FINAL TERM SHEET (v3) — CONFIDENTIAL

FINAL TERM SHEET (v3) — CONFIDENTIAL
Quorum Receivables Funding 2022-1 LLC
Insurance Premium Finance Receivables-Backed Notes
September 2, 2022
This Final Term Sheet is confidential and is being provided to Ridgeline Capital Markets LLC and Calloway & Brandt LLP pursuant to the terms of the engagement between Quorum Insurance Holdings Corp. and Calderwood & Harkness LLP. This term sheet supersedes the Preliminary Term Sheet (v1) dated July 18, 2022 and the Revised Term Sheet (v2) dated August 15, 2022. This document and its contents may not be reproduced, distributed, or disclosed in whole or in part to any third party without the prior written consent of Calderwood & Harkness LLP and Quorum Insurance Holdings Corp. Recipients are directed to the disclaimers and limitations set forth in Section 23 hereof.
Prepared by:
Calderwood & Harkness LLP 601 Lexington Avenue New York, NY 10022
Matter No. 1025-00007
Contact: Douglas Carmichael, Responsible Partner Yuki Nakamura, Lead Associate
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Section 1: Transaction Summary
The following is a summary of the principal terms and conditions of the proposed issuance of asset-backed securities by Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company organized as a bankruptcy-remote special purpose entity for the purpose of acquiring, holding, and financing insurance premium finance receivables originated by Quorum Premium Finance LLC.
Transaction Type: Asset-backed securities issuance (structured finance). The transaction involves the issuance by QRF 2022-1 of multiple tranches of floating rate notes secured by a pool of insurance premium finance receivables. The notes will be structured as secured obligations of QRF 2022-1, with the sole source of payment being the cash flows generated by the underlying receivables pool and related collateral.
Total Issuance Size: $500,000,000, consisting of three tranches of rated notes and an overcollateralization / retained interest component, as more particularly described in Section 3 hereof.
Offering Type: The notes will be offered and sold in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 144A thereunder (to qualified institutional buyers within the United States) and pursuant to Regulation S thereunder (to non-U.S. persons in offshore transactions). No registration statement will be filed with the U.S. Securities and Exchange Commission in connection with this offering.
Underlying Assets: Insurance premium finance receivables originated by Quorum Premium Finance LLC ("QPF") in the ordinary course of its business. These receivables represent short-term loans made to commercial policyholders to finance the payment of insurance premiums, each secured by the borrower's right to receive unearned premium refunds from the applicable insurance carrier upon policy cancellation. A detailed description of the receivables pool and the eligibility criteria applicable to receivables included in the pool is set forth in Sections 5, 6, and 7 hereof.
Governing Law: The Indenture, Note Purchase Agreement, and other principal transaction documents (other than the organizational documents of the SPVs) will be governed by the laws of the State of New York. The organizational documents of QRF 2022-1 and QRH (each a Delaware limited liability company) will be governed by the laws of the State of Delaware.
Target Closing Date: To be determined, with a target closing in the fourth quarter of 2022, subject to the satisfaction of the conditions precedent described in Section 19 hereof and prevailing market conditions at the time of pricing.
Ridgeline Deal ID: RCM-IPF-2022-0041
Section 2: Parties to the Transaction
Set forth below is a summary description of each of the principal parties to the proposed transaction, together with relevant identifying information. The roles and responsibilities of each party will be more fully described in the applicable transaction documents.
2.1 Sponsor / Parent
Quorum Insurance Holdings Corp. ("QIH")
QIH is a Delaware corporation whose shares of common stock are listed on the New York Stock Exchange under the ticker symbol "QIHC." QIH serves as the parent company and ultimate sponsor of the securitization transaction described herein. QIH is a diversified insurance services holding company with operations across the United States.
Headquarters: 400 Atlantic Street, Suite 2200, Stamford, CT 06901
Senior Management:
•  Chief Executive Officer: Marcus Devereaux
•  Chief Financial Officer: Priya Raghavan
•  General Counsel: Nolan Whitford
•  Treasurer: Sandra Ling-Hwang
Financial Information: For the fiscal year ended December 31, 2021, QIH reported consolidated revenue of approximately $3.8 billion.
Credit Ratings (Unsecured Senior Debt):
•  Brindoval Ratings Inc.: BBB
•  Pinnacle Rating Services LLC: Baa2
As sponsor, QIH will retain risk in the transaction in accordance with Section 3.6 below and the requirements of Dodd-Frank Section 941 and the implementing regulations thereunder. QIH will also serve as Administrator of the transaction and will provide a limited performance guaranty as described in Section 14 hereof.
2.2 Originator / Seller / Servicer
Quorum Premium Finance LLC ("QPF")
QPF is a Delaware limited liability company and a wholly owned subsidiary of QIH. QPF operates as a premium finance company, originating and servicing insurance premium finance loans to commercial policyholders across all 50 states. QPF is licensed as a premium finance company in each state in which it conducts business and in which such licensure is required by applicable law.
Principal Office: 400 Atlantic Street, Suite 2200, Stamford, CT 06901
Manager: Sandra Ling-Hwang
Business Description: QPF originates short-term loans to commercial policyholders for the purpose of financing the payment of insurance premiums. Each loan is secured by the borrower's right to receive an unearned premium refund from the applicable insurance carrier upon cancellation of the related insurance policy. QPF services all loans it originates, including collection of payments, management of delinquencies, and administration of policy cancellation procedures where necessary to realize on the underlying collateral.
Total Receivables Portfolio: As of the cut-off date, QPF's total managed portfolio of insurance premium finance receivables was approximately $2.1 billion.
In the context of this transaction, QPF will act as: (a) the originator and seller of the receivables to QRH pursuant to the Receivables Sale Agreement; (b) the initial servicer of the receivables pool pursuant to the Servicing Agreement; and (c) a seller of additional eligible receivables during the revolving period.
2.3 Depositor / Intermediate SPV
Quorum Receivables Holding LLC ("QRH")
QRH is a Delaware limited liability company organized as a bankruptcy-remote special purpose entity. QRH serves as an intermediate, depositor-level entity in the two-tier SPV structure designed to provide true-sale isolation and bankruptcy remoteness for the benefit of the noteholders.
