letter-to-qih-board-shelving-recommendation.docx

1025-00007 · Quorum Insurance Holdings · Shelving Analysis

letter-to-qih-board-shelving-recommendation.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com

November 10, 2022

Board of Directors Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, Connecticut 06901

Attention: Marcus Devereaux, Chief Executive Officer Priya Raghavan, Chief Financial Officer Nolan Whitford, General Counsel

Re: Quorum Receivables Funding 2022-1 LLC — $500,000,000 Insurance Premium Finance Asset-Backed Securities Offering Calderwood & Harkness Matter No. 1025-00007 Ridgeline Deal ID: RCM-IPF-2022-0041

Dear Members of the Board:

1. Introduction and Purpose of Letter

Calderwood & Harkness LLP ("Calderwood & Harkness" or "we") serves as issuer's counsel to Quorum Insurance Holdings Corp. ("QIH" or the "Company") and its subsidiaries in connection with the proposed $500,000,000 asset-backed securities issuance (the "Transaction") by Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1"), a bankruptcy-remote Delaware limited liability company and special purpose entity formed for the sole purpose of acquiring and holding insurance premium finance receivables originated by Quorum Premium Finance LLC ("QPF"), a wholly owned subsidiary of QIH. We have been engaged in connection with this matter since late June 2022 and have worked closely with the Company's management team, the structuring agent and lead bookrunner, Ridgeline Capital Markets LLC ("Ridgeline"), the rating agencies, and the other transaction parties to bring this offering to market readiness.

The purpose of this letter is fourfold. First, we summarize the current state of the credit markets as they pertain to the insurance premium finance asset-backed securities ("ABS") sector. Second, we present the results of the spread widening analysis prepared by Calderwood & Harkness in consultation with Ridgeline on November 7, 2022, which demonstrates the material deterioration in indicative pricing relative to the levels contemplated at the inception of the engagement. Third, we quantify the sunk costs incurred to date in connection with the Transaction. Fourth, and most significantly, we provide our recommendation that the Transaction be shelved pending improved market conditions, together with a detailed set of steps designed to preserve the substantial work product and structural infrastructure that has been developed, thereby enabling an efficient and cost-effective relaunch at such time as market conditions improve.

This letter is being provided for the Board's consideration in connection with its decision regarding the future of the Transaction. As the Board is aware, the virtual investor roadshow for the offering commenced on October 24, 2022 and concluded on November 2, 2022. Following the conclusion of the roadshow, Ridgeline communicated indicative pricing to QIH and to this firm on November 2, 2022. As set forth in greater detail in Section 3 below, that indicative pricing reflects a significant widening in credit spreads across all three rated tranches of the proposed capital structure, resulting in an all-in weighted average cost of funds that materially exceeds the Board-approved cost-of-funds hurdle. The enclosed Memorandum on Market Conditions and Spread Analysis dated November 7, 2022, prepared by this firm, provides additional supporting data and analysis.

We recognize that the Board has invested considerable time and management attention in this Transaction, and that the approximately $2,555,000 in sunk costs incurred to date represents a meaningful expenditure. Nevertheless, for the reasons set forth herein, we believe that shelving the Transaction at this juncture — while preserving the optionality to relaunch — represents the most prudent course of action available to the Company.

2. Transaction Summary

For the benefit of the full Board, and to provide context for the analysis that follows, we briefly summarize the key features of the Transaction.

Structure Overview

The Transaction is structured as a Rule 144A / Regulation S private placement of three tranches of notes (collectively, the "Notes") issued by QRF 2022-1. QRF 2022-1 is a Delaware limited liability company organized as a bankruptcy-remote special purpose entity. Quorum Receivables Holding LLC ("QRH"), also a bankruptcy-remote Delaware limited liability company and a wholly owned subsidiary of QIH, serves as the intermediate transferor in the two-step true sale structure. Under the Transaction, QPF originates short-term insurance premium finance receivables in the ordinary course of its business and sells such receivables to QRH pursuant to a Receivables Sale Agreement. QRH, in turn, transfers such receivables to QRF 2022-1 pursuant to a Receivables Transfer Agreement. The Notes are secured by the pool of insurance premium finance receivables held by QRF 2022-1 and are payable solely from the cash flows generated by such receivables.

Capital Structure

The proposed capital structure of the Transaction is as follows:

Total credit enhancement for the Class A Notes is 25.0%, consisting of subordination from the Class B Notes (15.0%), subordination from the Class C Notes (7.0%), and overcollateralization / retained interest (3.0%). This level of credit enhancement was determined in consultation with Brindoval Ratings Inc. ("Brindoval") and Pinnacle Rating Services LLC ("Pinnacle") and is consistent with the credit enhancement levels observed in comparable insurance premium finance ABS transactions rated by those agencies.

Underlying Pool Characteristics

The underlying receivables pool, as of the cut-off date of June 30, 2022, had the following key characteristics:

• Initial Pool Balance: $612,000,000

• Number of Loans: Approximately 82,400

• Weighted Average APR: 7.85%

• Weighted Average Remaining Term: 5.7 months

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

The short weighted average life and historically low loss rates of QPF's insurance premium finance receivables portfolio have been key credit strengths of the Transaction and were positively received by both rating agencies during the rating process.

Key Structural Features

The Transaction incorporates the following key structural features:

• A 24-month revolving period during which QPF, as servicer, may direct the reinvestment of principal collections in new eligible receivables, subject to concentration limits and eligibility criteria set forth in the Indenture.

• A 12-month controlled amortization period following the revolving period, during which principal collections are applied to pay down the Notes in sequential order (Class A, then Class B, then Class C).

• A legal final maturity date of 42 months from the closing date, providing a six-month tail beyond the scheduled end of the amortization period to allow for the collection of any remaining receivables.

• A sequential payment waterfall governing the priority of distributions of interest and principal proceeds among the tranches.

• Performance-based early amortization triggers, including triggers based on net loss rates, delinquency ratios, and dilution rates.

Transaction Parties

The principal transaction parties, in addition to QIH, QPF, QRH, and QRF 2022-1, are as follows:

• Ridgeline Capital Markets LLC — Sole structuring agent, lead bookrunner, and placement agent.

• Calvoneth Trust Company, N.A. — Indenture trustee under the Indenture.

• Northvane Bank, N.A. — Back-up servicer and liquidity facility provider (with a committed liquidity facility of $25,000,000, available to cover senior note interest shortfalls and certain senior expenses during any servicer transition period).

• Calloway & Brandt LLP — Placement agent's counsel (representing Ridgeline).

• Ashfield & Greer LLP — Trustee's counsel (representing Calvoneth Trust Company, N.A.).

• Fortbridge Corporate Services LLC — Provider of independent managers for each of QRF 2022-1 and QRH.

• Veristead Analytics LLC — Third-party verification and data reconciliation agent for pool data and stratification tables.

3. Market Conditions and Spread Widening Analysis

The core basis for our recommendation to shelve the Transaction is the significant and sustained widening of credit spreads in the ABS market generally, and in the insurance premium finance ABS subsector specifically, that has occurred since the inception of the engagement. This section summarizes the relevant market data and presents the spread widening analysis.

3.1 Spreads at Transaction Launch

When this engagement was opened in late June 2022 and the preliminary term sheet was circulated to potential investors on July 18, 2022, the insurance premium finance ABS market was functioning in a relatively favorable environment for issuers. Comparable AAA-rated insurance premium finance ABS — including recent issuances by peer originators in the premium finance space — were trading in the secondary market at spreads of SOFR + 95 to 110 basis points. This range was consistent with the broader trend in short-duration, high-credit-quality consumer and commercial ABS that had prevailed through the first half of 2022, notwithstanding the Federal Reserve's initiation of its rate-hiking cycle in March 2022.

Based on these prevailing market conditions and in consultation with Ridgeline, the initial coupon guidance for the Transaction was set as follows:

• Class A Notes: SOFR + 125 basis points

• Class B Notes: SOFR + 210 basis points

• Class C Notes: SOFR + 375 basis points

These levels incorporated a new-issue concession relative to secondary market levels for seasoned paper, which is customary for a debut ABS issuer such as QRF 2022-1. The guidance levels were reviewed and confirmed by Ridgeline as achievable based on the market conditions prevailing at that time and the overall credit quality of the QPF receivables portfolio.

Importantly, the initial guidance levels were consistent with QIH's Board-approved cost-of-funds hurdle, which was established at the Board meeting of June 15, 2022 as an all-in weighted average cost ("WAC") not exceeding SOFR + 175 basis points across the three rated tranches. The Board established this hurdle as a firm constraint, reflecting the minimum spread at which the ABS funding would be economically attractive relative to QIH's alternative funding sources, including its existing senior secured credit facility with Northvane Bank.

3.2 Spread Movement Through H2 2022

Over the course of the structuring, documentation, and rating agency engagement period — spanning approximately July through October 2022 — credit spreads in the ABS market widened materially. This widening was driven by several interrelated macroeconomic and market factors, including:

• Rising Interest Rates. The Federal Reserve continued its aggressive rate-hiking cycle through the second half of 2022, raising the federal funds target rate by an additional 200 basis points between July and November 2022. The cumulative effect of these rate increases, together with the quantitative tightening program announced in June 2022, tightened financial conditions broadly and reduced investor demand for spread product.

• Macroeconomic Uncertainty. Concerns regarding the trajectory of inflation, the potential for a recession in 2023, and the uncertain path of monetary policy contributed to increased volatility in fixed-income markets and a risk-off posture among many institutional investors.

