar, and securities intermediary under the Indenture.
Back-Up Servicer / Liquidity Provider. Northvane Bank, N.A. has been engaged to serve as the back-up servicer under a separate Back-Up Servicing Agreement and may also provide certain liquidity support to the transaction, the terms of which are currently under negotiation.
B. Receivables Pool
The initial pool of receivables to be securitized has the following characteristics as of the statistical cut-off date of June 30, 2022:
• Initial Pool Balance: Approximately $612,000,000
• Number of Loans: Approximately 82,400 individual insurance premium finance loans
• Average Loan Balance: Approximately $7,427
• Weighted Average Annual Percentage Rate (APR): 7.85%
• Weighted Average Original Term: 9.2 months
• Weighted Average Remaining Term: 5.7 months
• Historical Net Loss Rate (2019–2021 Three-Year Average): 0.42%
• 60+ Day Delinquency Rate as of Cut-Off Date: 0.87%
The receivables are secured by the borrowers' unearned premium refund rights. Under a standard insurance premium finance arrangement, the borrower assigns to QPF the right to cancel the financed insurance policy and receive any unearned premium refund from the insurance carrier in the event the borrower defaults on the premium finance loan. This unearned premium refund right serves as the primary source of credit support at the loan level and is a distinguishing feature of insurance premium finance receivables relative to other consumer or commercial receivable asset classes.
The pool exhibits substantial diversification by geography, insurance carrier, obligor concentration, and loan balance. A detailed stratification of the receivables pool will be included in the Offering Memorandum, as discussed further in Section VI.B of this memorandum.
C. Offering Format
The Notes will be offered and sold in a private placement exempt from registration under the Securities Act, as follows:
• Rule 144A Offering. The Notes will be offered and sold to qualified institutional buyers ("QIBs") in the United States pursuant to Rule 144A under the Securities Act.
• Regulation S Offering. The Notes will also be offered and sold to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act.
• No SEC Registration. No registration statement will be filed with the SEC under the Securities Act in connection with the offering. The Notes will constitute "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act.
• Offering Memorandum. A Preliminary Offering Memorandum will be prepared as the primary disclosure document for the offering. This document is not, and will not be, a prospectus within the meaning of Section 2(a)(10) of the Securities Act.
• Initial Purchaser. Ridgeline Capital Markets LLC will act as the sole initial purchaser of the Notes under a Note Purchase Agreement to be entered into on the pricing date. Ridgeline will resell the Notes to QIBs and non-U.S. persons in the manner described above.
Calderwood & Harkness LLP will provide a legal opinion, expected to be dated as of the closing date (currently anticipated to be October 18, 2022), confirming that no registration of the Notes under the Securities Act is required under the circumstances of the offering.
III. Overview of Regulation AB II
A. Regulatory History
Regulation AB was originally adopted by the SEC in 2004 pursuant to Securities Act Release No. 33-8518 (the "2004 Adopting Release"). The 2004 Adopting Release established a comprehensive registration, disclosure, and reporting framework for asset-backed securities that were publicly offered and registered under the Securities Act. Among other things, the original Regulation AB defined key terms applicable to asset-backed securities, established eligibility criteria for shelf registration on Form S-3, prescribed disclosure requirements for prospectuses and periodic reports, and required servicer compliance assessments and related accounting attestations.
In the years following the 2008 financial crisis, the SEC undertook a comprehensive review of the regulatory framework governing asset-backed securities. The SEC identified significant deficiencies in the transparency and quality of information available to investors in ABS transactions, which had contributed to the mispricing of risk and the cascading failures that characterized the crisis. Following an extensive rulemaking process that included multiple proposing releases, comment periods, and re-proposals, the SEC adopted Regulation AB II in August 2014 pursuant to Securities Act Release No. 33-9638 (the "2014 Adopting Release" or "Reg AB II").
Regulation AB II significantly amended the framework established by the original Regulation AB. The key goals of Reg AB II, as articulated by the SEC in the 2014 Adopting Release, were to: (i) enhance transparency in the ABS market by requiring more granular and standardized disclosure, including asset-level data for certain asset classes; (ii) improve investor protections by imposing a CEO certification requirement and enhanced repurchase request reporting; (iii) require more rigorous and standardized disclosure and reporting requirements for registered ABS offerings, including through the introduction of new registration forms (Forms SF-1 and SF-3) specifically designed for asset-backed securities; and (iv) promote greater accountability among securitization participants, including sponsors, depositors, and servicers.
B. Key Requirements of Regulation AB II (for Registered Offerings)
The principal requirements imposed by Regulation AB II on offerings of asset-backed securities that are registered under the Securities Act are summarized below. This summary is provided for reference and context in evaluating the applicability of these requirements to the QRF 2022-1 offering.
Asset-Level Disclosure (Rule 17g-7, Item 1111(h) of Regulation S-K). Regulation AB II requires issuers of registered ABS to file asset-level data with the SEC on EDGAR using a standardized XML format (Schedule AL). This requirement applies to offerings in certain enumerated asset classes, including residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), auto loans and leases, credit cards, student loans, equipment loans and leases, floorplan financings, and a residual "other" category. Insurance premium finance receivables are not specifically enumerated as a standalone asset class, and would likely fall within the "other" category if the offering were registered. The asset-level data requirements mandate the disclosure of loan-level information including, among other things, obligor credit characteristics, collateral descriptions, payment histories, and modification data.
