Contract analysis

I. EXECUTIVE SUMMARY This memorandum provides the internal analysis of the Calderwood & Harkness LLP engagement team regarding the structuring of a proposed $75,000,000 senior secured superpriority debtor-in-possession ("DIP") credit facility to be provided by Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") to Cascabel Financial Holdings, Inc. ("Cascabel" or "CFH") and Cascabel Asset Management LLC ("CAM,

II. BACKGROUND A. The Debtors and Their Business Cascabel Financial Holdings, Inc. is a Delaware corporation headquartered at 1200 Market Street, Suite 900, Wilmington, Delaware 19801 (EIN: 84-3291057). The company is led by Gerald T. Harmon, its Chief Executive Officer, and Susan K. Nakamura, its Chief Financial Officer, both of whom have been in their respective positions since 2019 and 2020. Cascabel operates as a

III. DIP FACILITY — PROPOSED TERMS This Section sets forth the material terms of the proposed DIP credit facility, as negotiated between Driftwood and the Debtors (through their CRO and investment banker) and reflected in the DIP Term Sheet currently under finalization by Calderwood & Harkness LLP. A. Facility Structure The DIP facility has a total commitment of $75,000,000, consisting of two tranches: New Money DIP

Section 11.04 of the DIP Credit Agreement provides that all reasonable fees and expenses of Calderwood & Harkness LLP, as counsel to the DIP Lender, incurred in connection with the negotiation, documentation, administration, and enforcement of the DIP Credit Agreement and related documents, shall be reimbursed by the Debtors' estates as an administrative expense of the Chapter 11 cases. This reimbursement obligation

IV. LEGAL ANALYSIS: PRIMING LIEN AUTHORITY UNDER § 364(d) A. Statutory Framework

Section 364(d)(1) of the Bankruptcy Code authorizes a court, after notice and a hearing, to approve post-petition financing secured by a senior or equal lien on property of the estate that is already subject to a lien, commonly referred to as a "priming lien." The statute provides: "The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien

V. LEGAL ANALYSIS: ROLL-UP MECHANICS A. Structure of the Roll-Up Upon entry of the Final DIP Order, the $32,000,000 in pre-petition first lien claims held by Driftwood will be deemed "rolled up" into the DIP facility. Mechanically, the roll-up operates as follows: Driftwood's pre-petition claims under the First Lien Term Loan Credit Agreement are deemed satisfied, and in their place, Driftwood receives a $32,000,000

VI. ADEQUATE PROTECTION FRAMEWORK A. Statutory Requirements

Section 361 of the Bankruptcy Code establishes the framework for adequate protection, setting forth three permissible forms: (1) Periodic Cash Payments: The debtor may make periodic cash payments to the secured creditor to the extent that the automatic stay, the use, sale, or lease of property, or the granting of a priming lien results in a decrease in the value of the creditor's interest in the property. (2) Additio

Section 364(d)(1)(B) specifically requires adequate protection "of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted" as a condition to the approval of a priming DIP facility. The adequate protection obligation runs to all holders of liens that are being primed — in this case, the holders of the $120,000,000 First Lien Term Loan (includin

1. Replacement Liens. The non-Driftwood first lien lenders shall receive replacement liens on substantially all assets of the Debtors, junior only to the DIP liens and the Carve-Out. These replacement liens are granted to the extent of any diminution in the value of the pre-petition collateral resulting from the priming, the use of cash collateral, or the imposition of the automatic stay. The replacement liens attach

2. Section 507(b) Superpriority Administrative Expense Claims. The non-Driftwood first lien lenders shall receive allowed superpriority administrative expense claims under Section 507(b) of the Bankruptcy Code, to the extent that the adequate protection provided proves insufficient to compensate them for the diminution in value of their interests. These superpriority claims are junior to the DIP superpriority claims

3. Monthly Adequate Protection Payments. The Debtors shall make monthly cash adequate protection payments to the non-Driftwood first lien lenders in the amount of current-pay interest on $88,000,000 at the non-default contract rate of Adjusted Term SOFR plus 425 basis points. Based on the current Adjusted Term SOFR rate of approximately 5.33%, the all-in adequate protection interest rate is approximately 9.58% per an

4. Adequate Protection Reserve. A reserve of $3,500,000 (the "Adequate Protection Reserve") shall be funded from Draw 1 proceeds (the $18,000,000 Interim draw) and held in a segregated account for the exclusive purpose of backstopping the monthly adequate protection payments. The Adequate Protection Reserve provides approximately five months of adequate protection payment coverage, calculated as follows: $3,500,000 ÷

5. Reimbursement of Ad Hoc Group Counsel Fees. The Debtors shall pay the reasonable fees and expenses of Hartwell & Crane LLP, as counsel to the Ad Hoc Group of First Lien Lenders (consisting of Velthorn and Pinnacle), subject to a cap of $1,200,000. This provision is designed to facilitate the Ad Hoc Group's ability to participate meaningfully in the Chapter 11 cases, including the review and negotiation of the DIP