• Reduced Investor Appetite for Structured Credit. In the ABS market specifically, new-issue volumes declined significantly in the third quarter of 2022 relative to both the prior quarter and the year-ago period. Several planned ABS transactions across various asset classes were postponed or restructured due to unfavorable pricing conditions. Insurance premium finance ABS, while generally viewed as a high-credit-quality subsector, was not immune to these broader market dynamics.

• Supply-Demand Imbalance. A concentration of new ABS supply in October 2022, as issuers attempted to access the market ahead of the year-end window, exacerbated the spread widening by overwhelming the available demand from traditional ABS investors.

By early November 2022, comparable AAA-rated insurance premium finance ABS had widened to SOFR + 160 to 175 basis points — roughly 60 to 70 basis points wider than the levels prevailing at deal inception in late June and July 2022. Mezzanine and subordinated tranches experienced even more pronounced widening, consistent with the typical pattern in which lower-rated tranches bear a disproportionate share of spread volatility during periods of market stress.

3.3 Indicative Pricing Results (November 2, 2022)

The virtual investor roadshow for the Transaction commenced on October 24, 2022 and concluded on November 2, 2022. The roadshow consisted of 14 one-on-one and small-group investor meetings, as well as two broader webcast presentations. Investor feedback, while generally positive regarding the credit quality of the QPF platform and the structural features of the Transaction, reflected the challenging market environment described above.

Following the conclusion of the roadshow, indicative pricing was communicated to QIH and to this firm by Rebecca Tran, Managing Director, Insurance Finance ABS, at Ridgeline on November 2, 2022. The indicative pricing was as follows:

As reflected in the table above, the indicative pricing across all three rated tranches reflects a significant widening from the initial guidance levels. The Class A Notes widened by 43 basis points, while the Class B Notes and Class C Notes each widened by 75 basis points. The magnitude of the widening at the mezzanine and subordinated levels is consistent with the pattern observed across the broader ABS market during this period, as noted above.

It should be noted that the indicative pricing represents Ridgeline's assessment of the clearing levels at which the Notes could be placed with institutional investors in the current market environment. While it is possible that final pricing could be moderately tighter than the indicative levels if market conditions were to improve modestly in the days leading up to pricing, Ridgeline has advised that, in its judgment, the indicative levels are representative of the current market and should not be expected to tighten meaningfully absent a broader shift in investor sentiment toward structured credit.

3.4 All-In Weighted Average Cost Analysis

The critical metric for evaluating the Transaction's economic viability is the all-in weighted average cost of funds across the three rated tranches. The rated tranches constitute $485,000,000, or 97.0% of the total $500,000,000 issuance (the remaining 3.0% being the unrated overcollateralization / retained interest). The implied WAC at the indicative pricing levels is calculated as follows:

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

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

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

Total Implied WAC: approximately 200.25 bps over SOFR

The Board-approved cost-of-funds hurdle for this Transaction, as established at the Board meeting of June 15, 2022, is an all-in WAC not exceeding SOFR + 175 basis points across the rated tranches. The indicative WAC of approximately SOFR + 200.25 basis points exceeds this hurdle by 25.25 basis points. This exceedance is material in both absolute terms and in terms of its implications for the economic rationale of the Transaction, which was predicated on achieving a funding cost meaningfully below QIH's alternative sources of financing.

We note that even if credit spreads were to tighten modestly from the indicative levels — for example, by 10 to 15 basis points across all tranches — the resulting WAC would still be in the range of SOFR + 185 to 190 basis points, which would continue to exceed the Board-approved hurdle. Accordingly, absent a more substantial improvement in market conditions, or a material restructuring of the Transaction's capital structure or economics, the Transaction cannot be executed within the parameters approved by the Board.

4. Sunk Costs to Date

A critical consideration in the Board's decision-making process is the magnitude of costs already incurred in connection with the Transaction. We set forth below a detailed accounting of estimated sunk costs through the date of this letter. Total estimated sunk costs are approximately $2,555,000, broken down into the following categories.

4.1 Legal Fees (Calderwood & Harkness LLP)

Accrued legal fees of Calderwood & Harkness through November 2022 total approximately $1,950,000. The original total fee estimate at the time of engagement (per our engagement letter dated June 28, 2022) was $2,800,000 for all legal services through closing of the Transaction. The accrued fees represent approximately 69.6% of the original estimate.

The work completed by Calderwood & Harkness to date encompasses the full scope of legal services required to bring an ABS transaction to the point of closing-readiness, including:

• Structuring: Extensive work with QIH management, QPF, and Ridgeline on the design of the Transaction structure, including the two-step true sale architecture, the waterfall mechanics, the revolving pool features, and the credit enhancement framework.

• SPV Formation: Formation and organization of QRF 2022-1 (Delaware Secretary of State File No. 7894231) and QRH (Delaware Secretary of State File No. 7894228) as bankruptcy-remote special purpose entities, including the preparation and filing of certificates of formation, the drafting of limited liability company agreements, the engagement of Fortbridge Corporate Services LLC to provide independent managers, and the establishment of separateness covenants and organizational restrictions designed to support the entities' bankruptcy-remote status.

• Core Transaction Documents: Negotiation and drafting of all core transaction documents to near-final form, specifically:

(i) Indenture (version 4);

(ii) Receivables Sale Agreement (version 3);

(iii) Receivables Transfer Agreement (version 3);

(iv) Servicing Agreement (version 3);

(v) Note Purchase Agreement (version 3);

(vi) Back-Up Servicing Agreement (version 2);

(vii) Liquidity Facility Agreement (version 2);

(viii) Account Control Agreement (version 2);

(ix) Grant of Security Interest (version 2);

(x) Performance Guaranty (version 1);

(xi) Administration Agreement (version 2).

• Legal Opinions: Drafting of eight legal opinions, all of which are in draft form and were never finalized. These include the true sale opinion, the nonconsolidation opinion, the corporate authority opinion, the enforceability opinion, the UCC opinion, the tax opinion (prepared by Sylvia Hartwell of our Tax Practice Group), the Investment Company Act opinion, and the 10b-5 negative assurance letter.

• Offering Memorandum: Preparation of the Preliminary Offering Memorandum (version 3), including all disclosure regarding the originator, the servicer, the receivables pool, the Transaction structure, risk factors, tax considerations, and ERISA considerations.

• Rating Agency Engagement: Preparation of rating agency presentations and supporting materials for both Brindoval and Pinnacle, attendance at rating agency meetings, and response to rating agency information requests and follow-up inquiries.

• Regulatory Analysis: Preparation of memoranda addressing regulatory matters, including Dodd-Frank risk retention requirements (Section 941 / Regulation RR), SEC Regulation AB II considerations, and state insurance regulatory matters.

• Pool Diligence: Review and analysis of pool data, eligibility criteria, representations and warranties regarding the receivables, and coordination with Veristead Analytics LLC on third-party verification and data reconciliation.

• Roadshow Support: Assistance with the preparation of investor presentation materials and legal review of roadshow presentations.

4.2 Rating Agency Fees

Combined accrued fees paid or payable to the two rating agencies total approximately $420,000. These fees were incurred in connection with the following engagements:

• Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812): Brindoval issued its preliminary ratings for the Class A, Class B, and Class C Notes on August 22, 2022. The preliminary ratings remain in preliminary status and have not been confirmed as final ratings.

• Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347): Pinnacle issued its preliminary ratings for the Class A, Class B, and Class C Notes on August 29, 2022. The preliminary ratings remain in preliminary status and have not been confirmed as final ratings.

The rating agency fees cover the initial credit analysis, surveillance setup, model development, and the issuance of preliminary rating letters. Final rating fees, which would be incremental to the amounts described above, are contingent upon closing of the Transaction and would not be incurred if the Transaction is shelved.

4.3 Other Costs

Structuring, diligence, and miscellaneous costs incurred to date total approximately $185,000. These costs include:

• Fees payable to Veristead Analytics LLC for third-party verification of pool data, statistical sampling, and data reconciliation of the receivables tape against QPF's servicing system records.

• Structuring advisory costs incurred by Ridgeline in connection with its role as structuring agent, including capital structure modeling, credit enhancement optimization, and cash flow modeling.

• Ancillary expenses, including printing costs for preliminary offering materials, travel expenses associated with in-person rating agency meetings, and data room hosting costs.

4.4 Costs Not Yet Incurred

In evaluating the sunk cost analysis, the Board should also consider the significant costs that would be avoided if the Transaction is shelved at this juncture:

• Remaining Calderwood & Harkness Fees. Approximately $850,000 of the original $2,800,000 fee estimate remains unincurred. These fees relate primarily to the closing process itself, including finalization of all transaction documents, completion and delivery of the eight legal opinions, preparation of closing certificates and ancillary closing documents, and post-closing perfection and compliance work. These fees would not be incurred if the Transaction is shelved.

• Placement Fees. Placement fees payable to Ridgeline total $1,672,500 (calculated as 30 basis points on the Class A Notes ($1,125,000), 45 basis points on the Class B Notes ($337,500), and 60 basis points on the Class C Notes ($210,000)). These fees are entirely contingent upon closing of the Transaction and would not be owed if the Transaction does not close.