CEO Certification (Rule 193). Regulation AB II introduced a requirement that the chief executive officer of the depositor (or, in certain cases, the sponsor) execute a certification in connection with each takedown from a shelf registration statement. The certification requires the CEO to confirm that he or she has reviewed the prospectus and the transaction and that, based on such review, the prospectus does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made not misleading. This certification requirement was designed to promote accountability and diligence at the senior management level.
Shelf Registration Requirements (Rules 424/430D; Forms SF-1 and SF-3). Regulation AB II replaced the prior Form S-3 shelf registration process for ABS with two new registration forms: Form SF-1, for use by non-seasoned ABS issuers, and Form SF-3, for use by seasoned ABS issuers that meet certain eligibility criteria. Both forms impose continuous reporting obligations, including the filing of annual reports on Form 10-K, distribution reports on Form 10-D, current reports on Form 8-K, and asset-backed securitizer reports on Form ABS-15G. Form SF-3 imposes additional eligibility criteria, including a requirement that the sponsor have a minimum track record of ABS reporting and that the depositor's CEO provide the certification described above.
Servicer Compliance Statement (Item 1121 of Regulation S-K). Each servicer that services pool assets for a registered ABS offering is required to deliver an annual compliance statement affirming that it has fulfilled its obligations under the applicable servicing agreement in all material respects.
Attestation Report on Assessment of Compliance (Item 1122 of Regulation S-K). In addition to the servicer compliance statement, each servicer must deliver an annual assessment of compliance with the servicing criteria established in Item 1122, together with an attestation report from an independent registered public accounting firm on such assessment. This requirement is intended to provide investors with independent assurance that the servicer's operations meet established servicing standards.
Third-Party Repurchase Request Dispute Resolution (Rule 15Ga-1; Form ABS-15G). Regulation AB II, in conjunction with provisions of the Dodd-Frank Act, requires securitizers of ABS to report on fulfilled and unfulfilled repurchase requests on Form ABS-15G. This reporting obligation, which is discussed in greater detail in Section V.A below, is notable because it may apply to both registered and unregistered securitizations.
Investor Communication Platform (Rule 17g-10). Regulation AB II contemplated mechanisms for investor communication regarding repurchase requests and other matters. Rule 17g-10 addresses the provision of a mechanism through which investors can communicate regarding repurchase requests for pool assets.
Waterfall Computer Program (Proposed but Not Adopted). In the rulemaking process leading to Regulation AB II, the SEC proposed a requirement that issuers of registered ABS provide a downloadable waterfall computer program that would allow investors to model the cash flow waterfall of a securitization transaction. This requirement was ultimately not adopted in the final rules, although the SEC indicated that it would continue to consider this concept.
Risk Retention (Cross-Reference to Dodd-Frank Section 941). While risk retention is a separate regulatory requirement imposed under Regulation RR (jointly adopted by the SEC, the Federal banking agencies, the Federal Housing Finance Agency, and the Department of Housing and Urban Development), Regulation AB II cross-references the risk retention framework and certain aspects of the Reg AB II disclosure requirements relate to the manner in which risk retention is satisfied. The risk retention requirements applicable to the QRF 2022-1 transaction are addressed in a separate memorandum being prepared by Carlos Espinoza, dated August 1, 2022.
C. Scope of Application
Regulation AB II applies to offerings of asset-backed securities that are registered under the Securities Act of 1933. The registration framework — specifically, the requirement to file a registration statement on Form SF-1 or Form SF-3 (or, for non-ABS securities, Form S-1 or Form S-3) — is the gateway to the applicability of Reg AB II's requirements. If no registration statement is filed with the SEC, the core requirements of Regulation AB II — including asset-level data filing, CEO certification, ongoing SEC periodic reporting, servicer compliance assessment and accounting attestation, and shelf eligibility standards — do not apply as a matter of law.
Form SF-3, the shelf registration form available to seasoned ABS issuers, requires full compliance with all Reg AB II requirements, including asset-level data disclosure, the CEO certification, and ongoing periodic reporting on Forms 10-K, 10-D, 8-K, and ABS-15G. Form SF-1, available to non-seasoned issuers, is also subject to Regulation AB II, though with different eligibility requirements and without the seasoning criteria applicable to Form SF-3.
It is important to note, however, that the non-applicability of Reg AB II to an unregistered offering does not relieve the sponsor, depositor, issuer, or other transaction participants from compliance with all other applicable legal requirements, including the anti-fraud provisions of the federal securities laws, risk retention requirements, and any specific Exchange Act reporting obligations that apply regardless of registration status. These matters are addressed in Section V below.
