BACK-UP SERVICING AGREEMENT
Execution Draft v2
Dated as of October 12, 2022
among
QUORUM RECEIVABLES FUNDING 2022-1 LLC, a Delaware limited liability company, as Issuer,
QUORUM PREMIUM FINANCE LLC, a Delaware limited liability company, as Servicer,
NORTHVANE BANK, NATIONAL ASSOCIATION, a national banking association, as Back-Up Servicer,
and
CALVONETH TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee
DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO REVISION
TABLE OF CONTENTS
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This BACK-UP SERVICING AGREEMENT (this "Agreement"), dated as of October 12, 2022, is entered into among:
(1) QUORUM RECEIVABLES FUNDING 2022-1 LLC, a Delaware limited liability company (the "Issuer" or "QRF 2022-1");
(2) QUORUM PREMIUM FINANCE LLC, a Delaware limited liability company (the "Servicer" or "QPF");
(3) NORTHVANE BANK, NATIONAL ASSOCIATION, a national banking association (the "Back-Up Servicer" or "Northvane"); and
(4) CALVONETH TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as indenture trustee (the "Indenture Trustee" or "Calvoneth Trust").
Each of the foregoing is individually referred to herein as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Quorum Receivables Funding 2022-1 LLC (the "Issuer"), a Delaware limited liability company (DE SOS File No. 7894231), has been formed as a bankruptcy-remote special purpose entity for the purpose of acquiring insurance premium finance receivables and issuing notes backed by such receivables;
WHEREAS, Quorum Premium Finance LLC (the "Servicer" or "QPF"), a Delaware limited liability company and wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation (NYSE: QIHC), originates and services insurance premium finance loans to commercial policyholders across all 50 states, and has been appointed as servicer of the receivables pool pursuant to that certain Servicing Agreement dated as of October 12, 2022 (the "Servicing Agreement"), among the Issuer, the Servicer, and the Indenture Trustee;
WHEREAS, the Issuer has issued or proposes to issue $375,000,000 in aggregate principal amount of Class A Notes, $75,000,000 in aggregate principal amount of Class B Notes, and $35,000,000 in aggregate principal amount of Class C Notes (collectively, the "Notes"), pursuant to that certain Indenture dated as of October 12, 2022 (the "Indenture"), between the Issuer and Calvoneth Trust Company, National Association, as Indenture Trustee (the "Indenture Trustee");
WHEREAS, as a condition to the issuance of the Notes and the assignment of preliminary ratings by Brindoval Ratings Inc. (AAA(cr) for Class A, A(cr) for Class B, BBB(cr) for Class C) and Pinnacle Rating Services LLC (Aaa(p) for Class A, A1(p) for Class B, Baa2(p) for Class C), the Issuer is required to appoint a back-up servicer with demonstrated capabilities in the servicing of insurance premium finance receivables or substantially similar asset classes;
WHEREAS, Northvane Bank, National Association (the "Back-Up Servicer" or "Northvane"), a national banking association with its principal office at 200 Vesey Street, New York, NY 10281, has agreed to act as back-up servicer on the terms and conditions set forth herein;
WHEREAS, the Parties desire to set forth the terms upon which the Back-Up Servicer will maintain warm standby readiness and, upon the occurrence of a Servicer Default (as defined in the Servicing Agreement), assume the servicing obligations with respect to the receivables pool; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.01 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Account Control Agreement" means that certain Account Control Agreement dated as of October 12, 2022, among the Issuer, the Servicer, and Calvoneth Trust Company, National Association, as Indenture Trustee and securities intermediary, governing the collection account, the payment account, the reserve account, and the liquidity reserve account established thereunder.
"Accounts" means, collectively, the collection account, the payment account, the reserve account, and the liquidity reserve account established under the Account Control Agreement with Calvoneth Trust Company, National Association, as Indenture Trustee.
"Administration Agreement" means the Administration Agreement dated as of October 12, 2022, between the Issuer and QIH, as administrator thereunder, pursuant to which QIH has agreed to perform certain administrative functions on behalf of the Issuer.
"Amortization Period" means the 12-month period immediately following the end of the Revolving Period, during which principal collections on the Receivables shall be applied to the repayment of the Notes in accordance with the sequential payment waterfall set forth in the Indenture.
"Back-Up Servicer" means Northvane Bank, National Association, a national banking association, in its capacity as back-up servicer under this Agreement, or any successor thereto appointed in accordance with the terms hereof.
"Back-Up Servicer Fee" means the fee payable to the Back-Up Servicer in consideration for the performance of its warm standby obligations under this Agreement, in the amount of $50,000 per annum, payable quarterly in arrears in equal installments of $12,500 per quarter, as more fully described in Section 6.01 and Schedule B.