• Ongoing Transaction Costs. If the Transaction were to close, QRF 2022-1 would incur ongoing annual costs including the indenture trustee fee payable to Calvoneth Trust Company, N.A. ($35,000 per year), the back-up servicer fee payable to Northvane Bank, N.A. ($50,000 per year), and the liquidity facility commitment fee payable to Northvane Bank ($62,500 per year, calculated as 25 basis points per annum on the $25,000,000 commitment). None of these ongoing costs would commence if the Transaction is shelved.

The total avoided costs, inclusive of placement fees, remaining legal fees, and the first year of ongoing transaction costs, would be in excess of $2,670,000 — a figure that exceeds the total sunk costs incurred to date.

5. Analysis of Alternatives

We have considered three principal alternatives available to the Board at this juncture. We address each in turn.

5.1 Proceed at Current Spread Levels

The first alternative is to proceed with the Transaction at the indicative pricing levels communicated by Ridgeline on November 2, 2022. We do not recommend this course of action.

As demonstrated in Section 3.4 above, the indicative all-in WAC of approximately SOFR + 200.25 basis points materially exceeds the Board-approved cost-of-funds hurdle of SOFR + 175 basis points. Proceeding at current levels would require the Board to waive the cost-of-funds hurdle, which was established as a firm constraint reflecting the economic threshold below which ABS funding is advantageous relative to QIH's alternative sources of financing.

To put the impact of the spread widening in concrete terms: at the current pool balance of approximately $612,000,000 and assuming the full $500,000,000 issuance, the incremental annual cost of funding at an all-in WAC of 200.25 basis points versus the 175 basis point hurdle — a differential of 25.25 basis points — would be approximately $1,224,625 per year on $485,000,000 of rated notes. Over the 42-month maximum life of the Transaction (assuming full utilization of both the revolving and amortization periods), this incremental cost would aggregate to approximately $4.3 million, a figure that would substantially erode the economic rationale for the Transaction.

Moreover, proceeding at these levels would establish an unfavorable pricing precedent for QIH in the ABS market, which could adversely affect the pricing of any future securitization transactions by the Company.

5.2 Restructure the Transaction

The second alternative is to restructure the Transaction in an effort to bring the all-in WAC within the Board-approved hurdle. Potential restructuring options could include reducing the total issuance size (and thereby reducing the proportion of higher-cost mezzanine and subordinated tranches), increasing the level of overcollateralization, adjusting the relative sizing of the three rated tranches, or renegotiating placement fees and other transaction costs with Ridgeline and other counterparties.

While we have considered these options carefully, we do not believe that any feasible combination of restructuring measures would be sufficient to overcome the 25+ basis point breach of the cost-of-funds hurdle without introducing significant offsetting disadvantages. Specifically:

• Reducing Issuance Size. Reducing the issuance size would reduce total funding proceeds, potentially undermining the business purpose of the Transaction. QIH's stated objective was to raise $500,000,000 in ABS funding to diversify its liability structure and reduce its reliance on the senior secured credit facility. A materially smaller issuance may not achieve these objectives.

• Increasing Overcollateralization. Increasing OC would reduce the proportion of rated notes and thereby modestly reduce the WAC, but would also reduce net proceeds and would require QIH to retain additional exposure to the receivables pool. Moreover, any increase in OC would need to be evaluated in the context of the risk retention requirements under Dodd-Frank Section 941 and Regulation RR, which require the sponsor to retain an eligible horizontal residual interest of not less than 5% of the fair value of all ABS interests in the issuing entity. Changes to the OC level could alter the risk retention calculus and potentially require additional analysis and disclosure.

• Renegotiating Placement Fees. Total placement fees payable to Ridgeline are $1,672,500. Even if Ridgeline were willing to reduce its fees (which is uncertain), the maximum savings from a fee renegotiation would be modest relative to the $1.2 million per year incremental cost of the spread widening. A complete elimination of placement fees — which is unrealistic — would save only approximately 3.4 basis points of all-in WAC, which is wholly insufficient to bridge the 25.25 basis point gap.

In sum, the magnitude of the spread widening is such that restructuring measures alone are unlikely to bring the Transaction within acceptable economic parameters.

5.3 Shelve and Preserve Optionality (Recommended)

The third alternative, and the one we recommend, is to shelve the Transaction and place it in dormant status, while preserving all documentation, structural work, SPV entities, and preliminary ratings to enable an efficient and cost-effective relaunch when market conditions improve.

This approach offers several significant advantages:

• Avoids Locking in Unfavorable Economics. Shelving the Transaction avoids the risk of executing a transaction at a cost of funds that exceeds the Board-approved hurdle and that would impose meaningful incremental costs over the life of the deal.

• Preserves Optionality. By maintaining the SPV entities, documentation, and preliminary ratings in a ready state, the Company retains the ability to relaunch the Transaction on an expedited basis when spreads return to levels at or near the original guidance range (SOFR + 95 to 125 basis points for AAA-rated insurance premium finance ABS). This significantly reduces the time-to-market and cost of a future issuance.

• Maximizes the Value of Sunk Costs. The approximately $2,555,000 in sunk costs represents an investment in the infrastructure and documentation necessary for this Transaction. Shelving (rather than terminating) the Transaction preserves the value of this investment by enabling its application to a future offering. The incremental cost of reactivation — principally, the updating of pool data, refreshing of preliminary ratings, finalization of documents, and re-engagement of the investor base — is expected to be materially less than the cost of commencing a new transaction from scratch.

• Consistent with Market Practice. Shelving ABS transactions during periods of adverse market conditions is a well-established practice in the structured finance market. Several comparable ABS issuers have deferred or postponed planned transactions during the second half of 2022 in response to the same spread widening dynamics affecting this Transaction.

We note that there are certain risks associated with this approach, including the possibility that market conditions do not improve, or that the QPF receivables portfolio experiences changes in credit performance or composition that require more extensive updates to the Transaction structure and documentation upon relaunch. We address the steps recommended to mitigate these risks in the following section.

6. Recommended Steps to Preserve Optionality for Future Relaunch

If the Board elects to adopt our recommendation and shelve the Transaction, we recommend that the following steps be taken to preserve the work product, structural infrastructure, and counterparty relationships developed in connection with the Transaction, thereby facilitating an efficient relaunch at the appropriate time.

6.1 Documentation Preservation

All transaction documents — including the Indenture (version 4), Receivables Sale Agreement (version 3), Receivables Transfer Agreement (version 3), Servicing Agreement (version 3), Note Purchase Agreement (version 3), Back-Up Servicing Agreement (version 2), Liquidity Facility Agreement (version 2), Account Control Agreement (version 2), Grant of Security Interest (version 2), Performance Guaranty (version 1), and Administration Agreement (version 2) — will be preserved by Calderwood & Harkness in near-final execution draft form. These documents represent the product of extensive negotiation among QIH, Ridgeline, Calvoneth Trust, Northvane Bank, and the other transaction parties, and embody the structural and legal framework of the Transaction in substantially complete form.

All eight draft legal opinions will be maintained on file at Calderwood & Harkness. Upon relaunch, these opinions can be updated and finalized with relatively modest additional work, principally consisting of conforming changes to reflect any updates to the underlying documents, the refreshed pool data, and any intervening changes in applicable law.

The Preliminary Offering Memorandum (version 3) and all investor presentation materials prepared for the roadshow will be archived for use as baseline materials in any future offering. Upon relaunch, these materials would need to be updated to reflect current pool data, updated market conditions and pricing, refreshed financial statements and disclosures of QIH and QPF, and any other changes in material information. The scope of these updates will depend on the elapsed time between the date of shelving and the date of relaunch.

Calderwood & Harkness will maintain all working files, research memoranda, regulatory analyses, and correspondence related to this engagement in its document management system, indexed under Matter No. 1025-00007, for a period of not less than ten years.

6.2 SPV Maintenance

QRF 2022-1 (Delaware Secretary of State File No. 7894231) and QRH (Delaware Secretary of State File No. 7894228) should be maintained in good standing with the Delaware Secretary of State. Both entities were formed specifically for use in this Transaction and represent essential elements of the bankruptcy-remote, true-sale structure that is a prerequisite for the securitization.

The independent manager agreements with Fortbridge Corporate Services LLC should remain in effect. Timothy R. Callan currently serves as independent manager of QRF 2022-1, and Eleanor M. Vasquez currently serves as independent manager of QRH. The continuation of these arrangements ensures the ongoing enforceability of the separateness covenants and the bankruptcy-remoteness representations applicable to each entity.

The annual maintenance costs associated with preserving these entities in good standing are minimal. They consist primarily of Delaware franchise taxes (currently $300 per entity per year for LLCs with no separately stated Delaware income) and registered agent fees payable to Ashgrove Services Inc. (the registered agent for both entities in Delaware). We estimate total annual SPV maintenance costs at approximately $2,500 to $3,500 per year for both entities combined, inclusive of independent manager fees.

6.3 Rating Agency Engagement

Calderwood & Harkness recommends that QIH maintain periodic communication with Brindoval Ratings (through Andrew Petrosian, Senior Director, Insurance Finance ABS) and Pinnacle Rating Services (through Monica Sung, Vice President, Structured Finance) to preserve the preliminary ratings issued by each agency and to facilitate expedited reconfirmation of those ratings upon relaunch.

The preliminary ratings issued by Brindoval (on August 22, 2022) and Pinnacle (on August 29, 2022) remain in effect but are subject to certain limitations. Specifically, preliminary ratings are typically valid for a limited period (generally six to twelve months from issuance, depending on the agency's policies) and may be subject to reconfirmation if the underlying pool composition, credit performance, or structural features of the Transaction change materially. If more than approximately twelve months pass before reactivation, the preliminary ratings may need to be formally refreshed, which could involve updated credit analysis, revised pool stratification data, and potentially updated cash flow modeling. However, the incremental effort and cost of refreshing existing preliminary ratings is significantly less than that of conducting an entirely new rating process.