IV. Analysis: Inapplicability of Reg AB II to the QRF 2022-1 Offering
A. The Offering Is Exempt from Registration
The QRF 2022-1 Notes will be offered and sold in a private placement that is exempt from the registration requirements of Section 5 of the Securities Act. The offering relies upon the following exemptions and safe harbors:
Section 4(a)(2) of the Securities Act. The statutory exemption from registration under Section 4(a)(2) of the Securities Act provides that the registration requirements of Section 5 do not apply to "transactions by an issuer not involving any public offering." The initial sale of the Notes by QRF 2022-1 to Ridgeline Capital Markets LLC as initial purchaser is structured as a private placement in reliance on Section 4(a)(2). The transaction satisfies the criteria traditionally associated with the Section 4(a)(2) exemption: the offering is being made to a single sophisticated institutional purchaser (Ridgeline), there will be no general solicitation or general advertising, and the Notes will be "restricted securities" subject to transfer restrictions. Although the transaction could alternatively be structured to comply with the conditions of Rule 506 of Regulation D under the Securities Act, the parties have determined that reliance on Section 4(a)(2) directly — without specifically relying on the Rule 506 safe harbor — is appropriate in the circumstances of this offering, consistent with standard market practice for institutional ABS private placements.
Rule 144A. Ridgeline will resell the Notes to investors in the United States pursuant to Rule 144A under the Securities Act. Rule 144A provides a safe harbor from the registration requirements of the Securities Act for resales of restricted securities to QIBs. The Notes satisfy the conditions for Rule 144A resales: (i) the Notes are "restricted securities" within the meaning of Rule 144(a)(3); (ii) the Notes will be offered and sold only to persons that the seller reasonably believes are QIBs; (iii) the Notes will not be of the same class as securities listed on a national securities exchange or quoted in an automated inter-dealer quotation system; and (iv) the holder and any prospective purchaser designated by the holder will have the right to obtain from the Issuer, upon request, certain information regarding the Issuer and the Notes, to the extent that the Issuer is not an SEC reporting company.
Regulation S. The Notes will also be offered and sold in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act. Regulation S provides a safe harbor from the registration requirements of the Securities Act for offers and sales of securities that occur outside the United States. The offering is a Category 3 offering under Regulation S, and the Notes will be subject to a distribution compliance period of 40 days following the later of the closing date and the date on which the Notes are first offered to persons other than distributors.
No Registration Statement. No registration statement on Form SF-1, Form SF-3, Form S-1, or any other form will be filed with the SEC in connection with the offering. Calderwood & Harkness LLP will provide a draft legal opinion (expected to be dated October 18, 2022) confirming that no registration of the Notes under the Securities Act is required in connection with the offering, subject to customary assumptions and qualifications.
B. Reg AB II Requirements That Do Not Apply
Because the QRF 2022-1 offering is exempt from registration under the Securities Act and no registration statement will be filed with the SEC, the following core Regulation AB II requirements do not apply to the transaction:
Asset-Level Data Filing on EDGAR. The requirement to file asset-level data on EDGAR using XML format (Schedule AL) applies only to registered ABS offerings. QRF 2022-1 will have no obligation to file any asset-level data with the SEC. As discussed in Section VI.B below, however, we recommend that the Issuer voluntarily provide granular pool-level and, where feasible, asset-level data to investors as a best-practice measure.
CEO Certification under Rule 193. The depositor CEO certification requirement applies only to takedowns from registered shelf offerings under Forms SF-1 and SF-3. No CEO certification under Rule 193 is required for the QRF 2022-1 offering. We note, however, that the Note Purchase Agreement with Ridgeline may contain customary representations and certifications by QIH and QRH officers regarding the accuracy of the Offering Memorandum, which serve a functionally analogous purpose.
Ongoing SEC Reporting (Forms 10-D, 10-K, 8-K). QRF 2022-1 will not be an SEC reporting company. It will have no obligation to file periodic reports under Section 13 or 15(d) of the Exchange Act. Accordingly, Forms 10-D (distribution reports), 10-K (annual reports), and 8-K (current reports) are not required. As discussed in Section VI.B below, however, we recommend that the transaction documents contractually require periodic investor reporting that is functionally comparable to the information that would be filed on Form 10-D.
Form ABS-15G (Repurchase Request Reporting). The applicability of the Form ABS-15G repurchase request reporting requirement is discussed separately in Section V.A below, as this requirement may apply regardless of the registration status of the offering.
Servicer Compliance Assessment (Items 1121/1122 of Regulation S-K). The annual servicer compliance statement and independent accounting firm attestation requirements under Items 1121 and 1122 of Regulation S-K do not apply to unregistered offerings as a regulatory matter. However, the Servicing Agreement (currently being drafted for execution, version 3) will include contractual reporting obligations imposed on QPF as servicer, including provisions requiring periodic reporting on servicing performance, collections, delinquencies, and losses. These contractual obligations are discussed further in Section VI.B below.
Shelf Eligibility Standards. The shelf eligibility standards applicable to Forms SF-1 and SF-3, including the seasoning requirements, transaction history requirements, and CEO certification obligations associated with shelf registration, are not applicable because no shelf registration statement is being filed.
C. Statutory Basis for Exemption
The statutory and regulatory basis for the exemption from registration is summarized as follows:
The primary exemption basis is Section 4(a)(2) of the Securities Act, which exempts from registration "transactions by an issuer not involving any public offering." Although the transaction could also be structured to comply with the conditions of Rule 506 of Regulation D (which provides a non-exclusive safe harbor for private placements), the parties have elected to rely on Section 4(a)(2) directly rather than on Rule 506, consistent with the standard market practice for institutional ABS private placements. Reliance on Section 4(a)(2) directly avoids the need to comply with certain conditions of Rule 506, including the specific information delivery requirements of Rule 502(b), and avoids the filing of Form D with the SEC (although QIH may nonetheless elect to file a Form D as a precautionary measure).