Sole Member: QPF
Independent Manager: Eleanor M. Vasquez, provided by Fortbridge Corporate Services LLC
Delaware Secretary of State File No.: 7894228
Employer Identification Number (EIN): 88-1247619
Date of Formation: August 3, 2022
QRH's limited liability company agreement contains customary separateness covenants, including restrictions on incurring indebtedness, granting liens, merging or consolidating with any other entity, amending its organizational documents without the consent of its independent manager, and filing any petition for bankruptcy or similar relief.
2.4 Issuer
Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1")
QRF 2022-1 is a Delaware limited liability company organized as a bankruptcy-remote special purpose entity for the sole purpose of acquiring, holding, and financing insurance premium finance receivables. QRF 2022-1 is the issuer of the notes described in this term sheet.
Sole Member: QRH
Independent Manager: Timothy R. Callan, provided by Fortbridge Corporate Services LLC
Delaware Secretary of State File No.: 7894231
Employer Identification Number (EIN): 88-1247653
Registered Agent: Ashgrove Services Inc., 28 Liberty Street, New York, NY 10005
Date of Formation: August 3, 2022
QRF 2022-1's limited liability company agreement contains customary separateness covenants substantially identical to those of QRH, including restrictions on the entity's activities to those necessary or incidental to the securitization transaction, prohibitions on incurring additional indebtedness (other than the notes and amounts owed under the liquidity facility), limitations on merging, dissolving, or consolidating, requirements to maintain separate books and records and separate bank accounts, and the requirement to obtain the affirmative vote or consent of the independent manager prior to the filing of any voluntary petition for bankruptcy, reorganization, or similar relief.
2.5 Structuring Agent / Lead Bookrunner / Sole Placement Agent
Ridgeline Capital Markets LLC
Ridgeline Capital Markets LLC is a Delaware limited liability company registered as a broker-dealer with the U.S. Securities and Exchange Commission and is a member of the Financial Industry Regulatory Authority (FINRA). Ridgeline will act as the sole structuring agent, lead bookrunner, and sole placement agent for the offering of all tranches of notes under this transaction.
Principal Office: 383 Madison Avenue, 14th Floor, New York, NY 10179
Key Personnel:
•  Head of ABS Origination: Julian Weatherstone
•  Managing Director, Insurance Finance ABS: Rebecca Tran
Ridgeline's responsibilities include structuring advice, investor outreach, marketing, and placement of the notes with qualified institutional buyers and non-U.S. persons in accordance with the selling restrictions described in Section 13 hereof.
2.6 Indenture Trustee / Paying Agent / Calculation Agent / Securities Intermediary / Custodian
Calvoneth Trust Company, N.A.
Calvoneth Trust Company, N.A. is a national banking association organized under the laws of the United States. Calvoneth Trust will serve in multiple capacities in the transaction, acting as indenture trustee under the Indenture, paying agent with respect to distributions on the notes, calculation agent responsible for determining amounts of interest and principal payable on each payment date, securities intermediary with respect to the accounts established under the transaction documents, and custodian of the receivables files.
Corporate Trust Office: 600 Travis Street, Suite 5800, Houston, TX 77002
Senior Trust Officer: Gerald K. Fontaine
2.7 Back-Up Servicer
Northvane Bank, N.A.
Northvane Bank, N.A. is a national banking association organized under the laws of the United States. Northvane Bank will serve as the back-up servicer under the Back-Up Servicing Agreement, maintaining a "warm standby" capability to assume the servicing of the receivables pool in the event of a servicer default by QPF.
Principal Office: 200 Vesey Street, New York, NY 10281
Managing Director, Structured Products: Diane Coletti
2.8 Liquidity Facility Provider
Northvane Bank, N.A. (same entity as the back-up servicer described in Section 2.7 above) will provide a committed liquidity facility in the amount of $25,000,000 to QRF 2022-1 to cover short-term timing mismatches between collections and payment date obligations. The terms of the liquidity facility are described in Section 11 hereof.
2.9 Administrator
Quorum Insurance Holdings Corp. QIH will serve as administrator of the transaction, providing certain administrative, accounting, and reporting services to QRF 2022-1 pursuant to the Administration Agreement.
2.10 Independent Manager Provider
Fortbridge Corporate Services LLC
Fortbridge Corporate Services LLC provides independent manager services to bankruptcy-remote special purpose entities. Fortbridge has been engaged to provide independent managers for both QRH and QRF 2022-1.
Address: 1209 Orange Street, Wilmington, DE 19801
The independent managers appointed by Fortbridge (Eleanor M. Vasquez for QRH and Timothy R. Callan for QRF 2022-1) are independent of QIH, QPF, and their respective affiliates. The consent of the independent manager is required for certain material actions by each SPV, including the filing of any voluntary petition for bankruptcy, reorganization, or similar relief.
2.11 Rating Agencies
The notes will be rated by the following nationally recognized statistical rating organizations:
Brindoval Ratings Inc.
•  Lead Analyst: Andrew Petrosian
•  Engagement No.: CR-SF-2022-08812
Pinnacle Rating Services LLC
•  Lead Analyst: Monica Sung
•  Engagement No.: PRS-2022-ABS-3347
Preliminary ratings have been issued by each of Brindoval Ratings and Pinnacle Rating Services as set forth in the capital structure table in Section 3.1 below. Final ratings are subject to confirmation by each rating agency upon review of the final transaction documentation and satisfaction of the conditions set forth in each agency's engagement letter.
2.12 Issuer's Counsel
Calderwood & Harkness LLP
601 Lexington Avenue New York, NY 10022
Calderwood & Harkness serves as legal counsel to the Issuer, the Depositor, the Originator/Seller/Servicer, and the Sponsor in connection with this transaction. Calderwood & Harkness is responsible for the preparation of the transaction documents and will deliver the legal opinions described in Section 16 hereof.
2.13 Underwriter's Counsel
Calloway & Brandt LLP
One Liberty Plaza, 165 Broadway New York, NY 10006
Calloway & Brandt serves as legal counsel to Ridgeline Capital Markets LLC in connection with this transaction.
•  Lead Partner: Harrison Collier
•  Senior Associate: Megan O'Shaughnessy
Calloway & Brandt will conduct its own due diligence review and will deliver certain opinions as described in Section 16 hereof.