We recommend that QIH designate a member of its treasury or finance team to participate in quarterly or semi-annual check-in calls with each agency's surveillance group, providing updated portfolio performance data and addressing any questions the agencies may have regarding the receivables portfolio.

6.4 Notification to Counterparties

Upon the Board's authorization, Calderwood & Harkness will formally notify the following counterparties of the Transaction suspension and the cessation of investor marketing activities:

• Ridgeline Capital Markets LLC — Julian Weatherstone, Managing Director and Head of ABS Origination, will be advised that the Transaction is being placed on hold and that all investor marketing and pricing activities should cease. We will discuss with Ridgeline the terms on which the engagement can be reactivated in the future and will seek to obtain Ridgeline's agreement to serve as placement agent for any relaunched transaction on terms substantially similar to those set forth in the existing engagement letter.

• Calvoneth Trust Company, N.A. — Gerald K. Fontaine, Senior Vice President, Corporate Trust, will be notified that the Transaction is being shelved and that Haverford's engagement as indenture trustee is on hold. We will confirm with Haverford that no ongoing trustee fees will be charged during the dormancy period, as the Indenture has not been executed and no Notes have been issued.

• Northvane Bank, N.A. — Diane Coletti, Executive Vice President, Structured Finance, will be notified that the Transaction is being shelved and that the Back-Up Servicing Agreement and Liquidity Facility Agreement will not be executed at this time. We will discuss with Northvane the terms on which these arrangements can be reinstated upon relaunch.

• Calloway & Brandt LLP — Harrison Collier, Partner, will be advised that the engagement of Calloway & Brandt as placement agent's counsel is on hold pending further notice.

• Ashfield & Greer LLP — Vivian Sato, Partner, will be advised that the engagement of Ashfield & Greer as trustee's counsel is on hold pending further notice.

All notifications will be drafted by Calderwood & Harkness for review and approval by QIH's General Counsel prior to delivery.

6.5 UCC Filings

As part of the closing mechanics for the Transaction, three UCC-1 financing statements were prepared in draft form to perfect the security interests granted in the receivables at each stage of the two-step true sale structure and the pledge to the indenture trustee:

(i) QPF (debtor) / QRH (secured party) — perfecting the sale of receivables from QPF to QRH under the Receivables Sale Agreement;

(ii) QRH (debtor) / QRF 2022-1 (secured party) — perfecting the transfer of receivables from QRH to QRF 2022-1 under the Receivables Transfer Agreement; and

(iii) QRF 2022-1 (debtor) / Calvoneth Trust Company, N.A. (secured party) — perfecting the grant of a security interest in the receivables and related assets to the indenture trustee under the Indenture.

None of these UCC-1 financing statements were filed with the Delaware Secretary of State, as filing was scheduled to occur concurrently with or immediately prior to the closing of the Transaction. The draft financing statements will be preserved in their current form and will require no action during the dormancy period. Upon relaunch, the financing statements would be reviewed, updated as necessary (including to reflect updated debtor and secured party information, if any, and updated collateral descriptions), and filed as a condition precedent to closing.

6.6 Servicer and Pool Data

QPF, as originator and servicer of the insurance premium finance receivables, should continue to maintain comprehensive portfolio-level data and historical performance statistics for its insurance premium finance receivables portfolio during the dormancy period. Sandra Ling-Hwang, Manager of QPF and Treasurer of QIH, should ensure that the following data is maintained and updated on a monthly basis:

• Portfolio-level stratification data, including breakdowns by policy type, state of origination, premium amount, APR, remaining term, and borrower type (personal vs. commercial lines).

• Monthly performance statistics, including delinquency rates (30-day, 60-day, 90-day, and 90+ day), net loss rates, prepayment rates, and dilution rates.

• Origination volumes and portfolio composition trends.

This data will be essential for facilitating an updated pool stratification analysis upon reactivation and for supporting the refreshed rating agency analysis described in Section 6.3 above. The current pool cut-off date of June 30, 2022 would need to be reset upon relaunch to reflect a more recent snapshot of the portfolio, and a new third-party verification by Veristead Analytics LLC (or a comparable verification agent) would likely be required to provide comfort to investors and rating agencies regarding the accuracy and completeness of the updated pool data.

7. Recommendation

Based on the foregoing analysis, Calderwood & Harkness LLP respectfully recommends that the Board of Directors of Quorum Insurance Holdings Corp. authorize the shelving of the $500,000,000 QRF 2022-1 insurance premium finance asset-backed securities offering effective immediately.

Specifically, we recommend that the Transaction be placed in dormant status, with all documentation, SPV structures, and preliminary ratings preserved in accordance with the steps described in Section 6 of this letter, to enable reactivation at the earliest practical date when market conditions improve to levels that would permit execution within the Board-approved cost-of-funds parameters.

The total sunk costs of approximately $2,555,000, while not insignificant in absolute terms, represent a manageable investment relative to QIH's scale (fiscal year 2021 consolidated revenue of $3.8 billion) and, more importantly, relative to the potential economic benefit of a well-timed future execution. A successfully executed Transaction at spreads consistent with the original guidance range would generate meaningful funding cost savings for QIH and would establish the Company as a participant in the ABS market, with the attendant benefits of funding diversification, balance sheet optimization, and access to a deep and liquid capital market for future issuances.

Calderwood & Harkness stands ready to execute the recommended preservation steps upon the Board's direction and to reactivate this engagement promptly when market conditions warrant. We would be pleased to present this analysis to the full Board at its next scheduled meeting or at a special session convened for this purpose, and to answer any questions the Board may have regarding the matters addressed in this letter.

8. Closing Matters

This letter is provided for the information of the Board of Directors of Quorum Insurance Holdings Corp. and is not intended as, and should not be construed as, investment advice or a recommendation regarding any particular course of action beyond the legal and structural preservation steps described herein. Calderwood & Harkness is engaged as legal counsel to QIH in connection with this Transaction; we are not acting as a financial advisor, and the Board should consult with its financial advisors and other advisors as it deems appropriate in connection with any decision regarding the future of the Transaction.

Any decision to proceed with, shelve, or terminate the Transaction is ultimately a business judgment of the Board, to be made in the exercise of its fiduciary duties and in light of all relevant facts and circumstances, including factors beyond those addressed in this letter. We express no opinion on the business merits of any particular course of action.

Calderwood & Harkness will continue to treat all matter-related information, including the contents of this letter and all work product generated in connection with the Transaction, as privileged and confidential in accordance with our engagement letter and applicable rules of professional conduct.

We respectfully request that the Board communicate its decision at its earliest convenience so that Calderwood & Harkness may take the appropriate notification and preservation steps described in Section 6 of this letter in a timely manner. In particular, prompt notification to Ridgeline of the Transaction suspension is advisable to avoid any further investor marketing activity or unnecessary expenditure of resources by the placement agent.

Upon receipt of the Board's authorization to shelve the Transaction, this matter will be coded as dormant on Calderwood & Harkness's internal matter management system effective immediately. Interim billing for all accrued and unbilled legal fees through December 15, 2022 will follow separately under cover of a standard billing transmittal letter.

•

We appreciate the Board's attention to this matter and the confidence that QIH has placed in Calderwood & Harkness throughout this engagement. We remain committed to the success of this Transaction and look forward to working with the Company on its relaunch at the appropriate time.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Carmichael, Partner Responsible Partner, Matter No. 1025-00007

cc:

Sandra Ling-Hwang, Treasurer, Quorum Insurance Holdings Corp. / Manager, Quorum Premium Finance LLC

Francesca Morano, Partner, Calderwood & Harkness LLP

Yuki Nakamura, Associate, Calderwood & Harkness LLP

Sylvia Hartwell, Partner (Tax), Calderwood & Harkness LLP

Encl: Memorandum on Market Conditions and Spread Analysis dated November 7, 2022

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION This letter and any attachments are privileged and confidential communications from Calderwood & Harkness LLP to the Board of Directors of Quorum Insurance Holdings Corp. in connection with the firm's representation of QIH. This letter is not intended for distribution to, or reliance by, any third party without the prior written consent of Calderwood & Harkness LLP.