Rule 144A under the Securities Act permits resales of restricted securities to QIBs without registration. The Notes must be "restricted securities" within the meaning of Rule 144(a)(3) and must not be of the same class as securities listed on a national securities exchange or quoted in an automated inter-dealer quotation system. The Notes satisfy these conditions. Rule 144A does not, by itself, provide an issuer exemption; rather, it provides a resale exemption to holders of restricted securities. Ridgeline, as the initial purchaser, will resell the Notes in reliance on Rule 144A.
Regulation S under the Securities Act provides a safe harbor from registration for offers and sales of securities that occur outside the United States to non-U.S. persons. The Regulation S offering will be conducted in compliance with the conditions of Rule 903 and Rule 904 thereunder.
The legal opinion to be delivered by Calderwood & Harkness LLP will confirm the availability of these exemptions from registration, subject to customary assumptions and qualifications. A draft of this opinion is expected to be circulated on or about October 8, 2022 for review by all parties.
V. Limited Regulatory Requirements That May Apply Despite Exempt Status
While the core requirements of Regulation AB II do not apply to the QRF 2022-1 offering, certain regulatory requirements arising under the Exchange Act and the Dodd-Frank Act may apply regardless of whether the offering is registered or unregistered. These requirements are discussed below.
A. Form ABS-15G — Repurchase Request Reporting
Section 15E(s)(4)(A) of the Exchange Act (added by Section 943 of the Dodd-Frank Act) and Rule 15Ga-1 promulgated thereunder require each "securitizer" of asset-backed securities to disclose, on an ongoing basis, fulfilled and unfulfilled repurchase requests with respect to the securitized assets. This disclosure is made by filing Form ABS-15G with the SEC.
Critically, this reporting requirement applies regardless of whether the offering of asset-backed securities is registered or unregistered under the Securities Act. The text of Section 15E(s)(4)(A) and Rule 15Ga-1 is not limited to registered offerings. The SEC confirmed this interpretation in the 2014 Adopting Release, stating that the repurchase request reporting requirement applies to "all securitizers of asset-backed securities."
The term "securitizer" is defined in Rule 15Ga-1 to mean the depositor of the asset-backed securities or the sponsor of the securitization transaction. QIH, as the sponsor of the QRF 2022-1 securitization, falls within the definition of "securitizer." Accordingly, QIH may be required to file Form ABS-15G with the SEC if repurchase or substitution demands are made with respect to the receivables included in the QRF 2022-1 pool.
Form ABS-15G requires the securitizer to disclose, for each reporting period, information regarding: (i) the total number and dollar amount of repurchase requests received; (ii) the number and dollar amount of repurchase requests that were fulfilled; (iii) the number and dollar amount of repurchase requests that were unfulfilled; and (iv) the reasons for any unfulfilled repurchase requests. Form ABS-15G must be filed with the SEC on an annual basis, with filings due by February 14 of each year for the prior calendar year reporting period.
Recommendation. QIH should be prepared to file Form ABS-15G with the SEC on an annual basis, even though the Notes are offered and sold under Rule 144A and Regulation S. QIH's legal and compliance functions should establish internal procedures to track and record any repurchase or substitution requests made with respect to the securitized receivables throughout the life of the transaction. The Receivables Sale Agreement and the Receivables Transfer Agreement should include representations, warranties, and repurchase and substitution mechanisms that contemplate this reporting obligation, and the transaction documents should require QPF (as servicer) to provide timely notice to QIH of any repurchase or substitution demands received from the Indenture Trustee, noteholders, or other parties with standing to make such demands.
B. Regulation RR — Risk Retention
Although technically separate from Regulation AB II, the risk retention rules under Regulation RR (jointly adopted by the SEC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Department of Housing and Urban Development, implementing Section 941 of the Dodd-Frank Act, codified at 17 CFR Part 246) apply to both registered and unregistered securitizations. The risk retention requirements are not conditioned on the filing of a registration statement and apply broadly to all sponsors of securitization transactions.
Under Regulation RR, QIH, as the sponsor of the QRF 2022-1 securitization, is required to retain an economic interest in the credit risk of the securitized assets equal to not less than 5% of the aggregate fair value of the ABS interests issued in the transaction. This risk retention requirement may be satisfied through various methods specified in Regulation RR, including horizontal risk retention (retention of a first-loss tranche or residual interest), vertical risk retention (retention of a pro rata strip of each tranche), or an L-shaped combination thereof.
In the current transaction structure, the $15,000,000 overcollateralization and retained interest represents approximately 3.0% of the total $500,000,000 issuance. Standing alone, the $15,000,000 overcollateralization would not satisfy the full 5% risk retention requirement. Accordingly, the total eligible horizontal interest must be supplemented through additional structural mechanisms — such as an increase in the retained subordinate interest, the retention of a vertical strip of each tranche, or a combination of horizontal and vertical risk retention — to satisfy the full 5% requirement under Regulation RR.
