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CALDERWOOD & HARKNESS LLP Counselors at Law

450 Park Avenue New York, New York 10022

Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com

September 12, 2023

Driftwood CLO 2023-I, Ltd. PO Box 4927, Windward House, 3rd Floor George Town, Grand Cayman KY1-1306 Cayman Islands

Driftwood CLO 2023-I, LLC c/o National Registered Agents Inc. 1209 Orange Street Wilmington, Delaware 19801

Ironclad Trust Company, National Association as Trustee 100 Wall Street, Suite 1650 New York, New York 10005

Re: U.S. Federal Income Tax Opinion — Driftwood CLO 2023-I, Ltd. / Driftwood CLO 2023-I, LLC — $400,000,000 Secured and Subordinated Notes

Ladies and Gentlemen:

1. Introduction and Engagement

Calderwood & Harkness LLP ("we," "our," or "C&H") has acted as U.S. counsel to Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), an exempted company incorporated with limited liability under the laws of the Cayman Islands, and to Driftwood CLO 2023-I, Ltd., an exempted company incorporated with limited liability under the laws of the Cayman Islands (the "Issuer"), and Driftwood CLO 2023-I, LLC, a Delaware limited liability company (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"), in connection with the issuance of secured and subordinated notes (collectively, the "Notes") pursuant to that certain Indenture dated as of August 22, 2023 (the "Base Indenture"), as supplemented by the First Supplemental Indenture dated as of September 8, 2023 (the "First Supplemental Indenture" and, together with the Base Indenture, the "Indenture"), each among the Issuer, the Co-Issuer, and Ironclad Trust Company, National Association, as trustee (the "Trustee"). This opinion is issued in connection with C&H Matter No. 1024-00004.

This opinion letter (this "Opinion") is being delivered at the closing of the transactions contemplated by the Indenture and the Note Purchase Agreement (as defined below) on September 12, 2023 (the "Closing Date") pursuant to the requirements of Section 3.01(d)(vi) of the Indenture and Section 7(e) of the Note Purchase Agreement dated as of September 8, 2023 (the "Note Purchase Agreement"), among the Issuer, the Co-Issuer, Meridian Atlantic Securities LLC, as lead placement agent, and Northbridge Capital Markets Inc., as co-placement agent. The transaction that is the subject of this Opinion involves a $400,000,000 broadly syndicated collateralized loan obligation (the "CLO Transaction" or the "Transaction").

Sylvia Hartwell, Specialist Partner, Tax, is the responsible partner for the preparation and delivery of this Opinion. Ms. Hartwell has been involved in the structuring and analysis of the Transaction from its inception and has supervised all tax-related aspects of the engagement.

The opinions set forth herein are limited to matters of U.S. federal income tax law, and we express no opinion regarding the laws of any state, locality, or non-U.S. jurisdiction. We have not been engaged to, and do not, represent any holder or prospective holder of the Notes, and the opinions expressed herein are not intended as tax advice to any such holder.

2. Documents and Materials Reviewed

In connection with rendering the opinions set forth herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents and materials (collectively, the "Transaction Documents"):

(a) The Indenture dated as of August 22, 2023, among Driftwood CLO 2023-I, Ltd., as Issuer, Driftwood CLO 2023-I, LLC, as Co-Issuer, and Ironclad Trust Company, National Association, as Trustee (the "Base Indenture");

(b) The First Supplemental Indenture dated as of September 8, 2023, among the same parties, reflecting final pricing spreads, CUSIP assignments, and settlement mechanics (the "First Supplemental Indenture");

(c) The Collateral Management Agreement dated as of August 22, 2023, between the Issuer and Driftwood Credit Management LLC ("DCM"), a Delaware limited liability company and registered investment adviser with the U.S. Securities and Exchange Commission (SEC CRD #182447), as collateral manager (the "Collateral Manager" or "DCM") (the "Collateral Management Agreement");

(d) The Collateral Administration Agreement dated as of August 22, 2023, among the Issuer, DCM, and Ironclad Trust Company, National Association, as collateral administrator (the "Collateral Administration Agreement");

(e) The Co-Issuance Agreement dated as of August 22, 2023, between the Issuer and the Co-Issuer (the "Co-Issuance Agreement");

(f) The Note Purchase Agreement dated as of September 8, 2023, among the Issuer, the Co-Issuer, Meridian Atlantic Securities LLC, as lead placement agent, and Northbridge Capital Markets Inc., as co-placement agent (the "Note Purchase Agreement");

(g) The Limited Liability Company Agreement of Driftwood CLO 2023-I, LLC dated as of August 22, 2023 (the "LLC Agreement");

(h) The Certificate of Formation of Driftwood CLO 2023-I, LLC, as filed with the Secretary of State of the State of Delaware on August 18, 2023 (Delaware File No. 7429831) (the "Certificate of Formation");

(i) The Memorandum and Articles of Association of Driftwood CLO 2023-I, Ltd., as registered with the Cayman Islands Registrar of Companies (Cayman Registration No. EX-382916) (the "Memorandum and Articles");

(j) The Final Offering Memorandum dated August 18, 2023, relating to the Notes (the "Offering Memorandum");

(k) The resolutions of the Board of Directors of Driftwood CLO 2023-I, Ltd., adopted by written consent on August 20, 2023, authorizing the Transaction (the "Board Resolutions");

(l) The written consent of the sole member of Driftwood CLO 2023-I, LLC, dated August 20, 2023, authorizing the Co-Issuer's participation in the Transaction (the "Member Consent");

(m) The FATCA/CRS registration documentation for the Issuer filed with the Cayman Islands Tax Information Authority, including the Issuer's Global Intermediary Identification Number ("GIIN") notification;

(n) The Officer's Certificate of the Issuer dated September 12, 2023 (the "Officer's Certificate"), delivered to us for purposes of this Opinion; and

(o) Such other documents, certificates, records, and instruments as we have deemed necessary or advisable for purposes of rendering the opinions set forth herein, including certificates of officers and representatives of the Issuer, the Co-Issuer, and DCM.

In addition, we have reviewed and are familiar with the relevant provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder (the "Treasury Regulations"), published rulings and administrative pronouncements of the Internal Revenue Service (the "IRS"), and pertinent judicial decisions, in each case as in effect on the date hereof.

3. Description of the Transaction and Capital Structure

The Issuer is a Cayman Islands exempted company organized for the primary purpose of acquiring, holding, and disposing of a portfolio of broadly syndicated first-lien senior secured leveraged loans (primarily to U.S. obligors) (the "Collateral Obligations") and issuing multiple classes of secured and subordinated notes to finance such activities. The Co-Issuer is a Delaware limited liability company organized solely for the purpose of acting as co-issuer of the Notes. Together, the Issuer and the Co-Issuer have jointly issued $400,000,000 in aggregate principal amount of Notes in the following tranches:

The total aggregate principal amount of rated notes (the "Rated Notes") is $364,000,000, and the aggregate principal amount of the Subordinated Notes is $36,000,000.

The Notes have been offered and sold in transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Rule 144A and Regulation S promulgated thereunder. The reference rate for the Rated Notes is Compounded SOFR, calculated in accordance with the ARRC-recommended 26253 fallback convention, with a day count convention of Actual/360. The minimum denomination for the Rated Notes is $250,000 (in increments of $1,000 in excess thereof), and the minimum denomination for the Subordinated Notes is $250,000 (in increments of $1 in excess thereof).

The following CUSIPs have been assigned to the respective classes of Notes:

The proceeds of the issuance of the Notes are being used to acquire a portfolio of Collateral Obligations, with a target portfolio par amount of $400,000,000. The Collateral Obligations will consist predominantly of broadly syndicated first-lien senior secured leveraged loans to U.S. corporate obligors, subject to the eligibility criteria, concentration limitations, and quality tests set forth in the Indenture.

The Transaction includes the following key structural dates: (i) the non-call period expires on September 12, 2025; (ii) the reinvestment period expires on September 12, 2028; and (iii) the stated maturity of the Notes is October 15, 2036. Payment dates occur quarterly on the 15th day of January, April, July, and October of each year, commencing on January 15, 2024. Interest and principal on the Notes are payable in accordance with the priority of payments (the "Waterfall") set forth in the Indenture.

The Transaction is managed by DCM, which serves as the Collateral Manager and is responsible for selecting, acquiring, monitoring, and disposing of the Collateral Obligations on behalf of the Issuer, subject to the guidelines and restrictions contained in the Indenture and the Collateral Management Agreement. Ironclad Trust Company, N.A. serves as the Trustee under the Indenture and as the Collateral Administrator under the Collateral Administration Agreement.

4. Assumptions

In rendering the opinions set forth below, we have assumed, with your consent and without independent investigation or verification, the following:

(a) Genuineness and Authenticity. All documents submitted to us as originals are authentic, all documents submitted to us as copies conform to the originals, all signatures on the documents we have reviewed are genuine, and the individuals who have signed such documents had the legal capacity to do so.

(b) Consummation in Accordance with Terms. The Transaction has been and will be consummated in all material respects in accordance with the terms set forth in the Transaction Documents reviewed by us, without modification, amendment, or waiver of any material provision thereof (except as reflected in the First Supplemental Indenture or as otherwise disclosed to us).

(c) Operations in Accordance with Governing Documents. The Issuer will at all times be operated in accordance with the terms of its Memorandum and Articles of Association, the Indenture, the Collateral Management Agreement, and the other Transaction Documents. The Issuer will not engage in any activities beyond those contemplated by the Transaction Documents, and its purposes and objects will at all times remain limited to those set forth in its organizational documents.

(d) Collateral Manager Conduct. The Collateral Manager (DCM) will at all times exercise its duties, responsibilities, and discretion in a manner consistent with the representations, warranties, covenants, and restrictions set forth in the Indenture and the Collateral Management Agreement. The Collateral Manager will not take any action that would cause the Issuer to be treated as engaged in a U.S. trade or business or that would otherwise be inconsistent with the tax treatment described in this Opinion.

(e) No Inconsistent Actions. No party to the Transaction will take any action, or fail to take any action, that is inconsistent with the treatment of the Issuer, the Co-Issuer, or the Notes described in this Opinion. In particular, no party will file any tax return, information return, or election that is inconsistent with the classification of the Issuer, the Co-Issuer, or the Notes as described herein.

(f) Officer's Certificate. The factual representations and warranties contained in the Officer's Certificate of the Issuer dated September 12, 2023, delivered to us in connection with this Opinion, are true, correct, and complete in all material respects as of the date hereof and will remain true, correct, and complete in all material respects throughout the term of the Transaction.