"Back-Up Servicing Commencement Date" means the date on which the Back-Up Servicer assumes the duties of Successor Servicer following a Servicer Default and completion of the Transition Period, as determined in accordance with Section 5.03.
"Business Day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York or Houston, Texas are authorized or required by law, regulation, or executive order to close.
"Closing Date" means October 12, 2022, or such other date as may be agreed upon by the Parties as the date on which the Notes are first issued and the initial Receivables are transferred to the Issuer.
"Collection Period" means each monthly period during which collections on the Receivables are accumulated, commencing on the first day of each calendar month and ending on the last day of such calendar month (or, in the case of the first Collection Period, commencing on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs).
"Brindoval Ratings" means Brindoval Ratings Inc., a nationally recognized statistical rating organization.
"Custodian Agreement" means the Custodian Agreement dated as of October 12, 2022, between the Issuer and Calvoneth Trust Company, National Association, as custodian, relating to the custody of the receivable files.
"Cut-Off Date" means June 30, 2022, the date as of which the initial pool of Receivables was identified for transfer to the Issuer.
"Data File" means the electronic data file described in Section 3.01, containing all information necessary for the Back-Up Servicer to assume servicing of the Receivables pool, as updated from time to time in accordance with Section 3.02.
"Early Amortization Event" means any of the events defined as an "Early Amortization Event" in the Indenture, including, without limitation: (i) the three-month rolling average net loss rate exceeding 2.00%; (ii) the 60-or-more-day delinquency rate exceeding 3.50%; (iii) an available funds cap deficit occurring for two consecutive Collection Periods; (iv) the occurrence of a Servicer Default or a downgrade of the Servicer's credit rating below BB(cr) by Brindoval Ratings or below Ba2(p) by Pinnacle Rating Services; and (v) the aggregate outstanding pool balance falling below $450,000,000 during the Revolving Period.
"Eligible Receivable" means a Receivable that satisfies all of the eligibility criteria set forth in the Receivables Sale Agreement, including, without limitation, each of the following: (i) such Receivable was originated by QPF in the ordinary course of its business; (ii) such Receivable is denominated in United States Dollars; (iii) such Receivable is secured by a valid assignment of unearned premium refund rights from the applicable insurance carrier; (iv) the original term of such Receivable does not exceed 12 months; (v) the obligor thereunder is a United States commercial policyholder; (vi) such Receivable is not in default and no payment thereon is more than 60 days past due as of the applicable date of determination; and (vii) such Receivable was originated in compliance with all applicable usury and licensing laws of the state in which it was originated.
"Grant of Security Interest" means the Grant of Security Interest dated as of October 12, 2022, made by the Issuer in favor of the Indenture Trustee for the benefit of the Noteholders, granting a first-priority perfected security interest in the Receivables, Collections, and other pledged assets of the Issuer.
"Indenture" has the meaning set forth in the Recitals.
"Indenture Trustee" means Calvoneth Trust Company, National Association, a national banking association, in its capacity as indenture trustee under the Indenture, acting through its Corporate Trust Office at 600 Travis Street, Suite 5800, Houston, TX 77002; Senior Trust Officer: Gerald K. Fontaine; or any successor thereto appointed in accordance with the terms of the Indenture.
"Initial Pool Balance" means $612,000,000, representing the aggregate outstanding principal balance of the Receivables as of the Cut-Off Date.
"Issuer" means Quorum Receivables Funding 2022-1 LLC, a Delaware limited liability company (DE SOS File No. 7894231), or any successor thereto.
"Legal Final Maturity Date" means the date that is 42 months following the Closing Date, being the final date by which all Notes must be repaid in full.
"Liquidity Facility Agreement" means the Liquidity Facility Agreement dated as of October 12, 2022, between the Issuer and Northvane Bank, National Association, providing a $25,000,000 liquidity facility for the benefit of the Issuer to fund temporary shortfalls in collections available for payment on the Notes.
"Note Purchase Agreement" means the Note Purchase Agreement dated as of October 12, 2022, among the Issuer, QIH, and Ridgeline Capital Markets LLC, as initial purchaser, governing the terms of the initial purchase and sale of the Notes.
"Noteholders" means the registered holders from time to time of the Notes.
"Notes" means, collectively, the $375,000,000 in aggregate principal amount of Class A Notes, the $75,000,000 in aggregate principal amount of Class B Notes, and the $35,000,000 in aggregate principal amount of Class C Notes, each issued pursuant to the Indenture.
"Performance Guaranty" means the Performance Guaranty dated as of October 12, 2022, made by QIH in favor of the Indenture Trustee, guaranteeing certain obligations of QPF as Servicer under the Servicing Agreement.