A detailed analysis of the risk retention requirements and the structuring alternatives available to satisfy the 5% requirement is being prepared by Carlos Espinoza in a separate memorandum dated August 1, 2022, and is not repeated here. We note, however, that the risk retention analysis is a critical structuring consideration that must be resolved prior to pricing and closing, and that the Offering Memorandum must include disclosure regarding the manner in which the risk retention requirement is being satisfied.
C. Anti-Fraud Provisions
The anti-fraud provisions of the federal securities laws apply to all offerings of securities, whether registered or unregistered. Specifically:
Section 10(b) and Rule 10b-5 of the Exchange Act. Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder make it unlawful for any person, in connection with the purchase or sale of any security, to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Section 17(a) of the Securities Act. Section 17(a) of the Securities Act similarly makes it unlawful for any person, in the offer or sale of any securities, to employ any device, scheme, or artifice to defraud, to obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary in order to make the statements made not misleading, or to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
These provisions are not contingent upon registration of the securities and apply with equal force to offerings conducted under Rule 144A, Regulation S, and Section 4(a)(2). Accordingly, the Offering Memorandum prepared in connection with the QRF 2022-1 offering must be accurate and complete in all material respects and must not contain any material misstatements or omissions. While no SEC staff review of the Offering Memorandum will occur (as would be the case for a registration statement), the document must meet the same anti-fraud standards applicable to a registered prospectus. The anti-fraud provisions provide the baseline legal standard against which the adequacy of the Offering Memorandum's disclosure will be measured in the event of litigation or regulatory enforcement action.
This consideration further supports the recommendation, discussed in Section VI below, that the Offering Memorandum adopt disclosure practices that approach the quality and comprehensiveness of a registered offering, notwithstanding the technical inapplicability of Reg AB II.
VI. Best-Practice Disclosure Standards for Rule 144A ABS Offerings
A. Market Expectations
Despite the technical inapplicability of Regulation AB II to the QRF 2022-1 offering, the institutional investor market for Rule 144A asset-backed securities has increasingly expected disclosure that is comparable to, or that approaches, the standards applicable to registered offerings. This trend has accelerated since the adoption of Reg AB II in 2014, as institutional investors have become accustomed to the enhanced disclosure and transparency that Reg AB II requires in the registered market and have come to expect similar disclosure quality in the unregistered market.
Ridgeline Capital Markets LLC (Julian Weatherstone, Managing Director, and Rebecca Tran, Vice President, ABS Capital Markets Group) has confirmed in discussions with our team that investors in insurance premium finance ABS expect robust and detailed disclosure in the Offering Memorandum. Ridgeline has indicated that a number of the larger institutional investors that participate in the Rule 144A ABS market have internal investment guidelines or due diligence protocols that require disclosure comparable to registered offering standards as a condition of investment. Failure to provide such disclosure may limit the potential investor base for the Notes and could adversely affect execution and pricing.
In addition, the rating agencies — Brindoval Ratings and Pinnacle Rating Services — condition their ratings on the adequacy of the disclosure provided to investors and on the structural protections incorporated into the transaction. Many of the disclosure and structural requirements imposed by the rating agencies mirror or overlap with the standards established by Reg AB II. Satisfying rating agency requirements will, as a practical matter, result in disclosure that substantially conforms to Reg AB II standards in most respects.
B. Recommended Voluntary Disclosure Practices
Based on the foregoing considerations, we recommend that the Issuer and sponsor voluntarily adopt the following disclosure practices in connection with the QRF 2022-1 offering. These recommendations are designed to meet investor and rating agency expectations, mitigate anti-fraud litigation risk, and position the transaction for a potential future conversion to a registered offering platform.
Pool-Level Data Tables. The Offering Memorandum (version 3, dated October 12, 2022) and the Issuer Supplement should include detailed stratification tables presenting the characteristics of the receivables pool as of the statistical cut-off date of June 30, 2022. These tables should stratify the pool by, at a minimum, the following dimensions: geographic distribution by state, insurance carrier concentration, remaining term to maturity, APR band, original loan balance, current loan balance, delinquency status, and policy type. This level of pool-level data disclosure is analogous to the pool data requirements of Regulation AB II and is consistent with the expectations of institutional investors and rating agencies.
Key pool metrics that should be prominently disclosed include:
• Initial Pool Balance: $612,000,000 as of the June 30, 2022 cut-off date
• Geographic Concentration: Texas 14.2%, California 11.8%, Florida 9.6% (top three states in aggregate: 35.6% of pool balance)
• Largest Single Obligor: 0.38% of pool balance ($2,325,600)
• Top 10 Obligors: 2.14% of pool balance ($13,096,800)
• Concentration Limits: Single obligor ≤ 0.75% of pool balance; single state ≤ 20% of pool balance; single insurance carrier ≤ 15% of pool balance
These concentration limits should be disclosed as eligibility criteria in the Offering Memorandum and as contractual covenants in the transaction documents, providing investors with assurance regarding the diversification of the pool.
Asset-Level Data. While the filing of asset-level data on EDGAR in XML format is not required for an unregistered offering, we recommend that QIH and QPF consider providing asset-level data, or at a minimum granular loan-level stratification data, to investors under nondisclosure agreements upon request. This approach is increasingly common in the Rule 144A ABS market, particularly for asset classes (such as insurance premium finance) where investors may be less familiar with the underlying collateral characteristics and may desire additional granularity for purposes of their own credit analysis and modeling. Veristead Analytics LLC (Katharine Drummond, Senior Managing Director) has been engaged as a third-party verification agent to perform stratification analysis and tape reconciliation of the receivables pool, which will support the preparation of accurate and reliable pool-level and asset-level data for investor distribution.