(g) Cayman Islands Status. The Issuer is and will remain an exempted company validly existing and in good standing under the laws of the Cayman Islands, and it has been and will continue to be managed and controlled outside the United States. In connection with this assumption, we have relied upon the legal opinion of Applegategate Offshore Services Ltd. dated September 12, 2023 (the "Cayman Legal Opinion"), with respect to the valid existence and organization of the Issuer under Cayman Islands law, and we express no opinion on matters of Cayman Islands law.

(h) No Undisclosed Arrangements. There are no oral or written agreements, understandings, or arrangements among any parties to the Transaction, or between any such party and any holder or prospective holder of the Notes, that have not been disclosed to us and that are material to the opinions set forth herein.

We have not independently verified any of the foregoing assumptions. If any of the foregoing assumptions proves to be incorrect, incomplete, or is subsequently altered or modified, the opinions set forth herein may be affected and may no longer be reliable.

5. Opinions

Based upon and subject to the assumptions, qualifications, and limitations set forth in this Opinion, and based upon our examination of the Transaction Documents and our consideration of the applicable provisions of the Code, the Treasury Regulations, published IRS rulings and administrative pronouncements, and relevant judicial decisions, we are of the opinion that the following U.S. federal income tax consequences will result from the Transaction.

5.1 Classification of the Issuer — Not Engaged in a U.S. Trade or Business

It is our opinion that Driftwood CLO 2023-I, Ltd. (the Issuer), a Cayman Islands exempted company, will not be treated as engaged in a trade or business within the United States for U.S. federal income tax purposes.

Applicable Legal Standards. Under Section 882(a) of the Code, a foreign corporation is subject to U.S. federal income tax on a net-income basis only on income that is "effectively connected" with the conduct of a trade or business within the United States. Whether a foreign corporation is engaged in a U.S. trade or business is a factual determination that depends on the nature, extent, and continuity of its activities within the United States. The Code, the Treasury Regulations, and the case law do not provide a comprehensive definition of "trade or business within the United States," but rather require an analysis of all relevant facts and circumstances.

Section 864(b) of the Code sets forth certain safe harbor exceptions under which specified trading activities conducted in the United States by or on behalf of a foreign person will not be treated as constituting a U.S. trade or business. Of particular relevance here, Section 864(b)(2)(A) of the Code provides that trading in stocks, securities, or commodities through a resident broker, commission agent, custodian, or other independent agent will not constitute a U.S. trade or business, provided that the foreign person is not a "dealer in stocks or securities" within the meaning of Section 864(b)(2)(A)(ii). For purposes of this safe harbor, the term "stocks or securities" has been interpreted broadly by the IRS and the courts to include debt instruments such as the leveraged loans that constitute the Collateral Obligations.

Application to the Issuer. The Issuer's activities are limited to the acquisition, holding, and disposition of broadly syndicated leveraged loans (the Collateral Obligations) and the incidental activities necessary to effectuate such transactions, including the issuance of Notes to finance the acquisition of such Collateral Obligations, the distribution of cash flows from the Collateral Obligations in accordance with the Waterfall, and the performance of administrative functions required by the Indenture and other Transaction Documents. The Issuer is not a bank, insurance company, or other financial institution, and it does not engage in lending, underwriting, or origination activities. Its purpose is limited to holding a static or semi-static portfolio of Collateral Obligations and applying the cash flows therefrom in accordance with the priority of payments established by the Indenture.

The Issuer's trading activities — to the extent trading occurs during the reinvestment period or in connection with credit risk or other sales — will be conducted through DCM, the Collateral Manager. DCM is a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940. DCM acts in its capacity as an independent contractor with respect to the Issuer, performing collateral management services under the terms of the Collateral Management Agreement. DCM is not an employee or agent of the Issuer for purposes of creating a U.S. trade or business attributable to the Issuer. The Collateral Management Agreement provides that DCM is engaged as an independent contractor and that no agency, partnership, or joint venture relationship is created thereby. DCM provides similar services to multiple CLO vehicles and other investment vehicles and is not exclusively dedicated to the Issuer. Accordingly, the Issuer's trading activities conducted through DCM should qualify for the "trading in securities" safe harbor under Section 864(b)(2)(A) of the Code, as the Issuer is not and will not be a "dealer in securities."

The Issuer does not and will not maintain a fixed place of business in the United States. Its registered office is located in the Cayman Islands at PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306, and all of the Issuer's directors are resident outside the United States. All board meetings are held outside the United States. The Issuer does not employ any personnel in the United States. All activities performed in the United States in connection with the management of the Collateral Obligations are carried out by DCM, the Trustee, the Collateral Administrator, and other service providers acting in their independent capacities. None of these entities has authority to conclude contracts in the name of the Issuer or to bind the Issuer in a manner that would create a U.S. permanent establishment or otherwise subject the Issuer to U.S. net-income taxation.

The Issuer's activities are confined to the purposes set forth in its Memorandum and Articles of Association and the Indenture. The Issuer is a special purpose vehicle organized and operated solely for the purpose of engaging in the CLO Transaction, and its objects are strictly limited to the issuance of Notes, the acquisition and holding of Collateral Obligations, and related activities. The Issuer is not authorized to engage in any business or activity other than those expressly contemplated by the Transaction Documents.

The Collateral Manager is an independent contractor whose activities should not be attributed to the Issuer for purposes of determining whether the Issuer is engaged in a U.S. trade or business. Under established principles of agency law as applied in the tax context, the activities of an independent agent are generally not attributable to the principal where the agent is acting in the ordinary course of its own business, bears economic risk independent of the principal, and provides services to multiple clients. DCM satisfies all of these criteria.

Conclusion. Based on the foregoing analysis, it is our opinion that income earned by the Issuer on the Collateral Obligations should not be treated as effectively connected with a U.S. trade or business, and accordingly the Issuer should not be subject to U.S. federal income tax on a net-income basis under Sections 871 or 882 of the Code. The Issuer may, however, be subject to U.S. withholding tax on certain types of U.S.-source fixed or determinable annual or periodical ("FDAP") income to the extent not otherwise exempt (as discussed in Section 6.3 below).

5.2 Classification of the Co-Issuer — Disregarded Entity

It is our opinion that Driftwood CLO 2023-I, LLC (the Co-Issuer), a Delaware limited liability company, will be treated as an entity disregarded as separate from its owner for U.S. federal income tax purposes under Treasury Regulation § 301.7701-3.

Applicable Legal Standards. Under the entity classification rules set forth in Treasury Regulations §§ 301.7701-1 through 301.7701-3 (commonly referred to as the "check-the-box" regulations), an eligible entity that is not automatically classified as a corporation is classified based on its election under Treasury Regulation § 301.7701-3(a). In the absence of an election, the default classification rules apply. Under Treasury Regulation § 301.7701-3(b)(1)(ii), a domestic eligible entity that has a single owner is classified as a disregarded entity — that is, an entity that is not treated as separate from its owner for U.S. federal income tax purposes — unless it affirmatively elects to be classified as an association taxable as a corporation by filing a Form 8832 (Entity Classification Election) with the IRS.

A limited liability company organized under the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., is an "eligible entity" for purposes of the check-the-box regulations because it is not included in the list of entities that are automatically classified as corporations under Treasury Regulation § 301.7701-2(b).

Application to the Co-Issuer. The Co-Issuer, Driftwood CLO 2023-I, LLC, is organized as a limited liability company under the Delaware Limited Liability Company Act. The Certificate of Formation of the Co-Issuer was filed with the Secretary of State of the State of Delaware on August 18, 2023 (Delaware File No. 7429831). The Co-Issuer has a single member, the Issuer (Driftwood CLO 2023-I, Ltd.), which holds 100% of the membership interests in the Co-Issuer. The Co-Issuer is therefore a domestic eligible entity with a single owner for purposes of the check-the-box regulations.

The LLC Agreement of the Co-Issuer, dated as of August 22, 2023, does not provide for, authorize, or contemplate any election to classify the Co-Issuer as an association taxable as a corporation for U.S. federal income tax purposes. We have confirmed, through inquiry of the officers and agents of the Co-Issuer and our review of applicable records, that no Form 8832 (Entity Classification Election) has been filed or will be filed with the IRS to elect corporate classification for the Co-Issuer. Accordingly, the Co-Issuer is classified under the default rule of Treasury Regulation § 301.7701-3(b)(1)(ii) as an entity disregarded as separate from its owner.

Conclusion. Based on the foregoing analysis, it is our opinion that the Co-Issuer will be treated as a disregarded entity for U.S. federal income tax purposes. As a consequence, all assets, liabilities, income, deductions, and credits of the Co-Issuer will be treated for U.S. federal income tax purposes as assets, liabilities, income, deductions, and credits of the Issuer. The Co-Issuer's obligations as co-issuer of the Notes will be treated as obligations of the Issuer, and no separate tax consequences should arise from the existence or activities of the Co-Issuer as a distinct legal entity.

5.3 Characterization of the Rated Notes as Debt

It is our opinion that the Class A-1 Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, and the Class D Notes (collectively, the "Rated Notes") will be treated as indebtedness of the Issuer for U.S. federal income tax purposes, rather than equity interests in the Issuer.

Applicable Legal Standards. The determination of whether an instrument is properly characterized as debt or equity for U.S. federal income tax purposes is a factual inquiry that depends on the totality of the circumstances. Neither the Code nor the Treasury Regulations provide a single, definitive test for distinguishing debt from equity. Instead, courts and the IRS have identified a number of factors to be considered, none of which is individually dispositive. The factors most frequently cited in the case law and in the legislative history of Section 385 of the Code include, among others: (i) whether there is a written, unconditional promise to pay a sum certain on demand or on a fixed date; (ii) whether the instrument bears a fixed rate of interest or a reasonable variable rate; (iii) the debt-to-equity ratio of the issuer; (iv) whether the instrument is subordinated to or on parity with other indebtedness; (v) the right of the holder to participate in management; (vi) the right of the holder to share in profits; (vii) the form of the instrument; (viii) the intent of the parties; (ix) whether the holder has the status of a typical creditor; and (x) whether payments on the instrument are contingent on the issuer's earnings.

The leading judicial authorities on debt-equity classification include Dixie Dairies Corp. v. Commissioner, 74 T.C. 476 (1980); Notice 94-47, 1994-1 C.B. 357 (IRS guidance on debt-equity characterization); Fin Hay Realty Co. v. United States, 398 F.2d 694 (3d Cir. 1968); and the multifactor tests articulated in Estate of Mixon v. United States, 464 F.2d 394 (5th Cir. 1972).