Tranche	Principal Amount	% of Total	Preliminary Rating (Brindoval)	Preliminary Rating (Pinnacle)
Class A Notes	$375,000,000	75.0%	AAA(cr)	Aaa(p)
Class B Notes	$75,000,000	15.0%	A(cr)	A1(p)
Class C Notes	$35,000,000	7.0%	BBB(cr)	Baa2(p)
OC / Retained Interest	$15,000,000	3.0%	Unrated	Unrated
Total	$500,000,000	100.0%
Tranche	Initial Guidance	Indicative Pricing (Nov. 2)	Widening
Class A Notes	SOFR + 125 bps	SOFR + 168 bps	+43 bps
Class B Notes	SOFR + 210 bps	SOFR + 285 bps	+75 bps
Class C Notes	SOFR + 375 bps	SOFR + 450 bps	+75 bps

CALDERWOOD & HARKNESS LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
November 10, 2022
Board of Directors Quorum Insurance Holdings Corp. 400 Atlantic Street, Suite 2200 Stamford, Connecticut 06901
Attention: Marcus Devereaux, Chief Executive Officer Priya Raghavan, Chief Financial Officer Nolan Whitford, General Counsel
Re: Quorum Receivables Funding 2022-1 LLC — $500,000,000 Insurance Premium Finance Asset-Backed Securities Offering Calderwood & Harkness Matter No. 1025-00007 Ridgeline Deal ID: RCM-IPF-2022-0041
Dear Members of the Board:
1. Introduction and Purpose of Letter
Calderwood & Harkness LLP ("Calderwood & Harkness" or "we") serves as issuer's counsel to Quorum Insurance Holdings Corp. ("QIH" or the "Company") and its subsidiaries in connection with the proposed $500,000,000 asset-backed securities issuance (the "Transaction") by Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1"), a bankruptcy-remote Delaware limited liability company and special purpose entity formed for the sole purpose of acquiring and holding insurance premium finance receivables originated by Quorum Premium Finance LLC ("QPF"), a wholly owned subsidiary of QIH. We have been engaged in connection with this matter since late June 2022 and have worked closely with the Company's management team, the structuring agent and lead bookrunner, Ridgeline Capital Markets LLC ("Ridgeline"), the rating agencies, and the other transaction parties to bring this offering to market readiness.
The purpose of this letter is fourfold. First, we summarize the current state of the credit markets as they pertain to the insurance premium finance asset-backed securities ("ABS") sector. Second, we present the results of the spread widening analysis prepared by Calderwood & Harkness in consultation with Ridgeline on November 7, 2022, which demonstrates the material deterioration in indicative pricing relative to the levels contemplated at the inception of the engagement. Third, we quantify the sunk costs incurred to date in connection with the Transaction. Fourth, and most significantly, we provide our recommendation that the Transaction be shelved pending improved market conditions, together with a detailed set of steps designed to preserve the substantial work product and structural infrastructure that has been developed, thereby enabling an efficient and cost-effective relaunch at such time as market conditions improve.
This letter is being provided for the Board's consideration in connection with its decision regarding the future of the Transaction. As the Board is aware, the virtual investor roadshow for the offering commenced on October 24, 2022 and concluded on November 2, 2022. Following the conclusion of the roadshow, Ridgeline communicated indicative pricing to QIH and to this firm on November 2, 2022. As set forth in greater detail in Section 3 below, that indicative pricing reflects a significant widening in credit spreads across all three rated tranches of the proposed capital structure, resulting in an all-in weighted average cost of funds that materially exceeds the Board-approved cost-of-funds hurdle. The enclosed Memorandum on Market Conditions and Spread Analysis dated November 7, 2022, prepared by this firm, provides additional supporting data and analysis.
We recognize that the Board has invested considerable time and management attention in this Transaction, and that the approximately $2,555,000 in sunk costs incurred to date represents a meaningful expenditure. Nevertheless, for the reasons set forth herein, we believe that shelving the Transaction at this juncture — while preserving the optionality to relaunch — represents the most prudent course of action available to the Company.
2. Transaction Summary
For the benefit of the full Board, and to provide context for the analysis that follows, we briefly summarize the key features of the Transaction.
Structure Overview
The Transaction is structured as a Rule 144A / Regulation S private placement of three tranches of notes (collectively, the "Notes") issued by QRF 2022-1. QRF 2022-1 is a Delaware limited liability company organized as a bankruptcy-remote special purpose entity. Quorum Receivables Holding LLC ("QRH"), also a bankruptcy-remote Delaware limited liability company and a wholly owned subsidiary of QIH, serves as the intermediate transferor in the two-step true sale structure. Under the Transaction, QPF originates short-term insurance premium finance receivables in the ordinary course of its business and sells such receivables to QRH pursuant to a Receivables Sale Agreement. QRH, in turn, transfers such receivables to QRF 2022-1 pursuant to a Receivables Transfer Agreement. The Notes are secured by the pool of insurance premium finance receivables held by QRF 2022-1 and are payable solely from the cash flows generated by such receivables.
Capital Structure
The proposed capital structure of the Transaction is as follows:
Total credit enhancement for the Class A Notes is 25.0%, consisting of subordination from the Class B Notes (15.0%), subordination from the Class C Notes (7.0%), and overcollateralization / retained interest (3.0%). This level of credit enhancement was determined in consultation with Brindoval Ratings Inc. ("Brindoval") and Pinnacle Rating Services LLC ("Pinnacle") and is consistent with the credit enhancement levels observed in comparable insurance premium finance ABS transactions rated by those agencies.
Underlying Pool Characteristics
The underlying receivables pool, as of the cut-off date of June 30, 2022, had the following key characteristics:
• Initial Pool Balance: $612,000,000
• Number of Loans: Approximately 82,400
• Weighted Average APR: 7.85%
• Weighted Average Remaining Term: 5.7 months
• Historical Net Loss Rate (2019–2021 Average): 0.42%
The short weighted average life and historically low loss rates of QPF's insurance premium finance receivables portfolio have been key credit strengths of the Transaction and were positively received by both rating agencies during the rating process.
Key Structural Features
The Transaction incorporates the following key structural features:
• A 24-month revolving period during which QPF, as servicer, may direct the reinvestment of principal collections in new eligible receivables, subject to concentration limits and eligibility criteria set forth in the Indenture.
• A 12-month controlled amortization period following the revolving period, during which principal collections are applied to pay down the Notes in sequential order (Class A, then Class B, then Class C).
• A legal final maturity date of 42 months from the closing date, providing a six-month tail beyond the scheduled end of the amortization period to allow for the collection of any remaining receivables.
• A sequential payment waterfall governing the priority of distributions of interest and principal proceeds among the tranches.
• Performance-based early amortization triggers, including triggers based on net loss rates, delinquency ratios, and dilution rates.
Transaction Parties
The principal transaction parties, in addition to QIH, QPF, QRH, and QRF 2022-1, are as follows:
• Ridgeline Capital Markets LLC — Sole structuring agent, lead bookrunner, and placement agent.
• Calvoneth Trust Company, N.A. — Indenture trustee under the Indenture.
• Northvane Bank, N.A. — Back-up servicer and liquidity facility provider (with a committed liquidity facility of $25,000,000, available to cover senior note interest shortfalls and certain senior expenses during any servicer transition period).
• Calloway & Brandt LLP — Placement agent's counsel (representing Ridgeline).
• Ashfield & Greer LLP — Trustee's counsel (representing Calvoneth Trust Company, N.A.).
• Fortbridge Corporate Services LLC — Provider of independent managers for each of QRF 2022-1 and QRH.
• Veristead Analytics LLC — Third-party verification and data reconciliation agent for pool data and stratification tables.
3. Market Conditions and Spread Widening Analysis
The core basis for our recommendation to shelve the Transaction is the significant and sustained widening of credit spreads in the ABS market generally, and in the insurance premium finance ABS subsector specifically, that has occurred since the inception of the engagement. This section summarizes the relevant market data and presents the spread widening analysis.
3.1 Spreads at Transaction Launch
When this engagement was opened in late June 2022 and the preliminary term sheet was circulated to potential investors on July 18, 2022, the insurance premium finance ABS market was functioning in a relatively favorable environment for issuers. Comparable AAA-rated insurance premium finance ABS — including recent issuances by peer originators in the premium finance space — were trading in the secondary market at spreads of SOFR + 95 to 110 basis points. This range was consistent with the broader trend in short-duration, high-credit-quality consumer and commercial ABS that had prevailed through the first half of 2022, notwithstanding the Federal Reserve's initiation of its rate-hiking cycle in March 2022.
Based on these prevailing market conditions and in consultation with Ridgeline, the initial coupon guidance for the Transaction was set as follows:
• Class A Notes: SOFR + 125 basis points
• Class B Notes: SOFR + 210 basis points
• Class C Notes: SOFR + 375 basis points
These levels incorporated a new-issue concession relative to secondary market levels for seasoned paper, which is customary for a debut ABS issuer such as QRF 2022-1. The guidance levels were reviewed and confirmed by Ridgeline as achievable based on the market conditions prevailing at that time and the overall credit quality of the QPF receivables portfolio.
Importantly, the initial guidance levels were consistent with QIH's Board-approved cost-of-funds hurdle, which was established at the Board meeting of June 15, 2022 as an all-in weighted average cost ("WAC") not exceeding SOFR + 175 basis points across the three rated tranches. The Board established this hurdle as a firm constraint, reflecting the minimum spread at which the ABS funding would be economically attractive relative to QIH's alternative funding sources, including its existing senior secured credit facility with Northvane Bank.
3.2 Spread Movement Through H2 2022
Over the course of the structuring, documentation, and rating agency engagement period — spanning approximately July through October 2022 — credit spreads in the ABS market widened materially. This widening was driven by several interrelated macroeconomic and market factors, including:
• Rising Interest Rates. The Federal Reserve continued its aggressive rate-hiking cycle through the second half of 2022, raising the federal funds target rate by an additional 200 basis points between July and November 2022. The cumulative effect of these rate increases, together with the quantitative tightening program announced in June 2022, tightened financial conditions broadly and reduced investor demand for spread product.