Static Pool Data. The Offering Memorandum should include historical performance data for QPF's prior originations. Specifically, the Offering Memorandum should present static pool performance data for vintage cohorts of QPF's insurance premium finance receivables portfolio over a historical period of not less than three years (2019, 2020, and 2021), including net loss rates, delinquency trends, prepayment speeds, and recovery rates. As noted above, QPF's three-year average historical net loss rate for the 2019–2021 period is 0.42%, a level that reflects the generally low-risk profile of insurance premium finance receivables secured by unearned premium refund rights. The inclusion of static pool data is a Reg AB II-type disclosure that investors and rating agencies routinely expect in both registered and unregistered ABS offerings and is essential for investors to assess the creditworthiness of the receivables pool and the adequacy of the credit enhancement structure.
Servicer Disclosure. The Offering Memorandum should include a comprehensive description of QPF's servicing operations, including its organizational structure, staffing, technology platform, origination procedures, underwriting criteria, collection procedures, loss mitigation strategies, and historical servicing performance. The Servicer Operational Diligence Memorandum being prepared by Carlos Espinoza (dated September 8, 2022) should serve as the primary source for this disclosure. In addition, the following specific servicing terms should be disclosed:
• Servicing Fee: 1.00% per annum, calculated on the outstanding pool balance, payable monthly
• Back-Up Servicer: Northvane Bank, N.A., engaged under a separate Back-Up Servicing Agreement to be entered into on the closing date
• Servicer Termination Events: The Offering Memorandum and the Servicing Agreement should describe the events that would constitute a servicer event of default and the procedures for the transition of servicing to the back-up servicer
This level of servicer disclosure is consistent with Reg AB II standards and is necessary to satisfy rating agency criteria for the assigned ratings.
Sponsor/Originator Disclosure. The Offering Memorandum should include a description of QIH's financial condition, business operations, credit ratings, and material financial metrics, as well as a description of QPF's origination operations, lending criteria, and portfolio size. Specifically, the Offering Memorandum should disclose:
• QIH's senior unsecured credit ratings: BBB from Brindoval Ratings; Baa2 from Pinnacle Rating Services
• QIH's fiscal year 2021 consolidated revenue: approximately $3.8 billion
• QPF's total managed receivables portfolio: approximately $2.1 billion as of the date of the Offering Memorandum
• QPF's licensing status and regulatory compliance across all 50 states and the District of Columbia
Risk Factor Disclosure. The Offering Memorandum should include a comprehensive risk factors section that identifies and describes all material risks associated with an investment in the Notes. The risk factors should be prepared at a level of detail and specificity consistent with the standards applicable to registered offerings and should address, at a minimum, the following categories of risk:
• Asset performance risk: Risks related to the performance of the underlying receivables, including default risk, delinquency risk, prepayment risk, concentration risk, and the enforceability of unearned premium refund rights
• Servicer risk: Risks related to the performance and financial condition of QPF as servicer, including servicing disruption risk, commingling risk, and the adequacy of the back-up servicing arrangement
• Structural risk: Risks related to the transaction structure, including the adequacy of credit enhancement, the priority of payments under the waterfall, the potential for early amortization events, and the bankruptcy-remoteness of the issuer
• Market risk: Risks related to interest rate fluctuations, liquidity risk, and market conditions affecting the trading value of the Notes
• Legal risk: Risks related to the enforceability of the transaction documents, the perfection and priority of the security interest in the receivables, true sale analysis, and potential regulatory changes
• Tax risk: Risks related to the federal, state, and local tax treatment of the Notes and the Issuer, including the characterization of the Issuer as a disregarded entity or partnership for tax purposes
Ongoing Investor Reporting. Although QRF 2022-1 will not be an SEC reporting company, the Indenture and the Servicing Agreement should contractually require the Issuer and the servicer to provide periodic investor reports that are comparable to the type and frequency of information that would be filed on Form 10-D in a registered offering. Specifically, we recommend that the transaction documents require:
• Monthly Servicer Reports: Within 15 business days following the end of each collection period, QPF as servicer should deliver a monthly servicer report to the Indenture Trustee and noteholders (or their representatives) containing detailed information regarding collections, delinquencies, defaults, losses, recoveries, prepayments, pool composition, and the performance of the credit enhancement mechanisms
• Payment Date Reports: On each payment date, the Indenture Trustee should deliver a payment date report to the noteholders describing the distributions made on such payment date, the sources of funds for such distributions, the outstanding balances of each class of Notes, and the status of the reserve account, overcollateralization, and other credit enhancement features
• Annual Pool Performance Data: On an annual basis, QPF should deliver updated static pool performance data and a report on the overall condition of the receivables pool
These contractual reporting obligations should be structured to approximate the substance, if not the form, of SEC periodic reporting and should provide investors with the transparency and information flow that they would receive in a registered offering.