Application to the Rated Notes — Factors Supporting Debt Treatment. Based on our review of the terms of the Rated Notes as set forth in the Indenture and the other Transaction Documents, we believe the following factors strongly support the characterization of the Rated Notes as indebtedness of the Issuer:

(i) Fixed Maturity and Mandatory Payment Obligations. The Rated Notes have a stated maturity date of October 15, 2036, on which the full outstanding principal amount plus accrued and unpaid interest must be paid in full (subject to the availability of funds in accordance with the Waterfall). Prior to stated maturity, the Issuer is obligated to make quarterly payments of interest on each Payment Date (the 15th of January, April, July, and October of each year, commencing January 15, 2024) and to apply Available Funds to the repayment of principal in accordance with the Waterfall following the end of the reinvestment period or upon the occurrence of an event of default. The existence of a fixed maturity date and mandatory interest payment obligations is a hallmark of debt.

(ii) Interest at a Reasonable Rate. Each class of Rated Notes bears interest at a spread over Compounded SOFR, as follows: Class A-1 at SOFR + 155 bps, Class A-2 at SOFR + 190 bps, Class B at SOFR + 230 bps, Class C at SOFR + 310 bps, and Class D at SOFR + 625 bps. These rates represent arm's-length market terms negotiated between the Co-Issuers and the placement agents and reflect the credit risk of each tranche as indicated by the ratings assigned by two nationally recognized statistical rating organizations, Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC. The weighted-average spread across all Rated Notes is approximately 195.49 basis points over Compounded SOFR, which is consistent with prevailing market levels for comparable CLO transactions. The obligation to pay interest is unconditional and does not depend on the profitability or financial performance of the Issuer (subject only to the priority of payments in the Waterfall).

(iii) No Voting Rights or Participation in Management. Holders of the Rated Notes have no voting rights, no right to elect or remove directors of the Issuer, no right to participate in the management of the Issuer's business or affairs, and no right to approve or disapprove of any investment decisions made by the Collateral Manager. The limited protective rights afforded to holders of the Rated Notes — such as the right to direct the Trustee to accelerate the Notes upon the occurrence of an Event of Default, and the right to consent to certain amendments to the Indenture — are typical of the rights held by creditors and do not constitute participation in management for purposes of debt-equity classification.

(iv) Priority in the Waterfall. The Rated Notes have priority over the Subordinated Notes in the priority of payments established by the Indenture. Interest and principal on the Rated Notes are payable in order of seniority (Class A-1, then Class A-2, then Class B, then Class C, then Class D) before any distributions are made to holders of the Subordinated Notes. This priority is a characteristic of debt, as equity holders typically share in distributions on a residual basis.

(v) Structural Credit Enhancement. The Rated Notes benefit from structural credit enhancement in the form of overcollateralization ("O/C") tests and interest coverage ("I/C") tests, as set forth in the Indenture. The applicable O/C and I/C test levels are as follows:

These tests provide significant protection to holders of the Rated Notes by diverting cash flows away from junior noteholders and the Subordinated Notes if the relevant test thresholds are not maintained. The existence of these tests reflects the creditor-like position of the holders of the Rated Notes.

(vi) Reasonable Debt-to-Equity Ratio and Subordination. The subordination levels for each class of Rated Notes are as follows: Class A-1, 36.00%; Class A-2, 26.00%; Class B, 19.00%; Class C, 13.00%; and Class D, 9.00%. These subordination levels provide a meaningful equity cushion below each class of Rated Notes. The overall ratio of Rated Notes ($364,000,000) to Subordinated Notes ($36,000,000) is approximately 10.1:1. While this ratio is relatively high, it is consistent with the capital structures of broadly syndicated CLO transactions and reflects the high credit quality of the underlying Collateral Obligations, which consist of first-lien senior secured leveraged loans. The subordination of 9.00% for the most junior class of Rated Notes (Class D) provides a meaningful cushion against losses.

(vii) Ratings by NRSROs. Each class of Rated Notes has been assigned investment-grade or near-investment-grade credit ratings by two nationally recognized statistical rating organizations: Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC. The ratings range from AAA/AAA for the Class A-1 Notes to BB/BB for the Class D Notes. The assignment of credit ratings is consistent with the treatment of the Rated Notes as debt obligations and reflects the independent judgment of the rating agencies that the Rated Notes carry credit risk characteristics consistent with debt instruments.

(viii) Non-Contingent Interest Payments. Interest on the Rated Notes is not contingent on the earnings or profitability of the Issuer. The Issuer is obligated to pay interest on each Payment Date regardless of whether the cash flows received from the Collateral Obligations are sufficient to cover such payments. Although the Issuer's ability to make such payments is, as a practical matter, dependent on the performance of the Collateral Obligations, this dependency does not render the interest payments "contingent" within the meaning of the debt-equity factors. The obligation to pay interest is absolute and unconditional, subject only to the priority of payments in the Waterfall. This is analogous to the position of a general unsecured creditor whose recovery depends on the issuer's overall financial condition.

(ix) Widely Distributed Holdings. The Rated Notes are held by unrelated third-party investors in widely distributed holdings. The placement agents have placed the Rated Notes with a broad base of institutional investors, including banks, insurance companies, asset managers, and other qualified institutional buyers (as defined in Rule 144A under the Securities Act). There is no indication that any holder of the Rated Notes is related to the Issuer, the Co-Issuer, the Collateral Manager, or any affiliate thereof (other than potential seed investments by DCM or its affiliates in a de minimis amount). The absence of related-party holdings supports the characterization of the Rated Notes as debt rather than disguised equity contributions.

Conclusion. Based on the totality of the foregoing factors, we are of the opinion that the Rated Notes possess the hallmarks of indebtedness and should be treated as debt of the Issuer for U.S. federal income tax purposes. Accordingly, interest paid on the Rated Notes should be treated as interest on indebtedness of the Issuer, and holders of the Rated Notes should be treated as creditors of the Issuer.

5.4 Characterization of the Subordinated Notes as Equity

It is our opinion that the Subordinated Notes ($36,000,000 in aggregate principal amount, unrated) will be treated as equity interests in the Issuer for U.S. federal income tax purposes, rather than indebtedness of the Issuer.

Applicable Legal Standards. The same multifactor analysis discussed in Section 5.3 above applies to the determination of whether the Subordinated Notes should be classified as debt or equity. As noted, no single factor is dispositive, and the determination must be made based on the totality of the circumstances.

Application to the Subordinated Notes — Factors Supporting Equity Treatment. Based on our review of the terms of the Subordinated Notes as set forth in the Indenture and the other Transaction Documents, we believe the following factors strongly support the characterization of the Subordinated Notes as equity interests in the Issuer:

(i) No Fixed Coupon — Residual Cash Flows Only. The Subordinated Notes do not bear interest at a fixed or determinable rate. Instead, holders of the Subordinated Notes are entitled only to residual cash flows remaining after all senior obligations have been satisfied in accordance with the priority of payments established by the Indenture. These senior obligations include, in order of priority: (a) fees and expenses of the Trustee and Collateral Administrator; (b) the senior management fee payable to the Collateral Manager; (c) interest on the Rated Notes in order of seniority; (d) principal on the Rated Notes (following the reinvestment period or upon the occurrence of certain events); (e) the subordinated management fee and incentive management fee payable to the Collateral Manager; and (f) all other obligations of the Issuer. Only after all of the foregoing obligations have been satisfied are any amounts distributable to holders of the Subordinated Notes. The absence of a fixed coupon and the dependence of distributions on the residual performance of the Collateral Obligations are characteristics of equity rather than debt.

(ii) Most Junior Position in the Waterfall. The Subordinated Notes are the most junior tranche in the priority of payments established by the Indenture. As the first-loss tranche, the Subordinated Notes absorb losses on the Collateral Obligations before any losses are borne by the Rated Notes. This first-loss position is functionally equivalent to the equity cushion in a traditional corporate capital structure and is a strong indicator that the Subordinated Notes represent equity rather than debt.

(iii) Economic Risk and upside Participation. Holders of the Subordinated Notes bear the primary economic risk of the Collateral Obligations. If the Collateral Obligations perform poorly, holders of the Subordinated Notes may receive no distributions or may lose a substantial portion or all of their investment. Conversely, if the Collateral Obligations perform well, holders of the Subordinated Notes benefit from the excess cash flows generated by the portfolio. This combination of downside risk and upside participation is characteristic of equity interests.

(iv) Incentive Management Fee Residual. Holders of the Subordinated Notes receive distributions of residual cash flows after payment of the incentive management fee to DCM. The Collateral Management Agreement provides for an incentive fee equal to 20% of excess cash flows above a 12% internal rate of return ("IRR") hurdle for the Subordinated Notes. This incentive fee structure is typical of private equity and alternative investment fund arrangements and reflects the equity-like character of the Subordinated Notes. The holders of the Subordinated Notes effectively share in the profits of the Issuer after the Collateral Manager receives its performance-based compensation.

(v) Unrated Status. The Subordinated Notes have not been rated by any nationally recognized statistical rating organization. This is consistent with the treatment of the Subordinated Notes as equity interests, as rating agencies generally do not assign credit ratings to equity tranches of CLO transactions.

(vi) No Unconditional Obligation to Repay Principal. Unlike the Rated Notes, the Subordinated Notes do not carry an unconditional obligation on the part of the Issuer to repay principal. Distributions of principal on the Subordinated Notes are contingent on the availability of cash flows after all senior obligations have been satisfied. There is no guarantee that holders of the Subordinated Notes will receive any return of their initial investment, and the Issuer is not obligated to make any minimum distribution to holders of the Subordinated Notes. The absence of an unconditional repayment obligation is a strong indicator of equity treatment.

(vii) Tax Reporting Consistent with Equity Treatment. Holders of the Subordinated Notes may receive Schedule K-1 equivalent tax reporting (or comparable information statements) reflecting their allocable share of the Issuer's income, gains, losses, deductions, and credits, consistent with the treatment of the Subordinated Notes as equity interests in the Issuer. This tax reporting approach is consistent with the characterization of the holders of the Subordinated Notes as partners or equity participants in the Issuer for U.S. federal income tax purposes.

Conclusion. Based on the totality of the foregoing factors, we are of the opinion that the Subordinated Notes should be treated as equity interests in the Issuer rather than indebtedness of the Issuer for U.S. federal income tax purposes. Distributions on the Subordinated Notes should not be treated as interest for U.S. federal income tax purposes but rather as distributions of income or return of capital, as applicable, to the holders thereof in their capacity as equity owners of the Issuer.