2.14 Trustee's Counsel
Ashfield & Greer LLP
One Chase Manhattan Plaza New York, NY 10005
Ashfield & Greer serves as legal counsel to Calvoneth Trust Company, N.A. in connection with this transaction.
•  Lead Partner: Vivian Sato
Ashfield & Greer will deliver a trustee authorization opinion at closing.
2.15 Auditor
Meridian Ledger LLP
1301 Avenue of the Americas New York, NY 10019
Meridian Ledger serves as the independent registered public accounting firm for QIH and its subsidiaries, including QPF. In connection with this transaction, Meridian Ledger will provide:
•  An agreed-upon procedures letter relating to the receivables pool data and the information set forth in the offering memorandum; and
•  A comfort letter addressed to Ridgeline Capital Markets LLC covering certain financial and statistical information.
•  Engagement Partner: Robert Falcone
2.16 Verification Agent
Veristead Analytics LLC
100 Summer Street, Suite 1500 Boston, MA 02110
Veristead Analytics will conduct independent verification of the receivables pool data, including verification of loan-level data tapes, compliance with eligibility criteria, and accuracy of pool stratification tables set forth in the offering memorandum.
•  Managing Director: Katharine Drummond
Section 3: Capital Structure
3.1 Notes Summary Table
The following table sets forth the proposed capital structure of the transaction, including the par amount, percentage of total issuance, preliminary ratings, credit enhancement, and coupon guidance for each tranche of notes:
The coupon guidance set forth above is preliminary and is based on current market conditions as of the date of this term sheet. Final pricing, spreads, and coupons will be determined at the time of pricing based on then-prevailing market conditions and investor demand. The preliminary ratings are assigned by Brindoval Ratings and Pinnacle Rating Services, respectively, and are subject to confirmation upon review of final transaction documentation.
3.2 Credit Enhancement Details
Credit enhancement for each class of notes is provided through a combination of subordination from junior tranches and overcollateralization. The credit enhancement structure is summarized as follows:
Total Credit Enhancement for Class A Notes (25.0%):
•  Class B subordination: 15.0% ($75,000,000)
•  Class C subordination: 7.0% ($35,000,000)
•  Overcollateralization: 3.0% ($15,000,000)
•  Total dollar amount of credit enhancement: $125,000,000
Total Credit Enhancement for Class B Notes (10.0%):
•  Class C subordination: 7.0% ($35,000,000)
•  Overcollateralization: 3.0% ($15,000,000)
•  Total dollar amount of credit enhancement: $50,000,000
Total Credit Enhancement for Class C Notes (3.0%):
•  Overcollateralization: 3.0% ($15,000,000)
•  Total dollar amount of credit enhancement: $15,000,000
The overcollateralization / retained interest tranche represents the first-loss position in the capital structure and absorbs credit losses on the receivables pool before any losses are allocated to the rated tranches. Additional credit support is provided by the sequential payment waterfall described in Section 8 hereof, pursuant to which principal collections are applied to pay down the notes in order of seniority (Class A first, then Class B, then Class C) during the amortization period.
3.3 Preliminary CUSIPs (Placeholder; Not Finalized)
The following CUSIP numbers have been reserved on a preliminary basis and are subject to change prior to closing:
•  Class A Notes: 74892TAA3
•  Class B Notes: 74892TAB1
•  Class C Notes: 74892TAC9
Final CUSIPs will be confirmed prior to closing and will be set forth in the Indenture and the Note Purchase Agreement.
3.4 Form and Denomination
The notes of each class will be offered in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. The notes will be issued in book-entry form only, represented by one or more global notes registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"). Beneficial interests in the notes will be evidenced through the book-entry facilities of DTC and its direct and indirect participants, including Stonefield Industries and Westmark & Co. (for Regulation S notes). No definitive (physical) notes will be issued except in limited circumstances as set forth in the Indenture.
3.5 Interest Rate
Each class of notes will bear interest at a floating rate equal to Compounded SOFR (Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York) plus the applicable spread for such class, as determined at the time of pricing. Interest on each class of notes will accrue on the basis of an Actual/360 day count convention.
Interest payment dates will occur monthly, on the 15th day of each calendar month (or, if such day is not a business day, on the next succeeding business day), commencing on the first payment date following the closing date. Interest will be calculated by Calvoneth Trust Company, N.A., in its capacity as calculation agent, based on the outstanding principal balance of each class of notes as of the close of business on the last day of the related interest accrual period.
The definition of "Compounded SOFR" and the related fallback provisions (including benchmark replacement language consistent with the Alternative Reference Rates Committee's recommended fallback language for securitizations) will be set forth in the Indenture.
3.6 Risk Retention
QIH, as sponsor of the securitization transaction, will retain a horizontal interest of not less than 5% of the fair value of all notes issued by QRF 2022-1, in compliance with the requirements of Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing risk retention rules set forth in 17 C.F.R. Part 246 (as adopted jointly by the SEC and federal banking regulators).
This risk retention obligation will be satisfied through QIH's (or its designee's) retention of the $15,000,000 overcollateralization / retained interest tranche (representing 3.0% of the total issuance size) plus any additional required amount necessary to satisfy the 5% fair value requirement. The retained interest will represent the first-loss position in the capital structure and will not be hedged by QIH or any of its affiliates in contravention of the risk retention rules.
QIH will make certain representations and certifications regarding its compliance with the risk retention requirements, which will be set forth in the Note Purchase Agreement and the offering memorandum.
Section 4: Transaction Structure
4.1 SPV Structure
The transaction utilizes a two-tier special purpose vehicle structure designed to achieve bankruptcy remoteness and true-sale isolation of the receivables from the originator and its parent. The organizational chain is as follows:
Quorum Insurance Holdings Corp. (QIH — parent/sponsor) ↓ (wholly owns) Quorum Premium Finance LLC (QPF — originator/seller/servicer) ↓ (sole member) Quorum Receivables Holding LLC (QRH — depositor/intermediate SPV) ↓ (sole member) Quorum Receivables Funding 2022-1 LLC (QRF 2022-1 — issuer)
The two-tier SPV structure is employed to create an additional layer of legal separation between the originator (QPF) and the issuer (QRF 2022-1). This structure is designed to reduce the risk that a court would consolidate the assets of the issuer with those of the originator or the sponsor in the event of a bankruptcy or insolvency proceeding affecting any of those entities. Both QRH and QRF 2022-1 are organized as bankruptcy-remote special purpose entities with independent managers, separateness covenants, and non-petition provisions as more fully described below.