"Pinnacle Rating Services" means Pinnacle Rating Services LLC, a nationally recognized statistical rating organization.
"QIH" means Quorum Insurance Holdings Corp., a Delaware corporation (NYSE: QIHC), the parent company of QPF and the administrator of the Issuer under the Administration Agreement.
"QRH" means Quorum Receivables Holding LLC, a Delaware limited liability company, the sole member of the Issuer, which serves as the intermediate transferor of Receivables in the two-step transfer structure.
"Rating Agencies" means, collectively, Brindoval Ratings Inc. and Pinnacle Rating Services LLC, or any successor rating agencies designated in writing by the Issuer and the Indenture Trustee.
"Receivables" means the insurance premium finance receivables originated by the Servicer and transferred to the Issuer through the two-step transfer structure (QPF to QRH pursuant to the Receivables Sale Agreement, and QRH to QRF 2022-1 pursuant to the Receivables Transfer Agreement), together with all related rights, including the right to receive payments thereon and the assignment of unearned premium refund rights.
"Receivables Sale Agreement" means the Receivables Sale Agreement dated as of October 12, 2022, between QPF (as seller) and QRH (as purchaser), pursuant to which QPF sells Receivables to QRH in a true sale transaction.
"Receivables Transfer Agreement" means the Receivables Transfer Agreement dated as of October 12, 2022, between QRH (as transferor) and QRF 2022-1 (as transferee), pursuant to which QRH transfers Receivables to the Issuer.
"Revolving Period" means the 24-month period commencing on the Closing Date, during which the Issuer may acquire additional Eligible Receivables from QPF (through QRH) using collections on the existing Receivables pool, subject to the eligibility criteria and concentration limits set forth in the Transaction Documents.
"Servicer" means Quorum Premium Finance LLC, a Delaware limited liability company, in its capacity as servicer under the Servicing Agreement, or any Successor Servicer appointed in accordance with the terms of the Servicing Agreement and this Agreement.
"Servicer Default" has the meaning ascribed to such term in the Servicing Agreement, as more fully described in Section 5.01.
"Servicing Agreement" has the meaning set forth in the Recitals.
"Servicing Fee" means the fee payable to the Servicer (or any Successor Servicer) for the performance of servicing duties under the Servicing Agreement, in the amount of 1.00% per annum calculated on the outstanding pool balance of the Receivables, payable monthly from collections on the Receivables.
"Successor Servicer" means the Back-Up Servicer or any other entity appointed to succeed the Servicer in the performance of servicing duties upon the occurrence of a Servicer Default in accordance with the terms of the Servicing Agreement and this Agreement.
"Transaction Documents" means, collectively, the Indenture, the Servicing Agreement, this Agreement, the Receivables Sale Agreement, the Receivables Transfer Agreement, the Note Purchase Agreement, the Administration Agreement, the Liquidity Facility Agreement, the Account Control Agreement, the Custodian Agreement, the Grant of Security Interest, the Performance Guaranty, and all related documents, instruments, certificates, and agreements entered into in connection with the transactions contemplated thereby, in each case as amended, supplemented, restated, or otherwise modified from time to time.
"Transition Period" has the meaning set forth in Section 5.02.
Section 1.02 — Interpretation
(a) Any reference in this Agreement to any agreement, instrument, or document shall mean such agreement, instrument, or document as the same may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms thereof.
(b) The headings and captions in this Agreement are included for convenience of reference only and shall not define, limit, or otherwise affect the meaning or interpretation of any provision of this Agreement.
(c) Words importing the singular number shall include the plural number and vice versa, and words importing the masculine gender shall include the feminine and neuter genders and vice versa.
(d) The word "including" and words of similar import, when used in this Agreement, shall mean "including, without limitation," unless the context clearly requires otherwise.
(e) References to "Articles," "Sections," "Schedules," and "Exhibits" are to Articles, Sections, Schedules, and Exhibits of this Agreement unless otherwise expressly specified.
(f) References to any statute, law, or regulation shall mean such statute, law, or regulation as amended from time to time and shall include any successor statute, law, or regulation.
(g) The words "herein," "hereof," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(h) Terms defined in the Uniform Commercial Code as in effect in the State of New York (the "UCC") and not otherwise defined herein shall have the meanings given to such terms in the UCC.
Section 1.03 — Incorporation by Reference
Capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings assigned to such terms in the Servicing Agreement and the Indenture, as applicable. In the event that a term is defined in both the Servicing Agreement and the Indenture, the definition set forth in the Indenture shall control unless the context requires otherwise.