6. Additional Tax Considerations Noted (Not Formal Opinions)

The following observations are provided for informational purposes and do not constitute formal legal opinions of Calderwood & Harkness LLP. The addressees and their advisors should undertake their own independent analysis of the matters discussed below.

6.1 FATCA and CRS

We note that the Issuer has been registered as a Reporting Foreign Financial Institution ("Reporting FFI") with the Cayman Islands Tax Information Authority for purposes of the Foreign Account Tax Compliance Act ("FATCA"), codified in Sections 1471 through 1474 of the Code, and the Common Reporting Standard ("CRS") adopted by the Organisation for Economic Co-operation and Development ("OECD") and implemented in the Cayman Islands through the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (as revised). The Issuer has obtained a Global Intermediary Identification Number ("GIIN") and intends to comply with applicable FATCA intergovernmental agreement procedures and CRS reporting obligations.

Under FATCA, withholding at a rate of 30% may be imposed on certain "withholdable payments" (generally, U.S.-source interest, dividends, and other fixed or determinable annual or periodical income, and, subject to the effective date of final regulations, gross proceeds from the sale or disposition of property producing U.S.-source interest or dividends) made to foreign financial institutions that do not comply with FATCA's requirements. The Issuer's registration as a Reporting FFI and its compliance with applicable FATCA procedures should eliminate the risk of FATCA withholding on payments received by the Issuer.

6.2 ERISA Considerations

We note, without expressing a formal opinion, that the Rated Notes are intended to be "ERISA eligible" — that is, eligible for purchase by employee benefit plans and other "benefit plan investors" as defined in Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and regulations promulgated thereunder by the U.S. Department of Labor. The ERISA eligibility of the Rated Notes is predicated on the availability of the underwriter's exemption set forth in Prohibited Transaction Class Exemption 96-23 and the venture capital operating company ("VCOC") and real estate operating company ("REOC") exemptions under the "plan asset" regulations at 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA. The determination of whether the Rated Notes are eligible for acquisition by benefit plan investors is a matter of ERISA law and is beyond the scope of the tax opinions set forth in this Opinion.

We further note that the Subordinated Notes are restricted to non-benefit plan investors and may not be acquired by or on behalf of (i) any employee benefit plan subject to Title I of ERISA, (ii) any plan described in Section 4975(e)(1) of the Code, or (iii) any entity whose underlying assets include "plan assets" by reason of a benefit plan investor's investment in such entity. The offering restrictions applicable to the Subordinated Notes are set forth in the Indenture and the Offering Memorandum.

6.3 Withholding Tax on Interest Payments

We note that interest paid on the Rated Notes to holders that are not U.S. persons (as defined in Section 7701(a)(30) of the Code) should qualify for the "portfolio interest" exemption from U.S. withholding tax under Sections 871(h) and 881(c) of the Code, provided that all applicable requirements are satisfied. These requirements include, among others, the following: (a) the interest is not effectively connected with the conduct of a U.S. trade or business by the recipient; (b) the recipient provides to the applicable withholding agent a properly completed IRS Form W-8BEN (for individuals) or IRS Form W-8BEN-E (for entities), certifying, under penalties of perjury, the recipient's non-U.S. status and eligibility for the portfolio interest exemption; (c) the recipient is not a "10-percent shareholder" of the Issuer within the meaning of Section 871(h)(3)(B) of the Code; and (d) the recipient is not a "controlled foreign corporation" related to the Issuer within the meaning of Section 881(c)(3)(C) of the Code.

We further note that the Issuer itself should not be subject to U.S. withholding tax on income received from the Collateral Obligations, provided that the Issuer is not engaged in a U.S. trade or business (as opined in Section 5.1 above). Interest income received by the Issuer on the Collateral Obligations (which consist of loans to U.S. obligors) generally should be subject to the portfolio interest exemption or, in the case of certain bank loans, may be excluded from the definition of U.S.-source income under applicable rules. We note, however, that certain types of income — including original issue discount, commitment fees, facility fees, and other non-interest compensation — may be subject to different withholding rules, and the Issuer should consult with its tax advisors regarding the application of withholding tax to specific items of income.

6.4 State and Local Tax

This Opinion is limited to the U.S. federal income tax consequences of the Transaction and does not address any tax consequences arising under the laws of any state, locality, or non-U.S. jurisdiction, including the Cayman Islands. Separate opinions regarding the tax treatment of the Issuer under Cayman Islands law have been provided by Applegategate Offshore Services Ltd. in the Cayman Legal Opinion.

We note that the Issuer may be subject to Delaware franchise taxes in respect of the Co-Issuer's organization as a Delaware limited liability company. The Co-Issuer's activities are limited to acting as co-issuer of the Notes, and it maintains only a registered agent in Delaware (National Registered Agents Inc., 1209 Orange Street, Wilmington, Delaware 19801). Delaware imposes an annual franchise tax on limited liability companies organized under the Delaware Limited Liability Company Act. The amount of such tax is nominal and should not have a material impact on the financial condition or operations of the Issuer or the Co-Issuer. The Issuer and the Co-Issuer should consult with their tax advisors regarding compliance with applicable Delaware franchise tax obligations and any other state or local tax obligations that may arise in connection with the Transaction.

7. Qualifications and Limitations

The opinions set forth herein are subject to the following qualifications and limitations:

(a) Law in Effect as of the Date Hereof. This Opinion is based on the Code, the Treasury Regulations, published rulings and administrative pronouncements of the IRS, and judicial decisions, in each case as in effect as of the date hereof. All of the foregoing authorities are subject to change at any time, possibly with retroactive effect, and any such change could affect the validity of the opinions set forth herein. We assume no obligation to update or supplement this Opinion to reflect any changes in law, regulation, or interpretation occurring after the date hereof.

(b) No Assurance Against Contrary IRS Position. No assurance can be given that the IRS will not take a position contrary to one or more of the opinions expressed herein, or that a court would not sustain such a contrary position if challenged. The opinions set forth herein represent our best professional judgment regarding the application of existing law to the facts and circumstances described herein, but they are not binding on the IRS or any court. No ruling has been or will be sought from the IRS with respect to any of the matters addressed in this Opinion.

(c) Dependence on Facts and Assumptions. This Opinion is based on the facts and assumptions set forth herein. If any of the facts represented or assumed proves to be incorrect, incomplete, or is subsequently altered, or if any party takes any action inconsistent with the assumptions set forth herein, the conclusions expressed in this Opinion may differ, and we accept no responsibility for the continued accuracy of the opinions expressed herein in such circumstances.

(d) No State, Local, or Non-U.S. Tax Opinion. This Opinion does not address any tax consequences arising under the laws of any state, local, or non-U.S. jurisdiction, including the Cayman Islands. For Cayman Islands tax considerations, reliance should be placed on the opinion of Applegategate Offshore Services Ltd. dated September 12, 2023.

(e) No Opinion on Holder Tax Consequences. This Opinion does not address the U.S. federal, state, local, or non-U.S. income tax consequences to any holder or prospective holder of the Notes. Each holder and prospective holder is urged to consult its own tax advisors regarding the tax consequences of acquiring, holding, and disposing of the Notes in light of such holder's particular circumstances.

(f) No Opinion on Anti-Avoidance Provisions. No opinion is expressed regarding the application of any anti-avoidance provisions of the Code, including the economic substance doctrine, the step transaction doctrine, the substance-over-form doctrine, or any similar principle. We have assumed that the Transaction has been entered into for bona fide business purposes and that each step of the Transaction has independent economic substance apart from the tax benefits that may result therefrom.

(g) Limitation on Reliance. This Opinion is rendered solely for the benefit of the addressees hereof — the Issuer, the Co-Issuer, and the Trustee — and their successors and assigns in their capacities described herein, and solely in connection with the Transaction. This Opinion may not be relied upon by any other person or entity, or for any other purpose, without the prior written consent of Calderwood & Harkness LLP. Without limiting the foregoing, this Opinion may not be quoted, cited, or referred to in any registration statement, prospectus, or other public filing, or in any agreement to which Calderwood & Harkness LLP is not a party, without our prior written consent.

8. Consent and Reliance

Calderwood & Harkness LLP hereby consents to the filing or delivery of this Opinion as required by Section 3.01(d)(vi) of the Indenture and Section 7(e) of the Note Purchase Agreement. We further consent to the reference to this Opinion, and to the summary of certain U.S. federal income tax considerations derived from this Opinion, in the Final Offering Memorandum dated August 18, 2023.

This Opinion may be relied upon by the addressees hereof — Driftwood CLO 2023-I, Ltd. (the Issuer), Driftwood CLO 2023-I, LLC (the Co-Issuer), and Ironclad Trust Company, National Association (the Trustee) — and by their respective successors and assigns, in each case solely in their capacities described herein and solely in connection with the Transaction. The giving of this consent and the granting of reliance rights do not constitute an admission that Calderwood & Harkness LLP is within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or any rules or regulations promulgated thereunder.

We note that the Final Offering Memorandum dated August 18, 2023, contains a summary of certain U.S. federal income tax considerations that is consistent with the opinions expressed herein. The summary in the Offering Memorandum was prepared with our assistance and is subject to the same qualifications and limitations set forth in this Opinion.