4.2 Transfer Mechanics
The transfer of receivables from QPF to QRF 2022-1 will be accomplished through a two-step transfer process as follows:
Step 1 — Sale from QPF to QRH: QPF will sell, assign, and transfer insurance premium finance receivables to QRH pursuant to a Receivables Sale Agreement. This transfer is intended to constitute a "true sale" of the receivables under applicable law, such that the receivables will not be property of QPF's bankruptcy estate in the event of a bankruptcy or insolvency proceeding affecting QPF. As a precautionary measure, QPF will also grant to QRH a security interest in the receivables to secure QPF's obligations under the Receivables Sale Agreement, which security interest will be perfected by the filing of a UCC-1 financing statement with the Delaware Secretary of State.
Step 2 — Transfer from QRH to QRF 2022-1: QRH will transfer the receivables to QRF 2022-1 pursuant to a Receivables Transfer Agreement. This transfer is intended to constitute either a "true sale" or a capital contribution by QRH to QRF 2022-1 (with true sale treatment being the primary characterization). As a back-up measure, QRH will also grant to QRF 2022-1 a security interest in the receivables, which security interest will be perfected by the filing of a UCC-1 financing statement with the Delaware Secretary of State.
Step 3 — Pledge from QRF 2022-1 to Calvoneth Trust: QRF 2022-1 will pledge and grant a first-priority security interest in the receivables and all related collateral (including collections, accounts, and proceeds) to Calvoneth Trust Company, N.A. (as trustee for the benefit of the noteholders) pursuant to a Grant of Security Interest / Pledge Agreement. This security interest will be perfected by the filing of a UCC-1 financing statement with the Delaware Secretary of State and by Calvoneth Trust's control over the deposit accounts into which collections are deposited.
4.3 Revolving Structure
The transaction will include a revolving period followed by an amortization period, as summarized below:
Revolving Period: The revolving period will commence on the closing date and will continue for a period of 24 months (subject to early termination upon the occurrence of an early amortization event as described in Section 9). During the revolving period, principal collections on the receivables (net of interest, servicing fees, trustee fees, and other expenses) will be used to purchase additional eligible receivables from QPF (through QRH) in accordance with the eligibility criteria set forth in Section 6 and the concentration limits set forth in Section 7. This revolving mechanism permits QRF 2022-1 to maintain a receivables pool at or near the initial pool balance throughout the revolving period, thereby providing investors with a stable expected weighted average life and maintaining the yield on the notes.
Amortization Period: The amortization period will commence immediately upon the expiration of the revolving period (or, if earlier, upon the occurrence of an early amortization event) and will continue for a period of 12 months (or such shorter period as may be necessary to pay the notes in full). During the amortization period, principal collections on the receivables will be applied sequentially to pay down the notes in order of seniority (Class A first, then Class B, then Class C) in accordance with the payment waterfall described in Section 8.
Legal Final Maturity: The legal final maturity date for each class of notes will be 42 months from the closing date (i.e., the end of the 24-month revolving period plus the 12-month amortization period plus 6 months). Any amounts of principal remaining unpaid on the legal final maturity date shall become immediately due and payable, and the failure to pay all outstanding principal on the legal final maturity date shall constitute an event of default under the Indenture.
4.4 Bankruptcy Remoteness Features
The transaction is structured with the following features designed to minimize the risk that the assets of QRF 2022-1 or QRH would be substantively consolidated with, or treated as property of the bankruptcy estate of, QPF, QIH, or any of their affiliates:
(a) Independent Managers. Each of QRF 2022-1 and QRH has appointed an independent manager provided by Fortbridge Corporate Services LLC. The independent manager of each entity is a natural person who is not (and has not been for the preceding five years) a stockholder, member, partner, director, officer, or employee of QIH, QPF, or any of their respective affiliates (other than serving as independent manager or director of special purpose entities that are not affiliates of each other). The consent of the independent manager is required prior to the filing of any voluntary petition for bankruptcy, reorganization, or similar relief by the entity.
(b) Separateness Covenants. The limited liability company agreements of QRF 2022-1 and QRH each contain separateness covenants requiring each entity to, among other things: (i) maintain separate books, records, and financial statements; (ii) maintain separate bank accounts; (iii) not commingle assets with those of any other person; (iv) conduct business in its own name; (v) maintain arm's-length relationships with affiliates; (vi) pay its own liabilities from its own assets; (vii) maintain a separate office or, if sharing office space with an affiliate, allocate fairly the costs thereof; (viii) observe all limited liability company formalities; (ix) maintain adequate capitalization in light of its contemplated activities; and (x) hold itself out to creditors and to the public as a separate entity.
(c) Non-Petition Provisions. QPF (as sole member of QRH) and QRH (as sole member of QRF 2022-1), together with their respective affiliates, have covenanted in the applicable limited liability company agreements and in the transaction documents not to file or join in the filing of any involuntary petition for bankruptcy, reorganization, or similar relief against QRH or QRF 2022-1, respectively, and not to institute or join in any proceeding seeking to have QRH or QRF 2022-1 adjudicated bankrupt or insolvent.
(d) Non-Consolidation Opinions. Calderwood & Harkness LLP will deliver at closing reasoned non-consolidation opinions with respect to each of QRF 2022-1 and QRH, opining that, in the event of a bankruptcy or insolvency proceeding of QPF or QIH, a court exercising competent jurisdiction, applying federal bankruptcy law, should not, under the relevant facts and circumstances, disregard the separate existence of QRF 2022-1 or QRH (as applicable) or substantively consolidate the assets and liabilities of QRF 2022-1 or QRH with those of QPF, QIH, or any of their affiliates.
(e) True Sale Opinions. Calderwood & Harkness LLP will deliver at closing reasoned true sale opinions with respect to each of (i) the transfer of receivables from QPF to QRH and (ii) the transfer of receivables from QRH to QRF 2022-1, opining that such transfers should be treated as true sales and not as secured loans or financing arrangements, and that the receivables so transferred should not be treated as property of the transferor's bankruptcy estate.
