Contract analysis

I. Executive Summary Calderwood & Harkness LLP has been engaged by Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands–domiciled hedge fund with approximately $6.8 billion in assets under management as of the first quarter of 2023, to structure and close a $400,000,000 broadly-syndicated cash-flow collateralized loan obligation designated Driftwood CLO 2023-I (the "Transaction"). This memora

II. Proposed Transaction Structure A. Overview of the Dual-Issuer Structure The Transaction will employ a two-tier issuer structure consisting of a Cayman Islands–domiciled issuer and a Delaware–domiciled co-issuer, as is market standard for broadly syndicated CLO transactions marketed to U.S. institutional investors. Driftwood CLO 2023-I, Ltd. (the "Issuer") will be formed as a Cayman Islands exempted company with l

III. U.S. Federal Income Tax Analysis A. Classification of the Issuer (Driftwood CLO 2023-I, Ltd.) The Issuer is a Cayman Islands exempted company with limited liability. Under the entity classification rules set forth in Treasury Regulations §§ 301.7701-2 and 301.7701-3 (commonly referred to as the "check-the-box" regulations), a foreign entity that is not listed as a per se corporation in Treas. Reg. § 301.7701-2(b

IV. FATCA and CRS Compliance A. FATCA (Foreign Account Tax Compliance Act) The Foreign Account Tax Compliance Act ("FATCA"), codified at IRC §§ 1471–1474, imposes a 30% withholding tax on certain payments made to foreign financial institutions and other foreign entities that do not comply with specified identification and reporting requirements. The purpose of FATCA is to prevent U.S. taxpayers from using foreign acc

V. ERISA Analysis A. Plan Asset Rules and ERISA Eligibility The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code impose significant restrictions on transactions involving the "plan assets" of employee benefit plans subject to Title I of ERISA and plans subject to Section 4975 of the Code (including individual retirement accounts). If the Issuer's und

VI. Cayman Islands Tax Considerations A. Cayman Tax Exemption The Cayman Islands does not currently impose any income tax, capital gains tax, withholding tax, or other direct tax on the Issuer or on payments by the Issuer to noteholders. The Cayman Islands is widely recognized as a tax-neutral jurisdiction, and its zero-tax regime is a principal reason for the domiciliation of CLO issuers in the Cayman Islands. To pr

VII. Investment Company Act Analysis A. Rule 3a-7 Exemption The Issuer must be structured to avoid the requirement to register as an "investment company" under the Investment Company Act of 1940, as amended (the "1940 Act"). Registration as an investment company would impose substantive regulatory requirements — including limitations on capital structure, leverage, and transactions with affiliates — that are incompat

VIII. Collateral Management Fee Waterfall A. Fee Structure DCM will serve as collateral manager under the CMA and will be compensated through a three-component fee structure consisting of a senior collateral management fee, a subordinate collateral management fee, and an incentive management fee. Senior Collateral Management Fee. DCM will receive a senior collateral management fee equal to 0.15% per annum of the aggr

IX. Other Structural Fees and Expenses In addition to the collateral management fees described in Section VIII above, the Transaction will involve the following fees and expenses, each of which must be positioned appropriately in the priority of payments waterfall under the Indenture: Trustee Fee. Ironclad Trust Company, N.A. will receive an annual trustee fee of $25,000, payable in equal quarterly installments on ea

X. Overcollateralization and Interest Coverage Tests The Indenture will include a series of overcollateralization ("O/C") and interest coverage ("I/C") tests, which are standard credit enhancement mechanisms in CLO transactions. These tests are designed to ensure that the collateral portfolio maintains a sufficient cushion of collateral value (for O/C tests) and interest income (for I/C tests) to support the rated no

XI. Collateral Eligibility Criteria — Tax and Structural Implications The Indenture will establish detailed eligibility criteria that the collateral portfolio must satisfy at all times during the reinvestment period. These criteria are designed to maintain the credit quality and diversity of the portfolio and to support the ratings assigned to the rated notes. The principal eligibility criteria are summarized below,