[Remainder of Page Intentionally Left Blank — Signature Page Follows]

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Sylvia Hartwell

Title: Specialist Partner, Tax

450 Park Avenue New York, New York 10022

C&H Matter No. 1024-00004

Class	Principal Amount	% of Capital Structure	Ratings (Brindoval / Ridgeline)	Interest Rate
Class A-1 Notes	$256,000,000	64.00%	AAA / AAA	Compounded SOFR + 155 bps
Class A-2 Notes	$40,000,000	10.00%	AA / AA	Compounded SOFR + 190 bps
Class B Notes	$28,000,000	7.00%	A / A	Compounded SOFR + 230 bps
Class C Notes	$24,000,000	6.00%	BBB / BBB	Compounded SOFR + 310 bps
Class D Notes	$16,000,000	4.00%	BB / BB	Compounded SOFR + 625 bps
Subordinated Notes	$36,000,000	9.00%	Unrated	Residual Cash Flows
Total	$400,000,000	100.00%
Class	144A CUSIP	Reg S CUSIP
Class A-1 Notes	26738TAA5	G2694LAA7
Class A-2 Notes	26738TAB3	—
Class B Notes	26738TAC1	—
Class C Notes	26738TAD9	—
Class D Notes	26738TAE7	—
Subordinated Notes	26738TAF4	—
Test	Class A O/C	Class B O/C	Class C O/C	Class D O/C
O/C Ratio	128.00%	118.00%	110.00%	105.50%
I/C Ratio	120.00%	115.00%	110.00%	105.00%