Section 5: Receivables Pool Characteristics (as of Cut-Off Date: June 30, 2022)
The following information describes the characteristics of the initial receivables pool as of the statistical cut-off date of June 30, 2022. The data set forth below is based on information provided by QPF and is subject to verification by Veristead Analytics LLC. The actual pool composition at closing may differ from the pool described below, as additional receivables may be added and certain receivables may pay down, mature, or become ineligible between the cut-off date and the closing date.
5.1 Pool Statistics
The initial pool balance of $612,000,000 exceeds the total issuance size of $500,000,000, with the excess balance providing initial overcollateralization support to the rated notes. The granularity of the pool is a positive credit attribute, with over 82,000 individual loans and an average loan balance of approximately $7,427, which reduces the impact of any single obligor default on the overall performance of the pool.
5.2 Concentration Data
Geographic Concentration (Top 3 States):
The geographic distribution of the receivables pool reflects the nationwide scope of QPF's origination activities. No single state represents more than 15% of the aggregate pool balance, and the top three states represent 35.6% in the aggregate. Additional stratification data, including distributions by original term, remaining term, APR range, insurance carrier, and line of business, will be set forth in the offering memorandum.
5.3 Historical Performance
QPF's insurance premium finance receivables portfolio has demonstrated consistently strong credit performance, reflecting the short-term, self-liquidating nature of the underlying loans and the robust collateral position afforded by the assignment of unearned premium refund rights. The historical net loss rate of 0.42% per annum (averaged over the three-year period from 2019 through 2021) and the low delinquency rate of 0.87% at the cut-off date provide a strong credit foundation for the rated notes. Historical performance data for additional periods, including monthly vintage-level data, will be presented in the offering memorandum.
5.4 Collateral Description
Each receivable in the pool is a short-term loan made by QPF to a commercial policyholder for the purpose of financing the payment of insurance premiums to the applicable insurance carrier. The key characteristics of these loans are as follows:
•  Loan Purpose: Financing of insurance premiums payable by commercial policyholders.
•  Obligors: Commercial entities (corporations, partnerships, limited liability companies, and other business organizations). No individual consumer loans are included in the pool.
•  Collateral: Each loan is secured by the borrower's right to receive unearned premium refunds from the applicable insurance carrier upon cancellation of the related insurance policy. In the event of a default by the borrower, the servicer may direct the insurance carrier to cancel the policy and remit the unearned premium to the servicer, thereby providing a dedicated source of recovery.
•  Origination: All receivables in the pool were originated by QPF in the ordinary course of its business across all 50 states, in compliance with QPF's underwriting guidelines and applicable federal and state law.
•  Term: Original terms generally do not exceed 12 months.
Section 6: Eligible Receivables Criteria
Each receivable included in the initial pool (as of the cut-off date) and each receivable subsequently acquired by QRF 2022-1 during the revolving period must satisfy all of the following eligibility criteria as of the applicable date of determination. A receivable that fails to satisfy any of the following criteria is not an "Eligible Receivable" and may not be included in the pool:
1.  The receivable was originated by QPF in the ordinary course of its insurance premium finance business, in accordance with QPF's then-current credit and underwriting guidelines.
2.  The receivable is denominated and payable in United States dollars.
3.  The receivable is secured by a valid and enforceable assignment of the related policyholder's right to receive an unearned premium refund from the applicable insurance carrier upon cancellation of the related insurance policy.
4.  The original term of the receivable does not exceed 12 months from the date of origination.
5.  The obligor with respect to the receivable is a United States commercial policyholder (i.e., a corporation, partnership, limited liability company, or other business organization domiciled in the United States). No receivable with respect to which the obligor is an individual consumer is an Eligible Receivable.
6.  The receivable is not in default as of the applicable date of determination. For purposes of this criterion, a receivable shall be deemed to be "in default" if any scheduled payment thereon is more than 60 days past due.
7.  The receivable complies with all applicable federal and state usury laws, premium finance licensing requirements, and other applicable regulatory requirements, including any applicable requirements of the state in which the obligor is located or in which the related insurance policy was issued.
8.  The receivable is subject to a valid, binding, and enforceable security interest in favor of QPF (or, following the applicable true sale transfer, in favor of QRH and QRF 2022-1, respectively) and such security interest has been, or will be prior to the applicable transfer date, duly perfected under the Uniform Commercial Code of the applicable jurisdiction.
9.  The receivable is not subject to any lien, claim, encumbrance, or security interest other than (a) the security interest created in favor of QPF, QRH, and QRF 2022-1 (and, ultimately, Calvoneth Trust as trustee) as contemplated by the transaction documents, and (b) such other liens, claims, or encumbrances as are expressly permitted under the transaction documents (collectively, "Permitted Encumbrances").
10.  The receivable was originated in compliance with QPF's credit and underwriting guidelines as in effect at the time of origination, including QPF's standard documentation, disclosure, and servicing procedures.
Compliance with the eligibility criteria will be verified by Veristead Analytics LLC with respect to the initial pool and will be certified by QPF with respect to each subsequent addition of receivables during the revolving period. Calderwood & Harkness LLP will review the eligibility criteria and related representations and warranties as part of its preparation of the transaction documents.
Section 7: Concentration Limits
The following concentration limits shall apply at all times during the revolving period and must be satisfied at the time of each addition of receivables to the pool. If the addition of any receivable would cause any concentration limit to be exceeded, such receivable shall not be eligible for inclusion in the pool unless and until the applicable concentration limit is no longer exceeded (after giving effect to collections, paydowns, or removals of other receivables from the pool):
Single Obligor Limit: No single obligor (together with its affiliates) may represent more than 0.75% of the aggregate outstanding pool balance at any time. At the initial pool balance of $612,000,000, this limit equates to approximately $4,590,000 per obligor. This limit is designed to ensure the continued granularity of the pool and to limit the credit impact of any single obligor default.
Single State Limit: No single state may represent more than 20% of the aggregate outstanding pool balance at any time. At the initial pool balance, this limit equates to approximately $122,400,000. This limit is designed to mitigate geographic concentration risk and to reduce the pool's exposure to localized economic downturns or regulatory changes in any single state.