ARTICLE II — APPOINTMENT AND ACCEPTANCE
Section 2.01 — Appointment of Back-Up Servicer
The Issuer, with the consent of the Indenture Trustee (such consent being evidenced by the Indenture Trustee's execution of this Agreement), hereby appoints Northvane Bank, National Association as Back-Up Servicer with respect to all Receivables now or hereafter held by the Issuer, and all collections thereon and proceeds thereof, on the terms and conditions set forth in this Agreement. Such appointment shall be effective as of the Closing Date and shall continue until the earliest of: (i) the termination of this Agreement in accordance with Article XI; (ii) the payment in full of all outstanding Notes and the satisfaction in full of all obligations of the Issuer under the Indenture; or (iii) the Legal Final Maturity Date. The Back-Up Servicer shall perform the duties and obligations assigned to it under this Agreement, including the warm standby obligations set forth in Article IV and, upon the occurrence of a Servicer Default and completion of the Transition Period, the assumption of servicing duties as Successor Servicer as set forth in Article V.
Section 2.02 — Acceptance by Back-Up Servicer
Northvane Bank, National Association hereby accepts its appointment as Back-Up Servicer under this Agreement and agrees to perform the duties and obligations of the Back-Up Servicer as set forth herein, including the maintenance of warm standby readiness and, if required, the assumption of the role of Successor Servicer upon the occurrence of a Servicer Default. Northvane represents and warrants that it has the legal capacity, regulatory authority, and operational capability to serve as Back-Up Servicer and, if required, as Successor Servicer with respect to the Receivables pool. Northvane further represents that it is a national banking association duly organized, validly existing, and in good standing under the laws of the United States, and that it possesses all necessary licenses, permits, and approvals required to perform its obligations under this Agreement. Northvane acknowledges that it has received and reviewed copies of the Servicing Agreement, the Indenture, and the other Transaction Documents and is familiar with the servicing requirements and procedures applicable to the Receivables pool.
Section 2.03 — Acknowledgment of Servicer
Quorum Premium Finance LLC acknowledges and consents to the appointment of Northvane Bank, National Association as Back-Up Servicer under this Agreement and agrees to cooperate with Northvane in the performance of its duties as described herein, including, without limitation, the data transfer and access obligations set forth in Article III and the transition cooperation obligations set forth in Article V. QPF acknowledges that upon the occurrence of a Servicer Default, the Back-Up Servicer may be required to assume servicing of the Receivables in accordance with the terms of this Agreement and the Servicing Agreement. QPF further acknowledges that its obligation to cooperate with the Back-Up Servicer and to provide timely and accurate data and information is material to the purposes of this Agreement and is essential to maintaining the ratings assigned to the Notes by the Rating Agencies.
Section 2.04 — Acknowledgment of Indenture Trustee
Calvoneth Trust Company, National Association, in its capacity as Indenture Trustee under the Indenture, hereby acknowledges the appointment of Northvane Bank, National Association as Back-Up Servicer under this Agreement and acknowledges the role of the Back-Up Servicer in maintaining warm standby readiness and, if necessary, overseeing and implementing the servicing transition in the event of a Servicer Default. The Indenture Trustee shall have no obligation to supervise, monitor, or evaluate the Back-Up Servicer's performance of its warm standby duties under this Agreement, and the Indenture Trustee shall have no liability for any act or omission of the Back-Up Servicer. The Indenture Trustee's acknowledgment and consent hereunder shall not constitute an assumption of any duties or responsibilities beyond those expressly set forth in the Indenture and the other Transaction Documents.
ARTICLE III — DATA TRANSFER AND ONGOING REPORTING OBLIGATIONS
Section 3.01 — Initial Data Transfer
(a) Within 30 days following the Closing Date, the Servicer shall deliver to the Back-Up Servicer a complete electronic Data File containing all information necessary for the Back-Up Servicer to assume servicing of the Receivables pool in the event of a Servicer Default. The Data File shall be delivered in the format and medium specified in Schedule A (Data File Specifications) attached hereto and shall comply with the encryption and transmission requirements set forth therein.
(b) The initial Data File shall include, at a minimum, the following information with respect to each Receivable in the pool:
(i) obligor identification and contact information (including name, address, telephone number, and email address);
(ii) loan origination date;
(iii) original principal balance and current outstanding principal balance;
(iv) applicable annual percentage rate (noting that the weighted average APR of the initial pool is 7.85%);
(v) payment schedule, including payment due dates and scheduled payment amounts, and complete payment history;
(vi) insurance carrier identification and applicable policy identification number;
(vii) unearned premium refund right details, including the amount of unearned premium available as of the most recent determination date;
(viii) geographic location (state) of each obligor;
(ix) current delinquency status and aging classification; and
(x) eligibility classification under the Eligible Receivable criteria set forth in the Receivables Sale Agreement.