• Macroeconomic Uncertainty. Concerns regarding the trajectory of inflation, the potential for a recession in 2023, and the uncertain path of monetary policy contributed to increased volatility in fixed-income markets and a risk-off posture among many institutional investors.
• Reduced Investor Appetite for Structured Credit. In the ABS market specifically, new-issue volumes declined significantly in the third quarter of 2022 relative to both the prior quarter and the year-ago period. Several planned ABS transactions across various asset classes were postponed or restructured due to unfavorable pricing conditions. Insurance premium finance ABS, while generally viewed as a high-credit-quality subsector, was not immune to these broader market dynamics.
• Supply-Demand Imbalance. A concentration of new ABS supply in October 2022, as issuers attempted to access the market ahead of the year-end window, exacerbated the spread widening by overwhelming the available demand from traditional ABS investors.
By early November 2022, comparable AAA-rated insurance premium finance ABS had widened to SOFR + 160 to 175 basis points — roughly 60 to 70 basis points wider than the levels prevailing at deal inception in late June and July 2022. Mezzanine and subordinated tranches experienced even more pronounced widening, consistent with the typical pattern in which lower-rated tranches bear a disproportionate share of spread volatility during periods of market stress.
3.3 Indicative Pricing Results (November 2, 2022)
The virtual investor roadshow for the Transaction commenced on October 24, 2022 and concluded on November 2, 2022. The roadshow consisted of 14 one-on-one and small-group investor meetings, as well as two broader webcast presentations. Investor feedback, while generally positive regarding the credit quality of the QPF platform and the structural features of the Transaction, reflected the challenging market environment described above.
Following the conclusion of the roadshow, indicative pricing was communicated to QIH and to this firm by Rebecca Tran, Managing Director, Insurance Finance ABS, at Ridgeline on November 2, 2022. The indicative pricing was as follows:
As reflected in the table above, the indicative pricing across all three rated tranches reflects a significant widening from the initial guidance levels. The Class A Notes widened by 43 basis points, while the Class B Notes and Class C Notes each widened by 75 basis points. The magnitude of the widening at the mezzanine and subordinated levels is consistent with the pattern observed across the broader ABS market during this period, as noted above.
It should be noted that the indicative pricing represents Ridgeline's assessment of the clearing levels at which the Notes could be placed with institutional investors in the current market environment. While it is possible that final pricing could be moderately tighter than the indicative levels if market conditions were to improve modestly in the days leading up to pricing, Ridgeline has advised that, in its judgment, the indicative levels are representative of the current market and should not be expected to tighten meaningfully absent a broader shift in investor sentiment toward structured credit.
3.4 All-In Weighted Average Cost Analysis
The critical metric for evaluating the Transaction's economic viability is the all-in weighted average cost of funds across the three rated tranches. The rated tranches constitute $485,000,000, or 97.0% of the total $500,000,000 issuance (the remaining 3.0% being the unrated overcollateralization / retained interest). The implied WAC at the indicative pricing levels is calculated as follows:
Class A Contribution: 75.0% × 168 bps = 126.00 bps
Class B Contribution: 15.0% × 285 bps = 42.75 bps
Class C Contribution: 7.0% × 450 bps = 31.50 bps
Total Implied WAC: approximately 200.25 bps over SOFR
The Board-approved cost-of-funds hurdle for this Transaction, as established at the Board meeting of June 15, 2022, is an all-in WAC not exceeding SOFR + 175 basis points across the rated tranches. The indicative WAC of approximately SOFR + 200.25 basis points exceeds this hurdle by 25.25 basis points. This exceedance is material in both absolute terms and in terms of its implications for the economic rationale of the Transaction, which was predicated on achieving a funding cost meaningfully below QIH's alternative sources of financing.
We note that even if credit spreads were to tighten modestly from the indicative levels — for example, by 10 to 15 basis points across all tranches — the resulting WAC would still be in the range of SOFR + 185 to 190 basis points, which would continue to exceed the Board-approved hurdle. Accordingly, absent a more substantial improvement in market conditions, or a material restructuring of the Transaction's capital structure or economics, the Transaction cannot be executed within the parameters approved by the Board.
4. Sunk Costs to Date
A critical consideration in the Board's decision-making process is the magnitude of costs already incurred in connection with the Transaction. We set forth below a detailed accounting of estimated sunk costs through the date of this letter. Total estimated sunk costs are approximately $2,555,000, broken down into the following categories.
4.1 Legal Fees (Calderwood & Harkness LLP)
Accrued legal fees of Calderwood & Harkness through November 2022 total approximately $1,950,000. The original total fee estimate at the time of engagement (per our engagement letter dated June 28, 2022) was $2,800,000 for all legal services through closing of the Transaction. The accrued fees represent approximately 69.6% of the original estimate.
The work completed by Calderwood & Harkness to date encompasses the full scope of legal services required to bring an ABS transaction to the point of closing-readiness, including:
• Structuring: Extensive work with QIH management, QPF, and Ridgeline on the design of the Transaction structure, including the two-step true sale architecture, the waterfall mechanics, the revolving pool features, and the credit enhancement framework.
• SPV Formation: Formation and organization of QRF 2022-1 (Delaware Secretary of State File No. 7894231) and QRH (Delaware Secretary of State File No. 7894228) as bankruptcy-remote special purpose entities, including the preparation and filing of certificates of formation, the drafting of limited liability company agreements, the engagement of Fortbridge Corporate Services LLC to provide independent managers, and the establishment of separateness covenants and organizational restrictions designed to support the entities' bankruptcy-remote status.
• Core Transaction Documents: Negotiation and drafting of all core transaction documents to near-final form, specifically:
(i) Indenture (version 4);
(ii) Receivables Sale Agreement (version 3);
(iii) Receivables Transfer Agreement (version 3);
(iv) Servicing Agreement (version 3);
(v) Note Purchase Agreement (version 3);
(vi) Back-Up Servicing Agreement (version 2);
(vii) Liquidity Facility Agreement (version 2);
(viii) Account Control Agreement (version 2);
(ix) Grant of Security Interest (version 2);
(x) Performance Guaranty (version 1);
(xi) Administration Agreement (version 2).
• Legal Opinions: Drafting of eight legal opinions, all of which are in draft form and were never finalized. These include the true sale opinion, the nonconsolidation opinion, the corporate authority opinion, the enforceability opinion, the UCC opinion, the tax opinion (prepared by Sylvia Hartwell of our Tax Practice Group), the Investment Company Act opinion, and the 10b-5 negative assurance letter.
• Offering Memorandum: Preparation of the Preliminary Offering Memorandum (version 3), including all disclosure regarding the originator, the servicer, the receivables pool, the Transaction structure, risk factors, tax considerations, and ERISA considerations.
• Rating Agency Engagement: Preparation of rating agency presentations and supporting materials for both Brindoval and Pinnacle, attendance at rating agency meetings, and response to rating agency information requests and follow-up inquiries.
• Regulatory Analysis: Preparation of memoranda addressing regulatory matters, including Dodd-Frank risk retention requirements (Section 941 / Regulation RR), SEC Regulation AB II considerations, and state insurance regulatory matters.
• Pool Diligence: Review and analysis of pool data, eligibility criteria, representations and warranties regarding the receivables, and coordination with Veristead Analytics LLC on third-party verification and data reconciliation.
• Roadshow Support: Assistance with the preparation of investor presentation materials and legal review of roadshow presentations.
4.2 Rating Agency Fees
Combined accrued fees paid or payable to the two rating agencies total approximately $420,000. These fees were incurred in connection with the following engagements:
• Brindoval Ratings Inc. (Engagement No. CR-SF-2022-08812): Brindoval issued its preliminary ratings for the Class A, Class B, and Class C Notes on August 22, 2022. The preliminary ratings remain in preliminary status and have not been confirmed as final ratings.
• Pinnacle Rating Services LLC (Engagement No. PRS-2022-ABS-3347): Pinnacle issued its preliminary ratings for the Class A, Class B, and Class C Notes on August 29, 2022. The preliminary ratings remain in preliminary status and have not been confirmed as final ratings.
The rating agency fees cover the initial credit analysis, surveillance setup, model development, and the issuance of preliminary rating letters. Final rating fees, which would be incremental to the amounts described above, are contingent upon closing of the Transaction and would not be incurred if the Transaction is shelved.
4.3 Other Costs
Structuring, diligence, and miscellaneous costs incurred to date total approximately $185,000. These costs include:
• Fees payable to Veristead Analytics LLC for third-party verification of pool data, statistical sampling, and data reconciliation of the receivables tape against QPF's servicing system records.
• Structuring advisory costs incurred by Ridgeline in connection with its role as structuring agent, including capital structure modeling, credit enhancement optimization, and cash flow modeling.
• Ancillary expenses, including printing costs for preliminary offering materials, travel expenses associated with in-person rating agency meetings, and data room hosting costs.
4.4 Costs Not Yet Incurred
In evaluating the sunk cost analysis, the Board should also consider the significant costs that would be avoided if the Transaction is shelved at this juncture:
• Remaining Calderwood & Harkness Fees. Approximately $850,000 of the original $2,800,000 fee estimate remains unincurred. These fees relate primarily to the closing process itself, including finalization of all transaction documents, completion and delivery of the eight legal opinions, preparation of closing certificates and ancillary closing documents, and post-closing perfection and compliance work. These fees would not be incurred if the Transaction is shelved.
• Placement Fees. Placement fees payable to Ridgeline total $1,672,500 (calculated as 30 basis points on the Class A Notes ($1,125,000), 45 basis points on the Class B Notes ($337,500), and 60 basis points on the Class C Notes ($210,000)). These fees are entirely contingent upon closing of the Transaction and would not be owed if the Transaction does not close.