Single Insurance Carrier Limit: No single insurance carrier may represent more than 15% of the aggregate outstanding pool balance at any time, measured by the aggregate outstanding balance of receivables related to insurance policies issued by such carrier. At the initial pool balance, this limit equates to approximately $91,800,000. This limit is designed to mitigate the risk associated with the financial condition or claims-paying ability of any single insurance carrier, which is relevant because the primary collateral securing each receivable is the obligor's right to receive an unearned premium refund from the applicable carrier.
Compliance with the concentration limits will be monitored by QPF in its capacity as servicer and reported to Calvoneth Trust (as trustee and calculation agent) on each monthly servicer report. Any breach of a concentration limit that is not cured within the applicable cure period specified in the transaction documents may constitute an early amortization event as described in Section 9 hereof.
Section 8: Sequential Payment Waterfall
On each payment date during the term of the transaction, available funds (consisting of all collections on the receivables, investment earnings on amounts on deposit in the accounts, and any amounts drawn under the liquidity facility) shall be distributed by Calvoneth Trust Company, N.A. (as trustee and paying agent) in the following order of priority (each level to be paid in full before any amounts are applied to the next succeeding level):
1.  Trustee Fees and Expenses. Payment of fees and expenses due to Calvoneth Trust Company, N.A. in its capacity as indenture trustee, paying agent, calculation agent, securities intermediary, and custodian. The trustee's annual fee is $35,000 per year, plus $5,000 per payment date (i.e., $60,000 per year for monthly payments), plus reimbursement of reasonable out-of-pocket expenses (including fees and expenses of trustee's counsel, Ashfield & Greer LLP).
2.  Servicing Fee. Payment of the servicing fee due to QPF (as servicer) at a rate of 1.00% per annum of the outstanding pool balance, payable monthly. At the initial pool balance of $612,000,000, the monthly servicing fee is approximately $510,000.
3.  Class A Interest. Payment of accrued and unpaid interest on the Class A Notes at the applicable rate (Compounded SOFR plus the applicable spread as determined at pricing) on the outstanding principal balance of the Class A Notes.
4.  Class B Interest. Payment of accrued and unpaid interest on the Class B Notes at the applicable rate (Compounded SOFR plus the applicable spread as determined at pricing) on the outstanding principal balance of the Class B Notes.
5.  Class C Interest. Payment of accrued and unpaid interest on the Class C Notes at the applicable rate (Compounded SOFR plus the applicable spread as determined at pricing) on the outstanding principal balance of the Class C Notes.
6.  Class A Principal. Payment of principal on the Class A Notes until paid in full.
7.  Class B Principal. Payment of principal on the Class B Notes until paid in full.
8.  Class C Principal. Payment of principal on the Class C Notes until paid in full.
9.  Overcollateralization Replenishment. Replenishment of the overcollateralization to the target level of $15,000,000.
10.  Residual. Distribution of all remaining amounts to QRF 2022-1 (for the account of QRH, and ultimately for the benefit of the sponsor, QIH, as holder of the retained interest).
Note Regarding the Revolving Period: During the revolving period, principal collections that would otherwise be applied at priorities 6, 7, and 8 above are instead used by QRF 2022-1 to acquire additional eligible receivables from QPF (through QRH) in accordance with the eligibility criteria and concentration limits set forth in Sections 6 and 7. The sequential principal amortization waterfall set forth in priorities 6 through 8 above applies only during the amortization period (whether following the scheduled expiration of the revolving period or upon the occurrence of an early amortization event as described in Section 9).
Priority of Liquidity Facility Draws: Amounts drawn under the liquidity facility provided by Northvane Bank, N.A. shall rank pari passu with trustee fees and expenses at priority 1 in the payment waterfall. Repayment of drawn amounts under the liquidity facility shall be made from available funds in accordance with the terms of the Liquidity Facility Agreement.
Section 9: Early Amortization Events
The revolving period shall terminate early and the amortization period shall commence immediately, without the need for any notice or demand by the trustee or the noteholders, upon the occurrence of any of the following early amortization events:
1.  Net Loss Rate Trigger. The three-month rolling average net loss rate on the receivables pool exceeds 2.00% per annum. The three-month rolling average net loss rate shall be calculated by the calculation agent on each payment date based on the net losses incurred during the three most recently ended collection periods, expressed as an annualized percentage of the average aggregate pool balance during such periods. For context, the historical three-year average net loss rate for QPF's portfolio (2019–2021) was 0.42%, and the 2.00% trigger represents approximately 4.8 times the historical average.
2.  Delinquency Rate Trigger. The 60+ day delinquency rate on the receivables pool exceeds 3.50% of the aggregate outstanding pool balance as of the end of any collection period. The 60+ day delinquency rate shall be calculated by the calculation agent on each payment date based on the aggregate outstanding principal balance of all receivables for which any scheduled payment is 60 or more days past due. For context, the 60+ day delinquency rate at the cut-off date was 0.87%, and the 3.50% trigger represents approximately 4.0 times the cut-off date level.
3.  Available Funds Cap Deficit. An available funds cap deficit exists for two consecutive payment periods. An "available funds cap deficit" occurs when the available funds (including all collections, investment earnings, and any amounts drawn under the liquidity facility) are insufficient to pay in full all interest due on all classes of notes and all fees and expenses ranking senior to interest payments in the payment waterfall.
4.  Servicer Default / Rating Downgrade. A servicer default occurs under the Servicing Agreement (including, without limitation, any failure by QPF to remit collections within the time periods specified therein, any material breach of QPF's representations, warranties, or covenants thereunder, or any bankruptcy or insolvency event affecting QPF), or the credit rating of the servicer (QPF) or its parent (QIH) is downgraded below BB(cr) by Brindoval Ratings Inc. or below Ba2(p) by Pinnacle Rating Services LLC.
5.  Minimum Pool Balance. The aggregate outstanding pool balance falls below $450,000,000 during the revolving period (whether as a result of collections, losses, or QPF's inability to identify and sell sufficient additional eligible receivables to QRF 2022-1 to maintain the pool at or above such level).
Upon the occurrence of an early amortization event, the revolving period shall terminate immediately, no further purchases of receivables shall be made, and all principal collections on the receivables shall be applied to pay down the notes in accordance with the sequential payment waterfall described in Section 8 (priorities 6, 7, and 8). The occurrence of an early amortization event does not, by itself, constitute an event of default under the Indenture, but it does accelerate the timing of principal repayment to the noteholders.