(c) As of the Cut-Off Date, the initial pool consists of approximately 82,400 insurance premium finance loans with an aggregate outstanding principal balance of $612,000,000, an average individual loan balance of approximately $7,427, a weighted average original term of 9.2 months, and a weighted average remaining term of 5.7 months. The Servicer shall provide the Back-Up Servicer with a pool summary reflecting these characteristics as part of the initial Data File delivery.
(d) Upon receipt of the initial Data File, the Back-Up Servicer shall confirm receipt in writing to the Servicer and the Indenture Trustee within 5 Business Days and shall notify the Servicer of any material deficiencies or formatting errors identified during its initial review within 15 Business Days of receipt.
Section 3.02 — Monthly Data File Updates
(a) The Servicer shall deliver to the Back-Up Servicer updated Data Files on a monthly basis, within 5 Business Days following the end of each Collection Period. Each monthly update shall be delivered in the format and medium specified in Schedule A (Data File Specifications) and shall include all changes to the Receivables pool since the prior Data File delivery.
(b) Each monthly Data File update shall include the following:
(i) new Receivables added to the pool during the applicable Collection Period (including during the Revolving Period, to the extent additional Eligible Receivables have been acquired by the Issuer);
(ii) Receivables that have been paid in full, defaulted, or otherwise removed from the pool during the applicable Collection Period, together with the reason for removal;
(iii) updated payment histories and delinquency status for each Receivable remaining in the pool;
(iv) concentration data, including single obligor concentrations, state-level concentrations, and insurance carrier concentrations;
(v) updated aggregate pool balance and total number of Receivables in the pool; and
(vi) any changes to obligor contact information, insurance carrier or policy information, or other material data fields.
(c) All data delivered pursuant to this Section 3.02 shall be delivered in the format and medium specified in Schedule A (Data File Specifications) attached hereto, and shall be transmitted via secure file transfer protocol (SFTP) with AES-256 encryption in accordance with the technical specifications set forth in Schedule A.
Section 3.03 — Data Verification
(a) The Back-Up Servicer shall, within 10 Business Days of receipt of each monthly Data File delivered pursuant to Section 3.02, perform reconciliation and verification procedures to confirm the accuracy and integrity of the data received. Such procedures shall include, at a minimum:
(i) verification that the aggregate outstanding pool balance reported in the Data File reconciles to the aggregate pool balance reported in the Servicer's monthly report delivered to the Indenture Trustee under Section 4.04 of the Servicing Agreement, within a tolerance of $5,000;
(ii) verification, on a sample basis (consisting of not fewer than 100 randomly selected Receivables per month, or such greater number as the Back-Up Servicer deems appropriate), that newly added Receivables satisfy the Eligible Receivable criteria set forth in the Receivables Sale Agreement;
(iii) verification that concentration limits remain within the thresholds specified in the Transaction Documents, including: (A) single obligor concentration not exceeding 0.75% of the aggregate pool balance, (B) single state concentration not exceeding 20% of the aggregate pool balance, and (C) single insurance carrier concentration not exceeding 15% of the aggregate pool balance; and
(iv) such other verification procedures as the Back-Up Servicer may deem prudent and consistent with customary back-up servicing practices for similar transactions.
(b) The Back-Up Servicer shall promptly notify the Indenture Trustee and the Issuer in writing of any material discrepancies identified during the verification process, including any instances in which the aggregate pool balance fails to reconcile, newly added Receivables do not appear to satisfy one or more of the Eligible Receivable criteria, or concentration limits appear to have been exceeded. For purposes of this Section 3.03, a discrepancy shall be deemed "material" if it involves an aggregate principal balance in excess of $1,000,000 or affects more than 1.00% of the Receivables pool by number.
(c) The Servicer shall cooperate with the Back-Up Servicer in resolving any discrepancies identified pursuant to this Section 3.03, and shall provide such additional information and clarification as the Back-Up Servicer may reasonably request within 10 Business Days of any such request.
Section 3.04 — Access to Servicer Records and Systems
(a) The Servicer shall provide the Back-Up Servicer with reasonable access to its origination and servicing systems, including read-only electronic access to the Servicer's loan management platform, for purposes of familiarization with the Servicer's systems and processes and for the maintenance of warm standby readiness. Such access shall be provided within 30 days following the Closing Date and shall continue for the duration of this Agreement.
(b) The Servicer shall designate a liaison contact for the Back-Up Servicer, who shall be available to respond to reasonable inquiries from the Back-Up Servicer on a timely basis. The initial liaison contact for the Servicer shall be Sandra Ling-Hwang, Treasurer of QIH and Manager of QPF, whose contact information is set forth in Schedule D.