Repurchase and Substitution Disclosure. The Receivables Sale Agreement and the Offering Memorandum should describe in detail the representations and warranties made by QPF regarding the receivables, the conditions under which QPF is obligated to repurchase or substitute receivables that breach such representations and warranties, the procedures for requesting repurchase or substitution, the timeframes within which QPF must cure a breach or repurchase a non-conforming receivable, and any dispute resolution mechanisms available to investors or the Indenture Trustee. This disclosure is consistent with the spirit of Reg AB II's investor protection framework and supports the Form ABS-15G reporting obligation discussed in Section V.A above.
C. Comfort Letter and Agreed-Upon Procedures
Meridian Ledger LLP (Robert Falcone, engagement partner), serving as QIH's independent registered public accounting firm, will provide an agreed-upon procedures letter and a comfort letter in connection with the offering. The comfort letter will address, among other things, the financial information of QIH and QPF included in the Offering Memorandum, the accuracy of certain statistical data regarding the receivables pool, and the consistency of certain financial statements with the audited financial statements of QIH.
While a comfort letter is not a specific requirement of Regulation AB II, it is standard practice in Rule 144A ABS offerings and is typically required by the initial purchaser under the Note Purchase Agreement. Ridgeline has confirmed that it will require a comfort letter from Meridian Ledger LLP as a condition to closing. We recommend that the scope of the comfort letter be sufficiently comprehensive to address the principal financial and statistical disclosures in the Offering Memorandum and to provide the initial purchaser and investors with a level of assurance comparable to that provided in a registered offering.
VII. Interaction with Other Regulatory Frameworks
A. Investment Company Act of 1940
QRF 2022-1, as the issuing entity for the Notes, must qualify for an exclusion from the definition of "investment company" under the Investment Company Act of 1940, as amended (the "1940 Act"). Absent an available exclusion, QRF 2022-1 could be characterized as an investment company, which would subject it to the registration, governance, and operational requirements of the 1940 Act — requirements that are incompatible with the structure and operation of a securitization vehicle.
Two principal exclusions are available. First, Section 3(c)(5) of the 1940 Act excludes from the definition of "investment company" any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the small denomination type, or interests in unit investment trusts, and who is primarily engaged in the business of purchasing or otherwise acquiring "notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, services, or other commodities" (Section 3(c)(5)(A)) or "mortgages and other liens on and interests in real estate" (Section 3(c)(5)(C)). The receivables-based exclusion under Section 3(c)(5)(A) may be available for the insurance premium finance receivables held by QRF 2022-1, as insurance premium finance loans may constitute "obligations representing part or all of the sales price of ... insurance."
Second, Section 3(c)(7) of the 1940 Act excludes from the definition of "investment company" any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition, are "qualified purchasers" as defined in Section 2(a)(51) of the 1940 Act, and who does not make and does not propose to make a public offering of its securities. Because the Notes are being offered and sold exclusively to QIBs under Rule 144A (and most QIBs will also qualify as qualified purchasers), the structuring of the transaction as a Rule 144A offering supports reliance on the Section 3(c)(7) exclusion.
The determination of the appropriate 1940 Act exclusion for QRF 2022-1 is being addressed in the preparation of the transaction documents and the related legal opinions, and a detailed analysis is beyond the scope of this memorandum. However, we note that the choice between Section 3(c)(5) and Section 3(c)(7) may have implications for the transferability of the Notes and the eligible investor universe, and should be coordinated with Ridgeline and Calloway & Brandt LLP.
B. Volcker Rule
A separate memorandum is being prepared by the undersigned (Yuki Nakamura, expected date July 22, 2022) addressing whether QRF 2022-1 constitutes a "covered fund" under the Volcker Rule (Section 619 of the Dodd-Frank Act, codified at 12 U.S.C. § 1851, and the implementing regulations at 12 CFR Part 248 and related provisions) and the availability of the "loan securitization" exclusion from the covered fund definition.
The Regulation AB II analysis intersects with Volcker Rule considerations in several respects. Most notably, the type of offering — registered versus unregistered — can affect the characterization of the issuing entity under the Volcker Rule. An issuer that relies on Section 3(c)(1) or Section 3(c)(7) of the 1940 Act (as discussed in Section VII.A above) may be deemed a "covered fund" absent an available exclusion. The loan securitization exclusion under the Volcker Rule implementing regulations is available for issuers that hold only "loans" (as defined therein) and certain related assets, and that satisfy other specified conditions. The characterization of insurance premium finance receivables as "loans" for purposes of the loan securitization exclusion requires careful analysis and will be addressed in the separate Volcker Rule memorandum.
C. Dodd-Frank Risk Retention
As noted in Section V.B above, the risk retention requirements under Regulation RR are addressed in a separate memorandum being prepared by Carlos Espinoza (August 1, 2022). Regulation AB II and Regulation RR are complementary but distinct regulatory regimes. Both apply to securitizations, but they address different aspects of the securitization process: Reg AB II primarily addresses registration, disclosure, and reporting, while Regulation RR addresses the retention of economic interest by the sponsor. Importantly, while Reg AB II applies only to registered offerings, Regulation RR applies regardless of whether the offering is registered or unregistered. The interplay between these two regimes means that the QRF 2022-1 transaction, although exempt from Reg AB II, must nonetheless comply with the risk retention requirements of Regulation RR.