CALDERWOOD & HARKNESS LLP Counselors at Law
450 Park Avenue New York, New York 10022
Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
September 12, 2023
Driftwood CLO 2023-I, Ltd. PO Box 4927, Windward House, 3rd Floor George Town, Grand Cayman KY1-1306 Cayman Islands
Driftwood CLO 2023-I, LLC c/o National Registered Agents Inc. 1209 Orange Street Wilmington, Delaware 19801
Ironclad Trust Company, National Association as Trustee 100 Wall Street, Suite 1650 New York, New York 10005
Re: U.S. Federal Income Tax Opinion — Driftwood CLO 2023-I, Ltd. / Driftwood CLO 2023-I, LLC — $400,000,000 Secured and Subordinated Notes
Ladies and Gentlemen:
1. Introduction and Engagement
Calderwood & Harkness LLP ("we," "our," or "C&H") has acted as U.S. counsel to Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), an exempted company incorporated with limited liability under the laws of the Cayman Islands, and to Driftwood CLO 2023-I, Ltd., an exempted company incorporated with limited liability under the laws of the Cayman Islands (the "Issuer"), and Driftwood CLO 2023-I, LLC, a Delaware limited liability company (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"), in connection with the issuance of secured and subordinated notes (collectively, the "Notes") pursuant to that certain Indenture dated as of August 22, 2023 (the "Base Indenture"), as supplemented by the First Supplemental Indenture dated as of September 8, 2023 (the "First Supplemental Indenture" and, together with the Base Indenture, the "Indenture"), each among the Issuer, the Co-Issuer, and Ironclad Trust Company, National Association, as trustee (the "Trustee"). This opinion is issued in connection with C&H Matter No. 1024-00004.
This opinion letter (this "Opinion") is being delivered at the closing of the transactions contemplated by the Indenture and the Note Purchase Agreement (as defined below) on September 12, 2023 (the "Closing Date") pursuant to the requirements of Section 3.01(d)(vi) of the Indenture and Section 7(e) of the Note Purchase Agreement dated as of September 8, 2023 (the "Note Purchase Agreement"), among the Issuer, the Co-Issuer, Meridian Atlantic Securities LLC, as lead placement agent, and Northbridge Capital Markets Inc., as co-placement agent. The transaction that is the subject of this Opinion involves a $400,000,000 broadly syndicated collateralized loan obligation (the "CLO Transaction" or the "Transaction").
Sylvia Hartwell, Specialist Partner, Tax, is the responsible partner for the preparation and delivery of this Opinion. Ms. Hartwell has been involved in the structuring and analysis of the Transaction from its inception and has supervised all tax-related aspects of the engagement.
The opinions set forth herein are limited to matters of U.S. federal income tax law, and we express no opinion regarding the laws of any state, locality, or non-U.S. jurisdiction. We have not been engaged to, and do not, represent any holder or prospective holder of the Notes, and the opinions expressed herein are not intended as tax advice to any such holder.
2. Documents and Materials Reviewed
In connection with rendering the opinions set forth herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents and materials (collectively, the "Transaction Documents"):
(a) The Indenture dated as of August 22, 2023, among Driftwood CLO 2023-I, Ltd., as Issuer, Driftwood CLO 2023-I, LLC, as Co-Issuer, and Ironclad Trust Company, National Association, as Trustee (the "Base Indenture");
(b) The First Supplemental Indenture dated as of September 8, 2023, among the same parties, reflecting final pricing spreads, CUSIP assignments, and settlement mechanics (the "First Supplemental Indenture");
(c) The Collateral Management Agreement dated as of August 22, 2023, between the Issuer and Driftwood Credit Management LLC ("DCM"), a Delaware limited liability company and registered investment adviser with the U.S. Securities and Exchange Commission (SEC CRD #182447), as collateral manager (the "Collateral Manager" or "DCM") (the "Collateral Management Agreement");
(d) The Collateral Administration Agreement dated as of August 22, 2023, among the Issuer, DCM, and Ironclad Trust Company, National Association, as collateral administrator (the "Collateral Administration Agreement");
(e) The Co-Issuance Agreement dated as of August 22, 2023, between the Issuer and the Co-Issuer (the "Co-Issuance Agreement");
(f) The Note Purchase Agreement dated as of September 8, 2023, among the Issuer, the Co-Issuer, Meridian Atlantic Securities LLC, as lead placement agent, and Northbridge Capital Markets Inc., as co-placement agent (the "Note Purchase Agreement");
(g) The Limited Liability Company Agreement of Driftwood CLO 2023-I, LLC dated as of August 22, 2023 (the "LLC Agreement");
(h) The Certificate of Formation of Driftwood CLO 2023-I, LLC, as filed with the Secretary of State of the State of Delaware on August 18, 2023 (Delaware File No. 7429831) (the "Certificate of Formation");
(i) The Memorandum and Articles of Association of Driftwood CLO 2023-I, Ltd., as registered with the Cayman Islands Registrar of Companies (Cayman Registration No. EX-382916) (the "Memorandum and Articles");
(j) The Final Offering Memorandum dated August 18, 2023, relating to the Notes (the "Offering Memorandum");
(k) The resolutions of the Board of Directors of Driftwood CLO 2023-I, Ltd., adopted by written consent on August 20, 2023, authorizing the Transaction (the "Board Resolutions");
(l) The written consent of the sole member of Driftwood CLO 2023-I, LLC, dated August 20, 2023, authorizing the Co-Issuer's participation in the Transaction (the "Member Consent");
(m) The FATCA/CRS registration documentation for the Issuer filed with the Cayman Islands Tax Information Authority, including the Issuer's Global Intermediary Identification Number ("GIIN") notification;
(n) The Officer's Certificate of the Issuer dated September 12, 2023 (the "Officer's Certificate"), delivered to us for purposes of this Opinion; and
(o) Such other documents, certificates, records, and instruments as we have deemed necessary or advisable for purposes of rendering the opinions set forth herein, including certificates of officers and representatives of the Issuer, the Co-Issuer, and DCM.
In addition, we have reviewed and are familiar with the relevant provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder (the "Treasury Regulations"), published rulings and administrative pronouncements of the Internal Revenue Service (the "IRS"), and pertinent judicial decisions, in each case as in effect on the date hereof.
3. Description of the Transaction and Capital Structure
The Issuer is a Cayman Islands exempted company organized for the primary purpose of acquiring, holding, and disposing of a portfolio of broadly syndicated first-lien senior secured leveraged loans (primarily to U.S. obligors) (the "Collateral Obligations") and issuing multiple classes of secured and subordinated notes to finance such activities. The Co-Issuer is a Delaware limited liability company organized solely for the purpose of acting as co-issuer of the Notes. Together, the Issuer and the Co-Issuer have jointly issued $400,000,000 in aggregate principal amount of Notes in the following tranches:
The total aggregate principal amount of rated notes (the "Rated Notes") is $364,000,000, and the aggregate principal amount of the Subordinated Notes is $36,000,000.
The Notes have been offered and sold in transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Rule 144A and Regulation S promulgated thereunder. The reference rate for the Rated Notes is Compounded SOFR, calculated in accordance with the ARRC-recommended 26253 fallback convention, with a day count convention of Actual/360. The minimum denomination for the Rated Notes is $250,000 (in increments of $1,000 in excess thereof), and the minimum denomination for the Subordinated Notes is $250,000 (in increments of $1 in excess thereof).
The following CUSIPs have been assigned to the respective classes of Notes:
The proceeds of the issuance of the Notes are being used to acquire a portfolio of Collateral Obligations, with a target portfolio par amount of $400,000,000. The Collateral Obligations will consist predominantly of broadly syndicated first-lien senior secured leveraged loans to U.S. corporate obligors, subject to the eligibility criteria, concentration limitations, and quality tests set forth in the Indenture.
The Transaction includes the following key structural dates: (i) the non-call period expires on September 12, 2025; (ii) the reinvestment period expires on September 12, 2028; and (iii) the stated maturity of the Notes is October 15, 2036. Payment dates occur quarterly on the 15th day of January, April, July, and October of each year, commencing on January 15, 2024. Interest and principal on the Notes are payable in accordance with the priority of payments (the "Waterfall") set forth in the Indenture.
The Transaction is managed by DCM, which serves as the Collateral Manager and is responsible for selecting, acquiring, monitoring, and disposing of the Collateral Obligations on behalf of the Issuer, subject to the guidelines and restrictions contained in the Indenture and the Collateral Management Agreement. Ironclad Trust Company, N.A. serves as the Trustee under the Indenture and as the Collateral Administrator under the Collateral Administration Agreement.
4. Assumptions
In rendering the opinions set forth below, we have assumed, with your consent and without independent investigation or verification, the following:
(a) Genuineness and Authenticity. All documents submitted to us as originals are authentic, all documents submitted to us as copies conform to the originals, all signatures on the documents we have reviewed are genuine, and the individuals who have signed such documents had the legal capacity to do so.
(b) Consummation in Accordance with Terms. The Transaction has been and will be consummated in all material respects in accordance with the terms set forth in the Transaction Documents reviewed by us, without modification, amendment, or waiver of any material provision thereof (except as reflected in the First Supplemental Indenture or as otherwise disclosed to us).
(c) Operations in Accordance with Governing Documents. The Issuer will at all times be operated in accordance with the terms of its Memorandum and Articles of Association, the Indenture, the Collateral Management Agreement, and the other Transaction Documents. The Issuer will not engage in any activities beyond those contemplated by the Transaction Documents, and its purposes and objects will at all times remain limited to those set forth in its organizational documents.
(d) Collateral Manager Conduct. The Collateral Manager (DCM) will at all times exercise its duties, responsibilities, and discretion in a manner consistent with the representations, warranties, covenants, and restrictions set forth in the Indenture and the Collateral Management Agreement. The Collateral Manager will not take any action that would cause the Issuer to be treated as engaged in a U.S. trade or business or that would otherwise be inconsistent with the tax treatment described in this Opinion.
(e) No Inconsistent Actions. No party to the Transaction will take any action, or fail to take any action, that is inconsistent with the treatment of the Issuer, the Co-Issuer, or the Notes described in this Opinion. In particular, no party will file any tax return, information return, or election that is inconsistent with the classification of the Issuer, the Co-Issuer, or the Notes as described herein.
(f) Officer's Certificate. The factual representations and warranties contained in the Officer's Certificate of the Issuer dated September 12, 2023, delivered to us in connection with this Opinion, are true, correct, and complete in all material respects as of the date hereof and will remain true, correct, and complete in all material respects throughout the term of the Transaction.
(g) Cayman Islands Status. The Issuer is and will remain an exempted company validly existing and in good standing under the laws of the Cayman Islands, and it has been and will continue to be managed and controlled outside the United States. In connection with this assumption, we have relied upon the legal opinion of Applegategate Offshore Services Ltd. dated September 12, 2023 (the "Cayman Legal Opinion"), with respect to the valid existence and organization of the Issuer under Cayman Islands law, and we express no opinion on matters of Cayman Islands law.
(h) No Undisclosed Arrangements. There are no oral or written agreements, understandings, or arrangements among any parties to the Transaction, or between any such party and any holder or prospective holder of the Notes, that have not been disclosed to us and that are material to the opinions set forth herein.
We have not independently verified any of the foregoing assumptions. If any of the foregoing assumptions proves to be incorrect, incomplete, or is subsequently altered or modified, the opinions set forth herein may be affected and may no longer be reliable.
5. Opinions
Based upon and subject to the assumptions, qualifications, and limitations set forth in this Opinion, and based upon our examination of the Transaction Documents and our consideration of the applicable provisions of the Code, the Treasury Regulations, published IRS rulings and administrative pronouncements, and relevant judicial decisions, we are of the opinion that the following U.S. federal income tax consequences will result from the Transaction.
5.1 Classification of the Issuer — Not Engaged in a U.S. Trade or Business
It is our opinion that Driftwood CLO 2023-I, Ltd. (the Issuer), a Cayman Islands exempted company, will not be treated as engaged in a trade or business within the United States for U.S. federal income tax purposes.
Applicable Legal Standards. Under Section 882(a) of the Code, a foreign corporation is subject to U.S. federal income tax on a net-income basis only on income that is "effectively connected" with the conduct of a trade or business within the United States. Whether a foreign corporation is engaged in a U.S. trade or business is a factual determination that depends on the nature, extent, and continuity of its activities within the United States. The Code, the Treasury Regulations, and the case law do not provide a comprehensive definition of "trade or business within the United States," but rather require an analysis of all relevant facts and circumstances.
Section 864(b) of the Code sets forth certain safe harbor exceptions under which specified trading activities conducted in the United States by or on behalf of a foreign person will not be treated as constituting a U.S. trade or business. Of particular relevance here, Section 864(b)(2)(A) of the Code provides that trading in stocks, securities, or commodities through a resident broker, commission agent, custodian, or other independent agent will not constitute a U.S. trade or business, provided that the foreign person is not a "dealer in stocks or securities" within the meaning of Section 864(b)(2)(A)(ii). For purposes of this safe harbor, the term "stocks or securities" has been interpreted broadly by the IRS and the courts to include debt instruments such as the leveraged loans that constitute the Collateral Obligations.
Application to the Issuer. The Issuer's activities are limited to the acquisition, holding, and disposition of broadly syndicated leveraged loans (the Collateral Obligations) and the incidental activities necessary to effectuate such transactions, including the issuance of Notes to finance the acquisition of such Collateral Obligations, the distribution of cash flows from the Collateral Obligations in accordance with the Waterfall, and the performance of administrative functions required by the Indenture and other Transaction Documents. The Issuer is not a bank, insurance company, or other financial institution, and it does not engage in lending, underwriting, or origination activities. Its purpose is limited to holding a static or semi-static portfolio of Collateral Obligations and applying the cash flows therefrom in accordance with the priority of payments established by the Indenture.