(c) The Back-Up Servicer's designated contact for purposes of this Agreement shall be Diane Coletti, Managing Director, Structured Products, Northvane Bank, National Association, whose contact information is set forth in Schedule D.
(d) The Servicer shall provide the Back-Up Servicer with reasonable access to its offices and facilities during normal business hours, upon not less than 5 Business Days' prior written notice, for purposes of conducting on-site reviews of the Servicer's operations, systems, and records as the Back-Up Servicer may reasonably deem necessary for the maintenance of warm standby readiness. Such on-site reviews shall be conducted no more than once per calendar year during normal operating conditions, unless the Back-Up Servicer reasonably determines that more frequent reviews are warranted due to deteriorating pool performance or other circumstances that may indicate an elevated risk of a Servicer Default.
Section 3.05 — Confidentiality of Data
(a) All data and information received by the Back-Up Servicer from the Servicer, the Issuer, or the Indenture Trustee pursuant to this Agreement, including all Data Files, pool performance data, obligor information, and any other proprietary or confidential information (collectively, "Confidential Information"), shall be treated by the Back-Up Servicer as confidential and proprietary. The Back-Up Servicer shall not disclose, publish, or otherwise make available any Confidential Information to any person or entity, except:
(i) to the Indenture Trustee, in connection with the Indenture Trustee's duties under the Indenture and this Agreement;
(ii) to the Rating Agencies (Brindoval Ratings Inc. and Pinnacle Rating Services LLC), to the extent required in connection with the rating surveillance of the Notes;
(iii) as required by applicable law, regulation, or order of any court or governmental authority of competent jurisdiction, or as required by the rules and regulations of any regulatory authority with jurisdiction over the Back-Up Servicer (including the Office of the Comptroller of the Currency);
(iv) to its employees, officers, directors, agents, counsel, auditors, and contractors on a need-to-know basis, provided that such persons are subject to obligations of confidentiality at least as restrictive as those set forth in this Section 3.05; and
(v) to any successor back-up servicer or successor servicer appointed in accordance with the terms of this Agreement.
(b) The Back-Up Servicer shall implement and maintain commercially reasonable administrative, technical, and physical data security measures consistent with its obligations as a national banking association regulated by the Office of the Comptroller of the Currency, and in compliance with all applicable federal and state privacy and data security laws and regulations, including, without limitation, the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, and any implementing regulations thereunder, to protect the confidentiality, integrity, and availability of all Confidential Information received pursuant to this Agreement.
(c) The obligations of confidentiality set forth in this Section 3.05 shall survive the termination of this Agreement for a period of two years following the date of termination.
ARTICLE IV — WARM STANDBY OBLIGATIONS
Section 4.01 — Maintenance of Systems and Personnel
(a) The Back-Up Servicer shall maintain at all times during the term of this Agreement the operational systems, technology infrastructure, and trained personnel necessary to assume servicing of the Receivables pool within the Transition Period specified in Section 5.02. The Back-Up Servicer shall dedicate such resources as are necessary to ensure that it is prepared, on an ongoing basis, to step into the role of Successor Servicer with minimal disruption to the collection and servicing operations.
(b) The systems and infrastructure maintained by the Back-Up Servicer shall be capable of processing all insurance premium finance loan servicing functions, including, without limitation:
(i) payment processing and application, including the receipt, posting, and allocation of obligor payments to principal and interest;
(ii) delinquency tracking, collection activity management, and loss mitigation procedures;
(iii) insurance carrier communication and the filing, processing, and tracking of unearned premium refund claims;
(iv) regulatory reporting and compliance with applicable state premium finance licensing requirements in each of the 50 states in which QPF is licensed to operate;
(v) investor reporting, including the preparation and delivery of monthly servicer reports as required under the Servicing Agreement and the Indenture; and
(vi) compliance with the sequential payment waterfall and other payment allocation procedures set forth in the Indenture.
(c) The Back-Up Servicer shall maintain a designated team of trained professionals with experience in the servicing of insurance premium finance receivables or substantially similar consumer or commercial receivables. The Back-Up Servicer shall ensure that such team includes personnel with expertise in loan servicing operations, collections, regulatory compliance, and investor reporting.
Section 4.02 — Periodic Testing
(a) Not less than semi-annually during the term of this Agreement, the Back-Up Servicer shall conduct system readiness testing to confirm its ability to assume servicing of the Receivables pool in a timely manner. Each system readiness test shall include, at a minimum, the loading of the most recently received Data File into the Back-Up Servicer's servicing platform and the confirmation that the Back-Up Servicer's systems are capable of processing payments, generating delinquency reports, and producing investor reports with respect to the Receivables reflected in such Data File.