VIII. Recommendations
Based on the analysis set forth in this memorandum, we recommend the following:
1. No SEC registration is required or contemplated. The QRF 2022-1 offering will proceed as a private placement under Rule 144A and Regulation S, exempt from registration under Section 4(a)(2) of the Securities Act. The core Regulation AB II requirements — including asset-level data filing on EDGAR, CEO certification under Rule 193, and periodic SEC reporting on Forms 10-D, 10-K, and 8-K — will not apply to the transaction. Calderwood & Harkness LLP will deliver a legal opinion confirming that no registration is required.
2. Prepare for Form ABS-15G filing obligation. QIH, as the securitizer of the QRF 2022-1 transaction, should establish internal procedures to track and record all repurchase and substitution requests related to the securitized receivables. QIH should be prepared to file Form ABS-15G with the SEC on an annual basis (with filings due by February 14 of each year for the prior calendar year period), reporting on fulfilled and unfulfilled repurchase requests, even though the Notes are offered under Rule 144A and Regulation S. The transaction documents should be drafted to facilitate compliance with this obligation.
3. Adopt voluntary best-practice disclosure. The Offering Memorandum should include pool stratification data, historical static pool performance data, comprehensive servicer disclosure, sponsor and originator financial information, and detailed risk factors at a level of quality and comprehensiveness approaching registered offering standards. This recommendation is driven by market expectations, rating agency requirements, and the anti-fraud liability standards applicable to all securities offerings.
4. Contractual reporting obligations. The Indenture and the Servicing Agreement should include robust monthly servicer reporting and payment date reporting obligations to noteholders, approximating the type and frequency of information that would be filed on Form 10-D in a registered ABS offering. These contractual reporting obligations should be clearly set forth in the transaction documents and should be described in the Offering Memorandum.
5. Coordinate with rating agencies. Brindoval Ratings (Andrew Petrosian, lead analyst; Engagement No. CR-SF-2022-08812) and Pinnacle Rating Services (Monica Sung, lead analyst; Engagement No. PRS-2022-ABS-3347) each impose disclosure and structural requirements that substantially overlap with Reg AB II standards. Satisfying rating agency criteria will largely achieve compliance with the recommended best practices described in this memorandum. The transaction team should coordinate closely with the rating agencies throughout the pre-sale and rating process to ensure that all rating agency requirements are addressed in the Offering Memorandum and the transaction documents.
6. Coordinate with underwriter's counsel. Calloway & Brandt LLP (Harrison Collier, partner, and Megan O'Shaughnessy, counsel) should be consulted on Ridgeline's specific expectations for disclosure quality in the Offering Memorandum and any particular items that Ridgeline's internal compliance function requires as a condition to conducting Rule 144A sales. The Note Purchase Agreement should include customary representations, warranties, and indemnification provisions addressing the accuracy and completeness of the Offering Memorandum.
7. Monitor for regulatory developments. The SEC has periodically considered extending certain Reg AB II requirements — including asset-level data disclosure, CEO certification, and enhanced reporting — to unregistered ABS offerings. Any future rulemaking in this area should be monitored by QIH and its counsel, particularly if the QRF 2022-1 transaction is relaunched after any dormancy period or if QIH contemplates future securitizations on a registered offering platform. We will continue to monitor SEC rulemaking developments and will advise QIH promptly of any proposed or adopted rule changes that could affect the regulatory framework applicable to this transaction.
IX. Conclusion
The QRF 2022-1 Notes offering, structured as a Rule 144A / Regulation S private placement of $500,000,000 in aggregate principal amount of asset-backed notes secured by insurance premium finance receivables, is not subject to Regulation AB II's registration-based requirements. Because no registration statement will be filed with the SEC, the core requirements of Reg AB II — including asset-level data filing on EDGAR, CEO certification, shelf registration eligibility standards, and ongoing SEC periodic reporting — do not apply as a matter of law.
Certain limited regulatory obligations may apply regardless of the registration status of the offering. Most notably, QIH, as the securitizer of the transaction, may be required to file Form ABS-15G with the SEC on an annual basis to report on repurchase and substitution requests related to the securitized receivables. In addition, the risk retention requirements of Regulation RR apply to the QRF 2022-1 transaction irrespective of its unregistered status, and the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Exchange Act and Section 17(a) of the Securities Act apply to all securities offerings, whether registered or unregistered.
Market practice, rating agency expectations, and the anti-fraud liability standards applicable to all securities offerings effectively require disclosure that approaches registered offering quality. The institutional investor market for Rule 144A ABS has increasingly expected comprehensive and transparent disclosure comparable to the standards established by Reg AB II, and both Brindoval Ratings and Pinnacle Rating Services condition their ratings on the adequacy of the disclosure and structural protections provided to investors.
Calderwood & Harkness LLP recommends that QIH and the Issuer voluntarily adopt the best-practice disclosure measures described in Section VI of this memorandum, including detailed pool stratification data, historical static pool performance, comprehensive servicer and sponsor disclosure, and robust contractual investor reporting obligations in the Indenture and Servicing Agreement. These measures will serve to meet investor and rating agency expectations, mitigate litigation risk under the anti-fraud provisions of the federal securities laws, and position the Quorum securitization program for a potential future conversion to a registered offer

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