Section 10: Servicing
10.1 Servicer
QPF shall serve as the initial servicer of the receivables pool pursuant to the Servicing Agreement to be entered into among QRF 2022-1, QPF, and Calvoneth Trust Company, N.A. (as trustee). QPF has extensive experience in the servicing of insurance premium finance receivables and has served as servicer of its own portfolio since its inception.
Servicing Fee: QPF shall be entitled to receive a servicing fee at a rate of 1.00% per annum of the outstanding pool balance, payable monthly from collections in accordance with the payment waterfall described in Section 8. At the initial pool balance of approximately $612,000,000, the monthly servicing fee is approximately $510,000. The servicing fee is intended to compensate QPF for its services as servicer, including the costs of collection, cash management, delinquency management, reporting, and administration of policy cancellation procedures.
Servicing Responsibilities: QPF shall be responsible for, among other things: (a) collection of all payments due from obligors; (b) remittance of collections to the collection account maintained at Calvoneth Trust within two business days of receipt; (c) administration and management of delinquent receivables, including initiation of policy cancellation procedures where necessary to realize on the unearned premium refund collateral; (d) preparation and delivery of monthly servicer reports; (e) maintenance of complete and accurate records with respect to each receivable; and (f) compliance with all applicable federal and state laws and regulations relating to the servicing of insurance premium finance receivables.
Servicing Standard: QPF shall service the receivables with reasonable care, using the same degree of skill and attention that QPF applies to the servicing of insurance premium finance receivables held for its own account, and in accordance with customary and usual standards of practice of prudent institutional servicers of similar receivables.
10.2 Back-Up Servicer
Northvane Bank, N.A. shall serve as the back-up servicer of the receivables pool pursuant to the Back-Up Servicing Agreement to be entered into among QRF 2022-1, QPF, Northvane Bank, N.A., and Calvoneth Trust Company, N.A. (as trustee).
Back-Up Servicer Fee: Northvane Bank shall be entitled to receive a back-up servicer fee of $50,000 per annum ($12,500 per quarter), payable from collections.
Warm Standby Requirements: Northvane Bank shall maintain a "warm standby" capability to assume the servicing of the receivables pool in the event of a servicer default by QPF. Such warm standby capability shall include: (a) periodic receipt and review of loan-level data files from QPF (not less frequently than monthly); (b) periodic system integration and connectivity testing to ensure that Northvane Bank's servicing platform is compatible with the receivables data and reporting formats; and (c) maintenance of trained personnel capable of assuming the servicing function.
Assumption of Servicing: Upon the occurrence of a servicer default under the Servicing Agreement and delivery of notice by the trustee (or the requisite percentage of noteholders) directing the termination of QPF as servicer, Northvane Bank shall assume the servicing of the receivables pool within 60 calendar days of receipt of such notification. During the transition period, QPF shall cooperate with Northvane Bank in the transfer of servicing, including the transfer of data files, systems access, and obligor correspondence.
10.3 Servicer Reporting
QPF, in its capacity as servicer, shall prepare and deliver a monthly servicer report to Calvoneth Trust Company, N.A. (as trustee and calculation agent) and to each of the rating agencies (Brindoval Ratings and Pinnacle Rating Services) not later than five business days prior to each payment date. Each monthly servicer report shall include, at a minimum, the following information:
•  Aggregate outstanding pool balance as of the end of the related collection period
•  Total collections received during the related collection period (broken down by interest and principal components)
•  Net losses incurred during the related collection period
•  Three-month rolling average net loss rate
•  30+ day and 60+ day delinquency rates
•  Compliance with concentration limits (single obligor, single state, single insurance carrier)
•  Calculation of early amortization trigger levels
•  Summary of receivables added to the pool during the revolving period (if applicable)
•  Summary of receivables removed from the pool (payoffs, maturities, and defaults)
•  Available funds and projected waterfall distributions for the upcoming payment date
Section 11: Liquidity Facility
The following summarizes the key terms of the committed liquidity facility to be provided by Northvane Bank, N.A. to QRF 2022-1:
Conditions to Draw: Draws on the liquidity facility shall be permitted only upon the joint certification by QPF (as servicer) and Calvoneth Trust Company, N.A. (as trustee) that (a) a timing mismatch exists between the receipt of collections and the upcoming payment date, and (b) amounts available from collections on the receivables and investment earnings on amounts on deposit in the accounts are insufficient to cover the senior obligations (trustee fees, servicing fees, and interest on the notes) due on the upcoming payment date. The liquidity facility is not intended to cover credit losses on the receivables; rather, it is intended to address temporary cash flow timing differences that may arise due to the short-term, sequential nature of premium finance receivable collections.
Repayment: Amounts drawn under the liquidity facility shall be repaid from available funds in accordance with the priority of payments set forth in the Liquidity Facility Agreement and the Indenture. Undrawn commitments may be terminated by Northvane Bank only upon the occurrence of certain specified events (including an event of default under the Indenture or a material breach of the Liquidity Facility Agreement) and with prior notice to the trustee.
Section 12: Accounts and Cash Management
The following accounts shall be established and maintained at Calvoneth Trust Company, N.A. in connection with the transaction:
Collection Account. The collection account shall be maintained at Calvoneth Trust Company, N.A. in the name of QRF 2022-1 (subject to the exclusive control of Calvoneth Trust as securities intermediary). All collections on the receivables, including all principal and interest payments received from obligors, all unearned premium refunds received from insurance carriers, and all other amounts received in connection with the receivables, shall be deposited into the collection account within two business days of receipt by QPF (as servicer). Pending distribution on each payment date, amounts on deposit in the collection account shall be invested in Eligible Investments (as defined in the Indenture).
Payment Account. The payment account shall be maintained at Calvoneth Trust Company, N.A. in the name of QRF 2022-1 (subject to the exclusive control of Calvoneth Trust as securities intermediary). On each payment date, Calvoneth Trust (as calculation agent) shall transfer funds from the collection account to the payment account in the aggregate amount necessary to make all payments due on such payment date in accordance with the waterfall set forth in Section 8. Distributions to noteholders shall be made from the payment account through the facilities of DTC.