(b) The Back-Up Servicer shall provide the Issuer and the Indenture Trustee with a written summary of the results of each system readiness test within 15 Business Days following the completion of such test. Each written summary shall describe the scope of the testing performed, the results obtained, any issues or deficiencies identified, and the corrective actions taken or planned to address any such issues or deficiencies.
(c) The Servicer shall cooperate with the Back-Up Servicer in the conduct of system readiness tests, including by providing test data, sample loan files, and other information reasonably requested by the Back-Up Servicer in a timely manner to facilitate such testing. The Servicer shall not unreasonably withhold, delay, or condition its cooperation with system readiness testing.
Section 4.03 — Annual Certification
(a) On each anniversary of the Closing Date (and at any other time reasonably requested by the Indenture Trustee upon not less than 15 Business Days' prior written notice), the Back-Up Servicer shall deliver to the Issuer, the Indenture Trustee, and each Rating Agency a written certification, substantially in the form of Schedule C attached hereto, confirming:
(i) its continued capacity and willingness to act as Successor Servicer with respect to the Receivables pool;
(ii) the results of the most recent system readiness test conducted pursuant to Section 4.02, including a summary of any issues identified and corrective actions taken;
(iii) its compliance with the terms and conditions of this Agreement during the preceding 12-month period (or shorter period, in the case of the first certification); and
(iv) the absence of any material change in its financial condition, regulatory status, or operational capability that would reasonably be expected to impair its ability to perform its duties as Back-Up Servicer or Successor Servicer.
(b) Each annual certification shall be signed by a duly authorized officer of the Back-Up Servicer and shall be addressed to QRF 2022-1 (as Issuer), Calvoneth Trust Company, National Association (as Indenture Trustee), Brindoval Ratings Inc., and Pinnacle Rating Services LLC.
Section 4.04 — Monitoring of Servicer Performance
(a) The Back-Up Servicer shall review the monthly servicer reports delivered by the Servicer under the Servicing Agreement, to the extent such reports are made available to the Back-Up Servicer by the Issuer or the Indenture Trustee, and shall monitor the following performance metrics and indicators:
(i) net loss rates, noting that the historical three-year average net loss rate for the Servicer's insurance premium finance portfolio for the period 2019 through 2021 is 0.42%, and that the Early Amortization Event trigger for the three-month rolling average net loss rate is 2.00%;
(ii) the 60-or-more-day delinquency rate, noting that the 60-or-more-day delinquency rate as of the Cut-Off Date is 0.87%, and that the Early Amortization Event trigger for the delinquency rate is 3.50%;
(iii) the aggregate pool balance and changes thereto, including additions and removals during the Revolving Period;
(iv) the adequacy of available funds to meet required payments under the Indenture waterfall; and
(v) compliance with the concentration limits set forth in the Transaction Documents.
(b) The Back-Up Servicer shall promptly notify the Indenture Trustee in writing if any monitored metric approaches or exceeds the relevant Early Amortization Event trigger threshold, including, without limitation, if the three-month rolling average net loss rate approaches or exceeds 2.00%, or the 60-or-more-day delinquency rate approaches or exceeds 3.50%. For purposes of this subsection, a metric shall be deemed to "approach" a trigger threshold if it equals or exceeds 80% of such threshold. The Back-Up Servicer shall have no obligation to independently verify the accuracy of the servicer reports or the performance metrics reported therein, and may rely on the information contained in such reports without independent investigation.
ARTICLE V — SERVICER DEFAULT AND TRANSITION PROCEDURES
Section 5.01 — Servicer Default Notification
(a) Upon the occurrence of a Servicer Default, as defined in the Servicing Agreement, the Indenture Trustee shall promptly notify the Back-Up Servicer in writing of such occurrence, specifying the nature of the Servicer Default and the applicable provision of the Servicing Agreement that has been triggered. The Indenture Trustee shall deliver such notice substantially in the form of Exhibit A attached hereto.
(b) A "Servicer Default" under the Servicing Agreement includes, without limitation, each of the following events or circumstances:
(i) the failure by the Servicer to make any required deposit or remittance to the Accounts within the time periods specified in the Servicing Agreement, and the continuance of such failure for a period of 2 Business Days after written notice thereof from the Indenture Trustee;
(ii) the failure by the Servicer to deliver any required monthly servicer report or other report within the time periods specified in the Servicing Agreement, and the continuance of such failure for a period of 5 Business Days after written notice thereof from the Indenture Trustee;
(iii) any breach by the Servicer of any material representation, warranty, or covenant set forth in the Servicing Agreement that is not cured within 30 days after written notice thereof from the Indenture Trustee (or, in the case of a breach that is capable of cure but cannot reasonably be cured within such 30-day period, such longer period as may be reasonably necessary, not to exceed 60 days, provided the Servicer is diligently pursuing such cure);
(iv) the occurrence of an insolvency event with respect to the Servicer, including the filing of a petition in bankruptcy (whether voluntary or involuntary), the appointment of a receiver, conservator, or liquidator, the making of an assignment for the benefit of creditors, or the admission in writing of the Servicer's inability to pay its debts as they become due;
(v) a downgrade of the Servicer's credit rating below BB(cr) by Brindoval Ratings Inc. or below Ba2(p) by Pinnacle Rating Services LLC; and
(vi) any other event specified as a "Servicer Default" in the Servicing Agreement.