• Ongoing Transaction Costs. If the Transaction were to close, QRF 2022-1 would incur ongoing annual costs including the indenture trustee fee payable to Calvoneth Trust Company, N.A. ($35,000 per year), the back-up servicer fee payable to Northvane Bank, N.A. ($50,000 per year), and the liquidity facility commitment fee payable to Northvane Bank ($62,500 per year, calculated as 25 basis points per annum on the $25,000,000 commitment). None of these ongoing costs would commence if the Transaction is shelved.
The total avoided costs, inclusive of placement fees, remaining legal fees, and the first year of ongoing transaction costs, would be in excess of $2,670,000 — a figure that exceeds the total sunk costs incurred to date.
5. Analysis of Alternatives
We have considered three principal alternatives available to the Board at this juncture. We address each in turn.
5.1 Proceed at Current Spread Levels
The first alternative is to proceed with the Transaction at the indicative pricing levels communicated by Ridgeline on November 2, 2022. We do not recommend this course of action.
As demonstrated in Section 3.4 above, the indicative all-in WAC of approximately SOFR + 200.25 basis points materially exceeds the Board-approved cost-of-funds hurdle of SOFR + 175 basis points. Proceeding at current levels would require the Board to waive the cost-of-funds hurdle, which was established as a firm constraint reflecting the economic threshold below which ABS funding is advantageous relative to QIH's alternative sources of financing.
To put the impact of the spread widening in concrete terms: at the current pool balance of approximately $612,000,000 and assuming the full $500,000,000 issuance, the incremental annual cost of funding at an all-in WAC of 200.25 basis points versus the 175 basis point hurdle — a differential of 25.25 basis points — would be approximately $1,224,625 per year on $485,000,000 of rated notes. Over the 42-month maximum life of the Transaction (assuming full utilization of both the revolving and amortization periods), this incremental cost would aggregate to approximately $4.3 million, a figure that would substantially erode the economic rationale for the Transaction.
Moreover, proceeding at these levels would establish an unfavorable pricing precedent for QIH in the ABS market, which could adversely affect the pricing of any future securitization transactions by the Company.
5.2 Restructure the Transaction
The second alternative is to restructure the Transaction in an effort to bring the all-in WAC within the Board-approved hurdle. Potential restructuring options could include reducing the total issuance size (and thereby reducing the proportion of higher-cost mezzanine and subordinated tranches), increasing the level of overcollateralization, adjusting the relative sizing of the three rated tranches, or renegotiating placement fees and other transaction costs with Ridgeline and other counterparties.
While we have considered these options carefully, we do not believe that any feasible combination of restructuring measures would be sufficient to overcome the 25+ basis point breach of the cost-of-funds hurdle without introducing significant offsetting disadvantages. Specifically:
• Reducing Issuance Size. Reducing the issuance size would reduce total funding proceeds, potentially undermining the business purpose of the Transaction. QIH's stated objective was to raise $500,000,000 in ABS funding to diversify its liability structure and reduce its reliance on the senior secured credit facility. A materially smaller issuance may not achieve these objectives.
• Increasing Overcollateralization. Increasing OC would reduce the proportion of rated notes and thereby modestly reduce the WAC, but would also reduce net proceeds and would require QIH to retain additional exposure to the receivables pool. Moreover, any increase in OC would need to be evaluated in the context of the risk retention requirements under Dodd-Frank Section 941 and Regulation RR, which require the sponsor to retain an eligible horizontal residual interest of not less than 5% of the fair value of all ABS interests in the issuing entity. Changes to the OC level could alter the risk retention calculus and potentially require additional analysis and disclosure.
• Renegotiating Placement Fees. Total placement fees payable to Ridgeline are $1,672,500. Even if Ridgeline were willing to reduce its fees (which is uncertain), the maximum savings from a fee renegotiation would be modest relative to the $1.2 million per year incremental cost of the spread widening. A complete elimination of placement fees — which is unrealistic — would save only approximately 3.4 basis points of all-in WAC, which is wholly insufficient to bridge the 25.25 basis point gap.
In sum, the magnitude of the spread widening is such that restructuring measures alone are unlikely to bring the Transaction within acceptable economic parameters.
5.3 Shelve and Preserve Optionality (Recommended)
The third alternative, and the one we recommend, is to shelve the Transaction and place it in dormant status, while preserving all documentation, structural work, SPV entities, and preliminary ratings to enable an efficient and cost-effective relaunch when market conditions improve.
This approach offers several significant advantages:
• Avoids Locking in Unfavorable Economics. Shelving the Transaction avoids the risk of executing a transaction at a cost of funds that exceeds the Board-approved hurdle and that would impose meaningful incremental costs over the life of the deal.
• Preserves Optionality. By maintaining the SPV entities, documentation, and preliminary ratings in a ready state, the Company retains the ability to relaunch the Transaction on an expedited basis when spreads return to levels at or near the original guidance range (SOFR + 95 to 125 basis points for AAA-rated insurance premium finance ABS). This significantly reduces the time-to-market and cost of a future issuance.
• Maximizes the Value of Sunk Costs. The approximately $2,555,000 in sunk costs represents an investment in the infrastructure and documentation necessary for this Transaction. Shelving (rather than terminating) the Transaction preserves the value of this investment by enabling its application to a future offering. The incremental cost of reactivation — principally, the updating of pool data, refreshing of preliminary ratings, finalization of documents, and re-engagement of the investor base — is expected to be materially less than the cost of commencing a new transaction from scratch.
• Consistent with Market Practice. Shelving ABS transactions during periods of adverse market conditions is a well-established practice in the structured finance market. Several comparable ABS issuers have deferred or postponed planned transactions during the second half of 2022 in response to the same spread widening dynamics affecting this Transaction.
We note that there are certain risks associated with this approach, including the possibility that market conditions do not improve, or that the QPF receivables portfolio experiences changes in credit performance or composition that require more extensive updates to the Transaction structure and documentation upon relaunch. We address the steps recommended to mitigate these risks in the following section.
6. Recommended Steps to Preserve Optionality for Future Relaunch
If the Board elects to adopt our recommendation and shelve the Transaction, we recommend that the following steps be taken to preserve the work product, structural infrastructure, and counterparty relationships developed in connection with the Transaction, thereby facilitating an efficient relaunch at the appropriate time.
6.1 Documentation Preservation
All transaction documents — including the Indenture (version 4), Receivables Sale Agreement (version 3), Receivables Transfer Agreement (version 3), Servicing Agreement (version 3), Note Purchase Agreement (version 3), Back-Up Servicing Agreement (version 2), Liquidity Facility Agreement (version 2), Account Control Agreement (version 2), Grant of Security Interest (version 2), Performance Guaranty (version 1), and Administration Agreement (version 2) — will be preserved by Calderwood & Harkness in near-final execution draft form. These documents represent the product of extensive negotiation among QIH, Ridgeline, Calvoneth Trust, Northvane Bank, and the other transaction parties, and embody the structural and legal framework of the Transaction in substantially complete form.
All eight draft legal opinions will be maintained on file at Calderwood & Harkness. Upon relaunch, these opinions can be updated and finalized with relatively modest additional work, principally consisting of conforming changes to reflect any updates to the underlying documents, the refreshed pool data, and any intervening changes in applicable law.
The Preliminary Offering Memorandum (version 3) and all investor presentation materials prepared for the roadshow will be archived for use as baseline materials in any future offering. Upon relaunch, these materials would need to be updated to reflect current pool data, updated market conditions and pricing, refreshed financial statements and disclosures of QIH and QPF, and any other changes in material information. The scope of these updates will depend on the elapsed time between the date of shelving and the date of relaunch.
Calderwood & Harkness will maintain all working files, research memoranda, regulatory analyses, and correspondence related to this engagement in its document management system, indexed under Matter No. 1025-00007, for a period of not less than ten years.
6.2 SPV Maintenance
QRF 2022-1 (Delaware Secretary of State File No. 7894231) and QRH (Delaware Secretary of State File No. 7894228) should be maintained in good standing with the Delaware Secretary of State. Both entities were formed specifically for use in this Transaction and represent essential elements of the bankruptcy-remote, true-sale structure that is a prerequisite for the securitization.
The independent manager agreements with Fortbridge Corporate Services LLC should remain in effect. Timothy R. Callan currently serves as independent manager of QRF 2022-1, and Eleanor M. Vasquez currently serves as independent manager of QRH. The continuation of these arrangements ensures the ongoing enforceability of the separateness covenants and the bankruptcy-remoteness representations applicable to each entity.
The annual maintenance costs associated with preserving these entities in good standing are minimal. They consist primarily of Delaware franchise taxes (currently $300 per entity per year for LLCs with no separately stated Delaware income) and registered agent fees payable to Ashgrove Services Inc. (the registered agent for both entities in Delaware). We estimate total annual SPV maintenance costs at approximately $2,500 to $3,500 per year for both entities combined, inclusive of independent manager fees.
6.3 Rating Agency Engagement
Calderwood & Harkness recommends that QIH maintain periodic communication with Brindoval Ratings (through Andrew Petrosian, Senior Director, Insurance Finance ABS) and Pinnacle Rating Services (through Monica Sung, Vice President, Structured Finance) to preserve the preliminary ratings issued by each agency and to facilitate expedited reconfirmation of those ratings upon relaunch.