Reserve Account. The reserve account, if applicable, shall be funded from excess collections (i.e., amounts remaining after all payments at priorities 1 through 9 in the waterfall have been made) up to a target reserve level to be specified in the Indenture. Amounts on deposit in the reserve account may be used on any payment date to cover shortfalls at priority levels 1 through 5 in the waterfall, subject to the terms and conditions of the Indenture.
Liquidity Reserve Account. The liquidity reserve account shall be funded exclusively from draws on the liquidity facility provided by Northvane Bank, N.A. Amounts on deposit in the liquidity reserve account shall be used solely for the purposes described in Section 11 hereof.
Account Control Agreement. All accounts established in connection with the transaction shall be subject to an Account Control Agreement among QRF 2022-1, Calvoneth Trust Company, N.A. (as securities intermediary), and each applicable depositary institution. Pursuant to the Account Control Agreement, Calvoneth Trust shall have exclusive control (within the meaning of Sections 8-106 and 9-104 of the Uniform Commercial Code) over each such account, and no withdrawals or transfers from any such account shall be made except in accordance with the terms of the Indenture and the other transaction documents.
Section 13: Placement Terms and Fees
13.1 Placement Agent
Ridgeline Capital Markets LLC shall act as the sole placement agent for all tranches of notes in connection with the offering. The notes will be offered and sold in a private placement transaction pursuant to Rule 144A under the Securities Act of 1933, as amended (to qualified institutional buyers within the United States) and pursuant to Regulation S thereunder (to non-U.S. persons in offshore transactions). Ridgeline's obligations as placement agent will be set forth in the Note Purchase Agreement to be entered into among QRF 2022-1, QIH, and Ridgeline Capital Markets LLC.
13.2 Placement Fees
The following placement fees shall be payable by QRF 2022-1 (from the proceeds of the offering) to Ridgeline Capital Markets LLC at closing:
The placement fees are expressed as a percentage of the par amount of each tranche of rated notes and reflect the incremental placement effort and investor risk associated with the junior tranches. The total estimated placement fee of $1,672,500 represents an effective blended fee rate of approximately 0.345% across all rated tranches.
13.3 Selling Restrictions
The notes will be subject to the following selling restrictions:
•  The notes may be offered and sold only to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) in transactions exempt from the registration requirements of the Securities Act pursuant to Rule 144A, and to persons who are not "U.S. persons" (as defined in Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S.
•  No general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) shall be conducted in connection with the offering of the notes.
•  Each note certificate (or the applicable global note) shall bear a restrictive legend setting forth the applicable transfer restrictions, including a statement that the notes have not been registered under the Securities Act and may not be offered, sold, or otherwise transferred except in compliance with the registration requirements of the Securities Act or pursuant to an available exemption therefrom.
•  Transfer of beneficial interests in the notes shall be subject to compliance with the applicable transfer restrictions set forth in the Indenture, including the requirement that each transferee certify that it is either a QIB (for Rule 144A notes) or a non-U.S. person purchasing in an offshore transaction (for Regulation S notes).
The offering memorandum will contain a full description of the applicable selling restrictions, transfer restrictions, and notice requirements.
Section 14: Performance Guaranty
QIH shall execute and deliver at closing a limited performance guaranty (the "Performance Guaranty") in favor of Calvoneth Trust Company, N.A. (as trustee for the benefit of the noteholders), guaranteeing the due and punctual performance by QPF of certain of QPF's obligations as servicer and seller under the transaction documents. The Performance Guaranty shall cover, among other things, QPF's obligations to: (a) collect and remit collections on the receivables in accordance with the Servicing Agreement; (b) deliver accurate and timely monthly servicer reports; (c) comply with the representations, warranties, and covenants set forth in the Receivables Sale Agreement and the Servicing Agreement; and (d) cooperate in the transition of servicing to the back-up servicer in the event of a servicer termination.
The Performance Guaranty is a guaranty of QPF's performance obligations only and does not extend to the credit performance of the receivables themselves. QIH does not guarantee the payment of principal or interest on the notes, and the notes are not obligations of, or guaranteed by, QIH. The enforceability of the Performance Guaranty is subject to the financial condition and creditworthiness of QIH, as to which the noteholders bear the risk.
Section 15: Tax Considerations
The following summarizes the principal U.S. federal income tax considerations relevant to the transaction. All tax opinions referenced below will be delivered by Calderwood & Harkness LLP (Sylvia Hartwell, tax partner) at or prior to closing.
True Sale (Tax): Calderwood & Harkness (Sylvia Hartwell) will deliver an opinion that the transfers of receivables from QPF to QRH (pursuant to the Receivables Sale Agreement) and from QRH to QRF 2022-1 (pursuant to the Receivables Transfer Agreement) constitute "true sales" for U.S. federal income tax purposes, and that the receivables so transferred are not properly treated as assets of QPF or QRH (as applicable) for U.S. federal income tax purposes. This opinion will be subject to customary assumptions, qualifications, and limitations.
Debt Treatment: The notes are intended to be, and Calderwood & Harkness will deliver an opinion to the effect that the notes should be, treated as indebtedness (and not as equity interests in QRF 2022-1 or in any other entity) for U.S. federal income tax purposes. Holders of the notes will be required to report interest income on the notes in accordance with their regular method of tax accounting.
Entity Classification: QRF 2022-1 is intended to be treated as a disregarded entity (or, if applicable, a qualifying special purpose entity) for U.S. federal income tax purposes, and not as a separate taxable entity (whether as a corporation, partnership, or otherwise). The limited liability company agreement of QRF 2022-1 and the transaction documents will contain provisions designed to support this treatment. Calderwood & Harkness will deliver an opinion regarding the entity classification of QRF 2022-1 at closing.
FATCA: The notes are structured to comply with the requirements of the Foreign Account Tax Compliance Act ("FATCA"), including Sections 1471 through 1474 of the Internal Revenue Code and the Treasury regulations and official guidance promulgated thereunder. Non-U.S. holders of the notes will be subject to standard documentation requirements, including the requirement to provide a valid IRS Form W-8BEN or W-8BEN-E (or an applicable substitute form) to the trustee or its agent to avoid FATCA withholding. QRF 2022-1 will be treated as a "grandfathered obligation" issuer or will otherwise comply with FATCA reporting and withholding requirements.
State Tax: QRF 2022-1 and QRH are organized under the laws of the State of Delaware and will be operated in a manner designed to avoid establishing nexus for state-level