Greg,
I hope you are well. I am writing on behalf of our clients, Driftwood CLO 2023-I, Ltd. (the "Issuer") and Driftwood CLO 2023-I, LLC (the "Co-Issuer"), in connection with the proposed $400,000,000 broadly syndicated CLO transaction (the "Driftwood CLO 2023-I" transaction). As you know, Calderwood & Harkness is serving as issuer's counsel and your firm is representing Meridian Atlantic Securities LLC in its capacity as lead placement agent.
**Attached Draft**
Attached for your review and comment is Calderwood & Harkness's initial draft of the Indenture (the "Indenture") to be entered into among Driftwood CLO 2023-I, Ltd., as Issuer, Driftwood CLO 2023-I, LLC, as Co-Issuer, and Ironclad Trust Company, N.A., as Trustee. The draft is provided in Word format. We are happy to provide a blackline against a prior form if that would be helpful — just let us know.
The draft reflects the capital structure and principal terms set forth in the term sheet circulated by Meridian Atlantic and the draft preliminary offering memorandum currently being finalized.
**Key Structural Terms Reflected in the Draft**
For ease of reference during your review, the following principal terms are embedded in the draft:
- **Capital Structure (Six Tranches):** - Class A-1 Notes: $256,000,000, SOFR + 155 bps - Class A-2 Notes: $40,000,000, SOFR + 190 bps - Class B Notes: $28,000,000, SOFR + 230 bps - Class C Notes: $24,000,000, SOFR + 310 bps - Class D Notes: $16,000,000, SOFR + 625 bps - Subordinated Notes: $36,000,000 (unrated/residual)
Pricing spreads are indicative and remain subject to adjustment at pricing via supplemental indenture.
- **Reference Rate:** Compounded SOFR (with 26253 fallback convention); day count Actual/360.
- **Minimum Denomination:** $250,000 ($1,000 increments for rated notes; $1 increments for subordinated notes).
- **Overcollateralization Tests:** Class A at 128.00%; Class B at 118.00%; Class C at 110.00%; Class D at 105.50%.
- **Interest Coverage Tests:** Class A at 120.00%; Class B at 115.00%; Class C at 110.00%; Class D at 105.00%.
- **Collateral Eligibility Criteria:** minimum weighted average spread of 350 bps; maximum weighted average life of 7.5 years; minimum diversity score of 60; maximum CCC bucket of 7.5% ($30,000,000); maximum second-lien bucket of 5.0% ($20,000,000); maximum fixed-rate bucket of 10.0% ($40,000,000); minimum weighted average recovery rate of 45.0%; minimum WARF of 2,850 (Brindoval scale).
- **Reinvestment Period:** 5 years from the Closing Date (expected to end September 12, 2028).
- **Non-Call Period:** 2 years from the Closing Date (expected to end September 12, 2025).
- **Stated Maturity:** October 15, 2036.
- **Payment Dates:** Quarterly on the 15th of January, April, July, and October; record date is the 15th calendar day preceding each payment date.
- **Offering Exemption:** Rule 144A / Regulation S under the Securities Act of 1933.
- **Governing Law:** New York.
**Collateral Manager Provisions**
The draft includes the priority of payments waterfall, which reflects the senior collateral management fee of 0.15% per annum and the subordinate collateral management fee of 0.35% per annum payable to Driftwood Credit Management LLC as collateral manager. We will circulate the Collateral Management Agreement separately.
**Rating Agency Considerations**
As you are aware, the transaction is dual-rated by Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC. The draft incorporates criteria consistent with preliminary feedback received from both agencies. We expect preliminary ratings to be issued by early August.
**Trustee Provisions**
Relevant trustee-related provisions — including the trustee fee of $25,000 per annum (flat), the expense cap of $50,000 per payment date, indemnification, duties, and standard of care — are set forth in Article VII of the draft. We expect Ashworth & Pratt LLP (Lillian Marchetti) to review these sections on behalf of Ironclad Trust and will circulate the draft to Ashworth & Pratt separately.
**DTC / Settlement**
The draft reflects DTC eligibility and settlement mechanics referencing Ironclad Trust's DTC Participant No. 2176, and includes standard global note and book-entry provisions.
**Areas Anticipated to Require Discussion**
We anticipate that the following areas may be the subject of comments or further negotiation, and wanted to flag them at the outset:
1. Discretionary trading rights during and after the reinvestment period; 2. Definition and scope of Collateral Quality Tests and cure mechanics for O/C and I/C test failures; 3. Workout and restructured obligation bucket parameters; 4. Post-reinvestment period trading constraints; and 5. Trustee indemnification scope and limitations.
We are preparing a separate issues list to facilitate discussion on these points and will circulate it shortly.
**Timeline and Comment Deadline**
We would appreciate receiving Barrington, Locke & Hayes's initial comments and redline by **Friday, August 4, 2023** (10 calendar days from today). Our target signing date for the Indenture and ancillary agreements is **August 22, 2023**, so we will need to turn comments promptly in order to allow for at least one additional round of negotiation before execution. As a reminder, pricing is currently targeted for the week of September 4, with closing expected on September 12, 2023.
**Warehouse Ramp**
On the collateral side, the warehouse ramp under the Havenwood Bank facility is progressing well and is expected to reach approximately 85% by mid-August, which further supports the execution timeline outlined above.
**Coordination**
Jonathan Halevy at Meridian Atlantic is copied for awareness and to facilitate any structuring-related questions that may arise during your review. For day-to-day redline exchanges and working-level coordination, please feel free to work directly with Patrick Gallagher on our side and Miriam Saldaña on yours.
Please do not hesitate to reach out if you would like to set up a call to walk through the draft — we are happy to do so at your convenience.
Best regards, Hannah
Hannah Brinkley Calderwood & Harkness LLP 450 Park Avenue New York, NY 10022 T: (212) 554-7183 E: hbrinkley@calderwoodharkness.com
Reference: C&H Matter No. 1024-00004
Attachment: Driftwood CLO 2023-I — Indenture (Initial Draft) (C&H 07.25.2023).docx
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