The preliminary ratings issued by Brindoval (on August 22, 2022) and Pinnacle (on August 29, 2022) remain in effect but are subject to certain limitations. Specifically, preliminary ratings are typically valid for a limited period (generally six to twelve months from issuance, depending on the agency's policies) and may be subject to reconfirmation if the underlying pool composition, credit performance, or structural features of the Transaction change materially. If more than approximately twelve months pass before reactivation, the preliminary ratings may need to be formally refreshed, which could involve updated credit analysis, revised pool stratification data, and potentially updated cash flow modeling. However, the incremental effort and cost of refreshing existing preliminary ratings is significantly less than that of conducting an entirely new rating process.
We recommend that QIH designate a member of its treasury or finance team to participate in quarterly or semi-annual check-in calls with each agency's surveillance group, providing updated portfolio performance data and addressing any questions the agencies may have regarding the receivables portfolio.
6.4 Notification to Counterparties
Upon the Board's authorization, Calderwood & Harkness will formally notify the following counterparties of the Transaction suspension and the cessation of investor marketing activities:
• Ridgeline Capital Markets LLC — Julian Weatherstone, Managing Director and Head of ABS Origination, will be advised that the Transaction is being placed on hold and that all investor marketing and pricing activities should cease. We will discuss with Ridgeline the terms on which the engagement can be reactivated in the future and will seek to obtain Ridgeline's agreement to serve as placement agent for any relaunched transaction on terms substantially similar to those set forth in the existing engagement letter.
• Calvoneth Trust Company, N.A. — Gerald K. Fontaine, Senior Vice President, Corporate Trust, will be notified that the Transaction is being shelved and that Haverford's engagement as indenture trustee is on hold. We will confirm with Haverford that no ongoing trustee fees will be charged during the dormancy period, as the Indenture has not been executed and no Notes have been issued.
• Northvane Bank, N.A. — Diane Coletti, Executive Vice President, Structured Finance, will be notified that the Transaction is being shelved and that the Back-Up Servicing Agreement and Liquidity Facility Agreement will not be executed at this time. We will discuss with Northvane the terms on which these arrangements can be reinstated upon relaunch.
• Calloway & Brandt LLP — Harrison Collier, Partner, will be advised that the engagement of Calloway & Brandt as placement agent's counsel is on hold pending further notice.
• Ashfield & Greer LLP — Vivian Sato, Partner, will be advised that the engagement of Ashfield & Greer as trustee's counsel is on hold pending further notice.
All notifications will be drafted by Calderwood & Harkness for review and approval by QIH's General Counsel prior to delivery.
6.5 UCC Filings
As part of the closing mechanics for the Transaction, three UCC-1 financing statements were prepared in draft form to perfect the security interests granted in the receivables at each stage of the two-step true sale structure and the pledge to the indenture trustee:
(i) QPF (debtor) / QRH (secured party) — perfecting the sale of receivables from QPF to QRH under the Receivables Sale Agreement;
(ii) QRH (debtor) / QRF 2022-1 (secured party) — perfecting the transfer of receivables from QRH to QRF 2022-1 under the Receivables Transfer Agreement; and
(iii) QRF 2022-1 (debtor) / Calvoneth Trust Company, N.A. (secured party) — perfecting the grant of a security interest in the receivables and related assets to the indenture trustee under the Indenture.
None of these UCC-1 financing statements were filed with the Delaware Secretary of State, as filing was scheduled to occur concurrently with or immediately prior to the closing of the Transaction. The draft financing statements will be preserved in their current form and will require no action during the dormancy period. Upon relaunch, the financing statements would be reviewed, updated as necessary (including to reflect updated debtor and secured party information, if any, and updated collateral descriptions), and filed as a condition precedent to closing.
6.6 Servicer and Pool Data
QPF, as originator and servicer of the insurance premium finance receivables, should continue to maintain comprehensive portfolio-level data and historical performance statistics for its insurance premium finance receivables portfolio during the dormancy period. Sandra Ling-Hwang, Manager of QPF and Treasurer of QIH, should ensure that the following data is maintained and updated on a monthly basis:
• Portfolio-level stratification data, including breakdowns by policy type, state of origination, premium amount, APR, remaining term, and borrower type (personal vs. commercial lines).
• Monthly performance statistics, including delinquency rates (30-day, 60-day, 90-day, and 90+ day), net loss rates, prepayment rates, and dilution rates.
• Origination volumes and portfolio composition trends.
This data will be essential for facilitating an updated pool stratification analysis upon reactivation and for supporting the refreshed rating agency analysis described in Section 6.3 above. The current pool cut-off date of June 30, 2022 would need to be reset upon relaunch to reflect a more recent snapshot of the portfolio, and a new third-party verification by Veristead Analytics LLC (or a comparable verification agent) would likely be required to provide comfort to investors and rating agencies regarding the accuracy and completeness of the updated pool data.
7. Recommendation
Based on the foregoing analysis, Calderwood & Harkness LLP respectfully recommends that the Board of Directors of Quorum Insurance Holdings Corp. authorize the shelving of the $500,000,000 QRF 2022-1 insurance premium finance asset-backed securities offering effective immediately.
Specifically, we recommend that the Transaction be placed in dormant status, with all documentation, SPV structures, and preliminary ratings preserved in accordance with the steps described in Section 6 of this letter, to enable reactivation at the earliest practical date when market conditions improve to levels that would permit execution within the Board-approved cost-of-funds parameters.
The total sunk costs of approximately $2,555,000, while not insignificant in absolute terms, represent a manageable investment relative to QIH's scale (fiscal year 2021 consolidated revenue of $3.8 billion) and, more importantly, relative to the potential economic benefit of a well-timed future execution. A successfully executed Transaction at spreads consistent with the original guidance range would generate meaningful funding cost savings for QIH and would establish the Company as a participant in the ABS market, with the attendant benefits of funding diversification, balance sheet optimization, and access to a deep and liquid capital market for future issuances.
Calderwood & Harkness stands ready to execute the recommended preservation steps upon the Board's direction and to reactivate this engagement promptly when market conditions warrant. We would be pleased to present this analysis to the full Board at its next scheduled meeting or at a special session convened for this purpose, and to answer any questions the Board may have regarding the matters addressed in this letter.
8. Closing Matters
This letter is provided for the information of the Board of Directors of Quorum Insurance Holdings Corp. and is not intended as, and should not be construed as, investment advice or a recommendation regarding any particular course of action beyond the legal and structural preservation steps described herein. Calderwood & Harkness is engaged as legal counsel to QIH in connection with this Transaction; we are not acting as a financial advisor, and the Board should consult with its financial advisors and other advisors as it deems appropriate in connection with any decision regarding the future of the Transaction.
Any decision to proceed with, shelve, or terminate the Transaction is ultimately a business judgment of the Board, to be made in the exercise of its fiduciary duties and in light of all relevant facts and circumstances, including factors beyond those addressed in this letter. We express no opinion on the business merits of any particular course of action.
Calderwood & Harkness will continue to treat all matter-related information, including the contents of this letter and all work product generated in connection with the Transaction, as privileged and confidential in accordance with our engagement letter and applicable rules of professional conduct.
We respectfully request that the Board communicate its decision at its earliest convenience so that Calderwood & Harkness may take the appropriate notification and preservation steps described in Section 6 of this letter in a timely manner. In particular, prompt notification to Ridgeline of the Transaction suspension is advisable to avoid any further investor marketing activity or unnecessary expenditure of resources by the placement agent.
Upon receipt of the Board's authorization to shelve the Transaction, this matter will be coded as dormant on Calderwood & Harkness's internal matter management system effective immediately. Interim billing for all accrued and unbilled legal fees through December 15, 2022 will follow separately under cover of a standard billing transmittal letter.
•
We appreciate the Board's attention to this matter and the confidence that QIH has placed in Calderwood & Harkness throughout this engagement. We remain committed to the success of this Transaction and look forward to working with the Company on its relaunch at the appropriate time.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael, Partner Responsible Partner, Matter No. 1025-00007
cc:
Sandra Ling-Hwang, Treasurer, Quorum Insurance Holdings Corp. / Manager, Quorum Premium Finance LLC
Francesca Morano, Partner, Calderwood & Harkness LLP
Yuki Nakamura, Associate, Calderwood & Harkness LLP
Sylvia Hartwell, Partner (Tax), Calderwood & Harkness LLP
Encl: Memorandum on Market Conditions and Spread Analysis dated November 7, 2022
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION This letter and any attachments are privileged and confidential communications from Calderwood & Harkness LLP to the Board of Directors of Quorum Insurance Holdings Corp. in connection with the firm's representation of QIH. This letter is not intended for distribution to, or reliance by, any third party without the prior written consent of Calderwood & Harkness LLP.
Tranche | Principal Amount | % of Total | Preliminary Rating (Brindoval) | Preliminary Rating (Pinnacle)
Class A Notes | $375,000,000 | 75.0% | AAA(cr) | Aaa(p)
Class B Notes | $75,000,000 | 15.0% | A(cr) | A1(p)
Class C Notes | $35,000,000 | 7.0% | BBB(cr) | Baa2(p)
OC / Retained Interest | $15,000,000 | 3.0% | Unrated | Unrated
Total | $500,000,000 | 100.0%
Tranche | Initial Guidance | Indicative Pricing (Nov. 2) | Widening
Class A Notes | SOFR + 125 bps | SOFR + 168 bps | +43 bps
Class B Notes | SOFR + 210 bps | SOFR + 285 bps | +75 bps
Class C Notes | SOFR + 375 bps | SOFR + 450 bps | +75 bps

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