(c) Upon receipt of the Servicer Default notice from the Indenture Trustee, the Back-Up Servicer shall immediately initiate the transition procedures set forth in this Article V. Within 5 Business Days of receipt of the Servicer Default notice, the Back-Up Servicer shall deliver to the Issuer, the Indenture Trustee, the Servicer, and the Rating Agencies a written confirmation of its readiness to assume servicing duties and a summary of the anticipated transition timeline, substantially in the form of Exhibit B attached hereto.
Section 5.02 — Transition Period
(a) The "Transition Period" shall be a period commencing on the date of the Back-Up Servicer's receipt of the Servicer Default notification from the Indenture Trustee and ending on the date that is 60 days thereafter (or such earlier date as the Back-Up Servicer determines, in its reasonable judgment, that it is prepared to assume all servicing duties); provided, however, that the Indenture Trustee may, in its sole discretion, extend the Transition Period by an additional 30 days if the Indenture Trustee determines that such extension is necessary to ensure an orderly transition and to minimize disruption to collections and servicing operations.
(b) During the Transition Period, the Back-Up Servicer shall undertake the following steps to prepare for the assumption of servicing duties:
(i) load the most current Data File into its servicing platform and verify the accuracy and completeness of the data;
(ii) establish borrower communication procedures, including the preparation and distribution of obligor notification letters advising obligors of the change in servicer and providing updated payment instructions;
(iii) establish payment redirect procedures, including the coordination with lockbox providers, banks, and payment processors to redirect obligor payments to accounts designated by the Successor Servicer;
(iv) coordinate with insurance carriers regarding the transition of unearned premium refund claims, including the notification of carriers of the change in servicer and the establishment of new communication channels for the processing of cancellation notices and refund claims;
(v) establish regulatory compliance procedures for all 50 states in which QPF is licensed to operate as a premium finance company, including the filing of any required notifications with state regulatory authorities regarding the change in servicer;
(vi) notify obligors of the change in servicer, in accordance with applicable law and the requirements of the Servicing Agreement;
(vii) set up investor reporting systems and procedures in conformity with the reporting requirements of the Servicing Agreement and the Indenture, including the establishment of report templates, data feeds, and delivery schedules; and
(viii) take such other actions as are reasonably necessary to ensure a smooth and orderly transition of servicing responsibilities.
(c) The Servicer (to the extent it is able and not prevented by the circumstances giving rise to the Servicer Default) shall cooperate fully with the Back-Up Servicer during the Transition Period, including by:
(i) providing all records, files, documentation, and other materials in its possession or control relating to the Receivables, the obligors, and the servicing operations, whether in electronic or physical form;
(ii) granting the Back-Up Servicer full and unrestricted access to the Servicer's servicing systems, databases, and other technology infrastructure (including administrator-level access, to the extent reasonably necessary);
(iii) transferring all collections received by the Servicer during the Transition Period to the applicable Accounts controlled by the Indenture Trustee in accordance with the Account Control Agreement, and providing the Back-Up Servicer with a full accounting of all collections received and remitted;
(iv) executing such documents, instruments, assignments, and other agreements as are necessary to effect the transition of servicing responsibilities, including the assignment of any third-party service contracts relating to the servicing of the Receivables; and
(v) making available its key servicing personnel to answer questions and provide training to the Back-Up Servicer's personnel regarding the Servicer's specific systems, processes, and procedures.
(d) The Servicer's obligations under this Section 5.02(c) shall be enforceable by the Indenture Trustee on behalf of the Noteholders, and any failure by the Servicer to cooperate as required hereby shall constitute a separate and independent breach of this Agreement.
Section 5.03 — Assumption of Servicing Duties
(a) Upon the expiration of the Transition Period (or such earlier date as the Back-Up Servicer delivers written notice to the Issuer and the Indenture Trustee that it is prepared to assume all servicing duties), the Back-Up Servicer shall assume all duties, obligations, and responsibilities of the Servicer under the Servicing Agreement as Successor Servicer. The date on which the Back-Up Servicer assumes such duties shall be the Back-Up Servicing Commencement Date.