The Issuer's trading activities — to the extent trading occurs during the reinvestment period or in connection with credit risk or other sales — will be conducted through DCM, the Collateral Manager. DCM is a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940. DCM acts in its capacity as an independent contractor with respect to the Issuer, performing collateral management services under the terms of the Collateral Management Agreement. DCM is not an employee or agent of the Issuer for purposes of creating a U.S. trade or business attributable to the Issuer. The Collateral Management Agreement provides that DCM is engaged as an independent contractor and that no agency, partnership, or joint venture relationship is created thereby. DCM provides similar services to multiple CLO vehicles and other investment vehicles and is not exclusively dedicated to the Issuer. Accordingly, the Issuer's trading activities conducted through DCM should qualify for the "trading in securities" safe harbor under Section 864(b)(2)(A) of the Code, as the Issuer is not and will not be a "dealer in securities."
The Issuer does not and will not maintain a fixed place of business in the United States. Its registered office is located in the Cayman Islands at PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306, and all of the Issuer's directors are resident outside the United States. All board meetings are held outside the United States. The Issuer does not employ any personnel in the United States. All activities performed in the United States in connection with the management of the Collateral Obligations are carried out by DCM, the Trustee, the Collateral Administrator, and other service providers acting in their independent capacities. None of these entities has authority to conclude contracts in the name of the Issuer or to bind the Issuer in a manner that would create a U.S. permanent establishment or otherwise subject the Issuer to U.S. net-income taxation.
The Issuer's activities are confined to the purposes set forth in its Memorandum and Articles of Association and the Indenture. The Issuer is a special purpose vehicle organized and operated solely for the purpose of engaging in the CLO Transaction, and its objects are strictly limited to the issuance of Notes, the acquisition and holding of Collateral Obligations, and related activities. The Issuer is not authorized to engage in any business or activity other than those expressly contemplated by the Transaction Documents.
The Collateral Manager is an independent contractor whose activities should not be attributed to the Issuer for purposes of determining whether the Issuer is engaged in a U.S. trade or business. Under established principles of agency law as applied in the tax context, the activities of an independent agent are generally not attributable to the principal where the agent is acting in the ordinary course of its own business, bears economic risk independent of the principal, and provides services to multiple clients. DCM satisfies all of these criteria.
Conclusion. Based on the foregoing analysis, it is our opinion that income earned by the Issuer on the Collateral Obligations should not be treated as effectively connected with a U.S. trade or business, and accordingly the Issuer should not be subject to U.S. federal income tax on a net-income basis under Sections 871 or 882 of the Code. The Issuer may, however, be subject to U.S. withholding tax on certain types of U.S.-source fixed or determinable annual or periodical ("FDAP") income to the extent not otherwise exempt (as discussed in Section 6.3 below).
5.2 Classification of the Co-Issuer — Disregarded Entity
It is our opinion that Driftwood CLO 2023-I, LLC (the Co-Issuer), a Delaware limited liability company, will be treated as an entity disregarded as separate from its owner for U.S. federal income tax purposes under Treasury Regulation § 301.7701-3.
Applicable Legal Standards. Under the entity classification rules set forth in Treasury Regulations §§ 301.7701-1 through 301.7701-3 (commonly referred to as the "check-the-box" regulations), an eligible entity that is not automatically classified as a corporation is classified based on its election under Treasury Regulation § 301.7701-3(a). In the absence of an election, the default classification rules apply. Under Treasury Regulation § 301.7701-3(b)(1)(ii), a domestic eligible entity that has a single owner is classified as a disregarded entity — that is, an entity that is not treated as separate from its owner for U.S. federal income tax purposes — unless it affirmatively elects to be classified as an association taxable as a corporation by filing a Form 8832 (Entity Classification Election) with the IRS.
A limited liability company organized under the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., is an "eligible entity" for purposes of the check-the-box regulations because it is not included in the list of entities that are automatically classified as corporations under Treasury Regulation § 301.7701-2(b).
Application to the Co-Issuer. The Co-Issuer, Driftwood CLO 2023-I, LLC, is organized as a limited liability company under the Delaware Limited Liability Company Act. The Certificate of Formation of the Co-Issuer was filed with the Secretary of State of the State of Delaware on August 18, 2023 (Delaware File No. 7429831). The Co-Issuer has a single member, the Issuer (Driftwood CLO 2023-I, Ltd.), which holds 100% of the membership interests in the Co-Issuer. The Co-Issuer is therefore a domestic eligible entity with a single owner for purposes of the check-the-box regulations.
The LLC Agreement of the Co-Issuer, dated as of August 22, 2023, does not provide for, authorize, or contemplate any election to classify the Co-Issuer as an association taxable as a corporation for U.S. federal income tax purposes. We have confirmed, through inquiry of the officers and agents of the Co-Issuer and our review of applicable records, that no Form 8832 (Entity Classification Election) has been filed or will be filed with the IRS to elect corporate classification for the Co-Issuer. Accordingly, the Co-Issuer is classified under the default rule of Treasury Regulation § 301.7701-3(b)(1)(ii) as an entity disregarded as separate from its owner.
Conclusion. Based on the foregoing analysis, it is our opinion that the Co-Issuer will be treated as a disregarded entity for U.S. federal income tax purposes. As a consequence, all assets, liabilities, income, deductions, and credits of the Co-Issuer will be treated for U.S. federal income tax purposes as assets, liabilities, income, deductions, and credits of the Issuer. The Co-Issuer's obligations as co-issuer of the Notes will be treated as obligations of the Issuer, and no separate tax consequences should arise from the existence or activities of the Co-Issuer as a distinct legal entity.
5.3 Characterization of the Rated Notes as Debt
It is our opinion that the Class A-1 Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, and the Class D Notes (collectively, the "Rated Notes") will be treated as indebtedness of the Issuer for U.S. federal income tax purposes, rather than equity interests in the Issuer.
Applicable Legal Standards. The determination of whether an instrument is properly characterized as debt or equity for U.S. federal income tax purposes is a factual inquiry that depends on the totality of the circumstances. Neither the Code nor the Treasury Regulations provide a single, definitive test for distinguishing debt from equity. Instead, courts and the IRS have identified a number of factors to be considered, none of which is individually dispositive. The factors most frequently cited in the case law and in the legislative history of Section 385 of the Code include, among others: (i) whether there is a written, unconditional promise to pay a sum certain on demand or on a fixed date; (ii) whether the instrument bears a fixed rate of interest or a reasonable variable rate; (iii) the debt-to-equity ratio of the issuer; (iv) whether the instrument is subordinated to or on parity with other indebtedness; (v) the right of the holder to participate in management; (vi) the right of the holder to share in profits; (vii) the form of the instrument; (viii) the intent of the parties; (ix) whether the holder has the status of a typical creditor; and (x) whether payments on the instrument are contingent on the issuer's earnings.
The leading judicial authorities on debt-equity classification include Dixie Dairies Corp. v. Commissioner, 74 T.C. 476 (1980); Notice 94-47, 1994-1 C.B. 357 (IRS guidance on debt-equity characterization); Fin Hay Realty Co. v. United States, 398 F.2d 694 (3d Cir. 1968); and the multifactor tests articulated in Estate of Mixon v. United States, 464 F.2d 394 (5th Cir. 1972).
Application to the Rated Notes — Factors Supporting Debt Treatment. Based on our review of the terms of the Rated Notes as set forth in the Indenture and the other Transaction Documents, we believe the following factors strongly support the characterization of the Rated Notes as indebtedness of the Issuer:
(i) Fixed Maturity and Mandatory Payment Obligations. The Rated Notes have a stated maturity date of October 15, 2036, on which the full outstanding principal amount plus accrued and unpaid interest must be paid in full (subject to the availability of funds in accordance with the Waterfall). Prior to stated maturity, the Issuer is obligated to make quarterly payments of interest on each Payment Date (the 15th of January, April, July, and October of each year, commencing January 15, 2024) and to apply Available Funds to the repayment of principal in accordance with the Waterfall following the end of the reinvestment period or upon the occurrence of an event of default. The existence of a fixed maturity date and mandatory interest payment obligations is a hallmark of debt.
(ii) Interest at a Reasonable Rate. Each class of Rated Notes bears interest at a spread over Compounded SOFR, as follows: Class A-1 at SOFR + 155 bps, Class A-2 at SOFR + 190 bps, Class B at SOFR + 230 bps, Class C at SOFR + 310 bps, and Class D at SOFR + 625 bps. These rates represent arm's-length market terms negotiated between the Co-Issuers and the placement agents and reflect the credit risk of each tranche as indicated by the ratings assigned by two nationally recognized statistical rating organizations, Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC. The weighted-average spread across all Rated Notes is approximately 195.49 basis points over Compounded SOFR, which is consistent with prevailing market levels for comparable CLO transactions. The obligation to pay interest is unconditional and does not depend on the profitability or financial performance of the Issuer (subject only to the priority of payments in the Waterfall).
(iii) No Voting Rights or Participation in Management. Holders of the Rated Notes have no voting rights, no right to elect or remove directors of the Issuer, no right to participate in the management of the Issuer's business or affairs, and no right to approve or disapprove of any investment decisions made by the Collateral Manager. The limited protective rights afforded to holders of the Rated Notes — such as the right to direct the Trustee to accelerate the Notes upon the occurrence of an Event of Default, and the right to consent to certain amendments to the Indenture — are typical of the rights held by creditors and do not constitute participation in management for purposes of debt-equity classification.
(iv) Priority in the Waterfall. The Rated Notes have priority over the Subordinated Notes in the priority of payments established by the Indenture. Interest and principal on the Rated Notes are payable in order of seniority (Class A-1, then Class A-2, then Class B, then Class C, then Class D) before any distributions are made to holders of the Subordinated Notes. This priority is a characteristic of debt, as equity holders typically share in distributions on a residual basis.
(v) Structural Credit Enhancement. The Rated Notes benefit from structural credit enhancement in the form of overcollateralization ("O/C") tests and interest coverage ("I/C") tests, as set forth in the Indenture. The applicable O/C and I/C test levels are as follows:
These tests provide significant protection to holders of the Rated Notes by diverting cash flows away from junior noteholders and the Subordinated Notes if the relevant test thresholds are not maintained. The existence of these tests reflects the creditor-like position of the holders of the Rated Notes.
(vi) Reasonable Debt-to-Equity Ratio and Subordination. The subordination levels for each class of Rated Notes are as follows: Class A-1, 36.00%; Class A-2, 26.00%; Class B, 19.00%; Class C, 13.00%; and Class D, 9.00%. These subordination levels provide a meaningful equity cushion below each class of Rated Notes. The overall ratio of Rated Notes ($364,000,000) to Subordinated Notes ($36,000,000) is approximately 10.1:1. While this ratio is relatively high, it is consistent with the capital structures of broadly syndicated CLO transactions and reflects the high credit quality of the underlying Collateral Obligations, which consist of first-lien senior secured leveraged loans. The subordination of 9.00% for the most junior class of Rated Notes (Class D) provides a meaningful cushion against losses.
(vii) Ratings by NRSROs. Each class of Rated Notes has been assigned investment-grade or near-investment-grade credit ratings by two nationally recognized statistical rating organizations: Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC. The ratings range from AAA/AAA for the Class A-1 Notes to BB/BB for the Class D Notes. The assignment of credit ratings is consistent with the treatment of the Rated Notes as debt obligations and reflects the independent judgment of the rating agencies that the Rated Notes carry credit risk characteristics consistent with debt instruments.
(viii) Non-Contingent Interest Payments. Interest on the Rated Notes is not contingent on the earnings or profitability of the Issuer. The Issuer is obligated to pay interest on each Payment Date regardless of whether the cash flows received from the Collateral Obligations are sufficient to cover such payments. Although the Issuer's ability to make such payments is, as a practical matter, dependent on the performance of the Collateral Obligations, this dependency does not render the interest payments "contingent" within the meaning of the debt-equity factors. The obligation to pay interest is absolute and unconditional, subject only to the priority of payments in the Waterfall. This is analogous to the position of a general unsecured creditor whose recovery depends on the issuer's overall financial condition.
(ix) Widely Distributed Holdings. The Rated Notes are held by unrelated third-party investors in widely distributed holdings. The placement agents have placed the Rated Notes with a broad base of institutional investors, including banks, insurance companies, asset managers, and other qualified institutional buyers (as defined in Rule 144A under the Securities Act). There is no indication that any holder of the Rated Notes is related to the Issuer, the Co-Issuer, the Collateral Manager, or any affiliate thereof (other than potential seed investments by DCM or its affiliates in a de minimis amount). The absence of related-party holdings supports the characterization of the Rated Notes as debt rather than disguised equity contributions.
Conclusion. Based on the totality of the foregoing factors, we are of the opinion that the Rated Notes possess the hallmarks of indebtedness and should be treated as debt of the Issuer for U.S. federal income tax purposes. Accordingly, interest paid on the Rated Notes should be treated as interest on indebtedness of the Issuer, and holders of the Rated Notes should be treated as creditors of the Issuer.
5.4 Characterization of the Subordinated Notes as Equity
It is our opinion that the Subordinated Notes ($36,000,000 in aggregate principal amount, unrated) will be treated as equity interests in the Issuer for U.S. federal income tax purposes, rather than indebtedness of the Issuer.
Applicable Legal Standards. The same multifactor analysis discussed in Section 5.3 above applies to the determination of whether the Subordinated Notes should be classified as debt or equity. As noted, no single factor is dispositive, and the determination must be made based on the totality of the circumstances.
Application to the Subordinated Notes — Factors Supporting Equity Treatment. Based on our review of the terms of the Subordinated Notes as set forth in the Indenture and the other Transaction Documents, we believe the following factors strongly support the characterization of the Subordinated Notes as equity interests in the Issuer:
(i) No Fixed Coupon — Residual Cash Flows Only. The Subordinated Notes do not bear interest at a fixed or determinable rate. Instead, holders of the Subordinated Notes are entitled only to residual cash flows remaining after all senior obligations have been satisfied in accordance with the priority of payments established by the Indenture. These senior obligations include, in order of priority: (a) fees and expenses of the Trustee and Collateral Administrator; (b) the senior management fee payable to the Collateral Manager; (c) interest on the Rated Notes in order of seniority; (d) principal on the Rated Notes (following the reinvestment period or upon the occurrence of certain events); (e) the subordinated management fee and incentive management fee payable to the Collateral Manager; and (f) all other obligations of the Issuer. Only after all of the foregoing obligations have been satisfied are any amounts distributable to holders of the Subordinated Notes. The absence of a fixed coupon and the dependence of distributions on the residual performance of the Collateral Obligations are characteristics of equity rather than debt.
(ii) Most Junior Position in the Waterfall. The Subordinated Notes are the most junior tranche in the priority of payments established by the Indenture. As the first-loss tranche, the Subordinated Notes absorb losses on the Collateral Obligations before any losses are borne by the Rated Notes. This first-loss position is functionally equivalent to the equity cushion in a traditional corporate capital structure and is a strong indicator that the Subordinated Notes represent equity rather than debt.
(iii) Economic Risk and upside Participation. Holders of the Subordinated Notes bear the primary economic risk of the Collateral Obligations. If the Collateral Obligations perform poorly, holders of the Subordinated Notes may receive no distributions or may lose a substantial portion or all of their investment. Conversely, if the Collateral Obligations perform well, holders of the Subordinated Notes benefit from the excess cash flows generated by the portfolio. This combination of downside risk and upside participation is characteristic of equity interests.
(iv) Incentive Management Fee Residual. Holders of the Subordinated Notes receive distributions of residual cash flows after payment of the incentive management fee to DCM. The Collateral Management Agreement provides for an incentive fee equal to 20% of excess cash flows above a 12% internal rate of return ("IRR") hurdle for the Subordinated Notes. This incentive fee structure is typical of private equity and alternative investment fund arrangements and reflects the equity-like character of the Subordinated Notes. The holders of the Subordinated Notes effectively share in the profits of the Issuer after the Collateral Manager receives its performance-based compensation.
(v) Unrated Status. The Subordinated Notes have not been rated by any nationally recognized statistical rating organization. This is consistent with the treatment of the Subordinated Notes as equity interests, as rating agencies generally do not assign credit ratings to equity tranches of CLO transactions.
(vi) No Unconditional Obligation to Repay Principal. Unlike the Rated Notes, the Subordinated Notes do not carry an unconditional obligation on the part of the Issuer to repay principal. Distributions of principal on the Subordinated Notes are contingent on the availability of cash flows after all senior obligations have been satisfied. There is no guarantee that holders of the Subordinated Notes will receive any return of their initial investment, and the Issuer is not obligated to make any minimum distribution to holders of the Subordinated Notes. The absence of an unconditional repayment obligation is a strong indicator of equity treatment.
(vii) Tax Reporting Consistent with Equity Treatment. Holders of the Subordinated Notes may receive Schedule K-1 equivalent tax reporting (or comparable information statements) reflecting their allocable share of the Issuer's income, gains, losses, deductions, and credits, consistent with the treatment of the Subordinated Notes as equity interests in the Issuer. This tax reporting approach is consistent with the characterization of the holders of the Subordinated Notes as partners or equity participants in the Issuer for U.S. federal income tax purposes.
Conclusion. Based on the totality of the foregoing factors, we are of the opinion that the Subordinated Notes should be treated as equity interests in the Issuer rather than indebtedness of the Issuer for U.S. federal income tax purposes. Distributions on the Subordinated Notes should not be treated as interest for U.S. federal income tax purposes but rather as distributions of income or return of capital, as applicable, to the holders thereof in their capacity as equity owners of the Issuer.
6. Additional Tax Considerations Noted (Not Formal Opinions)
The following observations are provided for informational purposes and do not constitute formal legal opinions of Calderwood & Harkness LLP. The addressees and their advisors should undertake their own independent analysis of the matters discussed below.
6.1 FATCA and CRS
We note that the Issuer has been registered as a Reporting Foreign Financial Institution ("Reporting FFI") with the Cayman Islands Tax Information Authority for purposes of the Foreign Account Tax Compliance Act ("FATCA"), codified in Sections 1471 through 1474 of the Code, and the Common Reporting Standard ("CRS") adopted by the Organisation for Economic Co-operation and Development ("OECD") and implemented in the Cayman Islands through the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (as revised). The Issuer has obtained a Global Intermediary Identification Number ("GIIN") and intends to comply with applicable FATCA intergovernmental agreement procedures and CRS reporting obligations.
Under FATCA, withholding at a rate of 30% may be imposed on certain "withholdable payments" (generally, U.S.-source interest, dividends, and other fixed or determinable annual or periodical income, and, subject to the effective date of final regulations, gross proceeds from the sale or disposition of property producing U.S.-source interest or dividends) made to foreign financial institutions that do not comply with FATCA's requirements. The Issuer's registration as a Reporting FFI and its compliance with applicable FATCA procedures should eliminate the risk of FATCA withholding on payments received by the Issuer.
6.2 ERISA Considerations
We note, without expressing a formal opinion, that the Rated Notes are intended to be "ERISA eligible" — that is, eligible for purchase by employee benefit plans and other "benefit plan investors" as defined in Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and regulations promulgated thereunder by the U.S. Department of Labor. The ERISA eligibility of the Rated Notes is predicated on the availability of the underwriter's exemption set forth in Prohibited Transaction Class Exemption 96-23 and the venture capital operating company ("VCOC") and real estate operating company ("REOC") exemptions under the "plan asset" regulations at 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA. The determination of whether the Rated Notes are eligible for acquisition by benefit plan investors is a matter of ERISA law and is beyond the scope of the tax opinions set forth in this Opinion.
We further note that the Subordinated Notes are restricted to non-benefit plan investors and may not be acquired by or on behalf of (i) any employee benefit plan subject to Title I of ERISA, (ii) any plan described in Section 4975(e)(1) of the Code, or (iii) any entity whose underlying assets include "plan assets" by reason of a benefit plan investor's investment in such entity. The offering restrictions applicable to the Subordinated Notes are set forth in the Indenture and the Offering Memorandum.
6.3 Withholding Tax on Interest Payments
We note that interest paid on the Rated Notes to holders that are not U.S. persons (as defined in Section 7701(a)(30) of the Code) should qualify for the "portfolio interest" exemption from U.S. withholding tax under Sections 871(h) and 881(c) of the Code, provided that all applicable requirements are satisfied. These requirements include, among others, the following: (a) the interest is not effectively connected with the conduct of a U.S. trade or business by the recipient; (b) the recipient provides to the applicable withholding agent a properly completed IRS Form W-8BEN (for individuals) or IRS Form W-8BEN-E (for entities), certifying, under penalties of perjury, the recipient's non-U.S. status and eligibility for the portfolio interest exemption; (c) the recipient is not a "10-percent shareholder" of the Issuer within the meaning of Section 871(h)(3)(B) of the Code; and (d) the recipient is not a "controlled foreign corporation" related to the Issuer within the meaning of Section 881(c)(3)(C) of the Code.
We further note that the Issuer itself should not be subject to U.S. withholding tax on income received from the Collateral Obligations, provided that the Issuer is not engaged in a U.S. trade or business (as opined in Section 5.1 above). Interest income received by the Issuer on the Collateral Obligations (which consist of loans to U.S. obligors) generally should be subject to the portfolio interest exemption or, in the case of certain bank loans, may be excluded from the definition of U.S.-source income under applicable rules. We note, however, that certain types of income — including original issue discount, commitment fees, facility fees, and other non-interest compensation — may be subject to different withholding rules, and the Issuer should consult with its tax advisors regarding the application of withholding tax to specific items of income.
6.4 State and Local Tax
This Opinion is limited to the U.S. federal income tax consequences of the Transaction and does not address any tax consequences arising under the laws of any state, locality, or non-U.S. jurisdiction, including the Cayman Islands. Separate opinions regarding the tax treatment of the Issuer under Cayman Islands law have been provided by Applegategate Offshore Services Ltd. in the Cayman Legal Opinion.
We note that the Issuer may be subject to Delaware franchise taxes in respect of the Co-Issuer's organization as a Delaware limited liability company. The Co-Issuer's activities are limited to acting as co-issuer of the Notes, and it maintains only a registered agent in Delaware (National Registered Agents Inc., 1209 Orange Street, Wilmington, Delaware 19801). Delaware imposes an annual franchise tax on limited liability companies organized under the Delaware Limited Liability Company Act. The amount of such tax is nominal and should not have a material impact on the financial condition or operations of the Issuer or the Co-Issuer. The Issuer and the Co-Issuer should consult with their tax advisors regarding compliance with applicable Delaware franchise tax obligations and any other state or local tax obligations that may arise in connection with the Transaction.
7. Qualifications and Limitations
The opinions set forth herein are subject to the following qualifications and limitations:
(a) Law in Effect as of the Date Hereof. This Opinion is based on the Code, the Treasury Regulations, published rulings and administrative pronouncements of the IRS, and judicial decisions, in each case as in effect as of the date hereof. All of the foregoing authorities are subject to change at any time, possibly with retroactive effect, and any such change could affect the validity of the opinions set forth herein. We assume no obligation to update or supplement this Opinion to reflect any changes in law, regulation, or interpretation occurring after the date hereof.
(b) No Assurance Against Contrary IRS Position. No assurance can be given that the IRS will not take a position contrary to one or more of the opinions expressed herein, or that a court would not sustain such a contrary position if challenged. The opinions set forth herein represent our best professional judgment regarding the application of existing law to the facts and circumstances described herein, but they are not binding on the IRS or any court. No ruling has been or will be sought from the IRS with respect to any of the matters addressed in this Opinion.
(c) Dependence on Facts and Assumptions. This Opinion is based on the facts and assumptions set forth herein. If any of the facts represented or assumed proves to be incorrect, incomplete, or is subsequently altered, or if any party takes any action inconsistent with the assumptions set forth herein, the conclusions expressed in this Opinion may differ, and we accept no responsibility for the continued accuracy of the opinions expressed herein in such circumstances.
(d) No State, Local, or Non-U.S. Tax Opinion. This Opinion does not address any tax consequences arising under the laws of any state, local, or non-U.S. jurisdiction, including the Cayman Islands. For Cayman Islands tax considerations, reliance should be placed on the opinion of Applegategate Offshore Services Ltd. dated September 12, 2023.
(e) No Opinion on Holder Tax Consequences. This Opinion does not address the U.S. federal, state, local, or non-U.S. income tax consequences to any holder or prospective holder of the Notes. Each holder and prospective holder is urged to consult its own tax advisors regarding the tax consequences of acquiring, holding, and disposing of the Notes in light of such holder's particular circumstances.
(f) No Opinion on Anti-Avoidance Provisions. No opinion is expressed regarding the application of any anti-avoidance provisions of the Code, including the economic substance doctrine, the step transaction doctrine, the substance-over-form doctrine, or any similar principle. We have assumed that the Transaction has been entered into for bona fide business purposes and that each step of the Transaction has independent economic substance apart from the tax benefits that may result therefrom.
(g) Limitation on Reliance. This Opinion is rendered solely for the benefit of the addressees hereof — the Issuer, the Co-Issuer, and the Trustee — and their successors and assigns in their capacities described herein, and solely in connection with the Transaction. This Opinion may not be relied upon by any other person or entity, or for any other purpose, without the prior written consent of Calderwood & Harkness LLP. Without limiting the foregoing, this Opinion may not be quoted, cited, or referred to in any registration statement, prospectus, or other public filing, or in any agreement to which Calderwood & Harkness LLP is not a party, without our prior written consent.
8. Consent and Reliance
Calderwood & Harkness LLP hereby consents to the filing or delivery of this Opinion as required by Section 3.01(d)(vi) of the Indenture and Section 7(e) of the Note Purchase Agreement. We further consent to the reference to this Opinion, and to the summary of certain U.S. federal income tax considerations derived from this Opinion, in the Final Offering Memorandum dated August 18, 2023.
This Opinion may be relied upon by the addressees hereof — Driftwood CLO 2023-I, Ltd. (the Issuer), Driftwood CLO 2023-I, LLC (the Co-Issuer), and Ironclad Trust Company, National Association (the Trustee) — and by their respective successors and assigns, in each case solely in their capacities described herein and solely in connection with the Transaction. The giving of this consent and the granting of reliance rights do not constitute an admission that Calderwood & Harkness LLP is within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or any rules or regulations promulgated thereunder.
We note that the Final Offering Memorandum dated August 18, 2023, contains a summary of certain U.S. federal income tax considerations that is consistent with the opinions expressed herein. The summary in the Offering Memorandum was prepared with our assistance and is subject to the same qualifications and limitations set forth in this Opinion.
[Remainder of Page Intentionally Left Blank — Signature Page Follows]
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Sylvia Hartwell
Title: Specialist Partner, Tax
450 Park Avenue New York, New York 10022
C&H Matter No. 1024-00004
Class | Principal Amount | % of Capital Structure | Ratings (Brindoval / Ridgeline) | Interest Rate
Class A-1 Notes | $256,000,000 | 64.00% | AAA / AAA | Compounded SOFR + 155 bps
Class A-2 Notes | $40,000,000 | 10.00% | AA / AA | Compounded SOFR + 190 bps
Class B Notes | $28,000,000 | 7.00% | A / A | Compounded SOFR + 230 bps
Class C Notes | $24,000,000 | 6.00% | BBB / BBB | Compounded SOFR + 310 bps
Class D Notes | $16,000,000 | 4.00% | BB / BB | Compounded SOFR + 625 bps
Subordinated Notes | $36,000,000 | 9.00% | Unrated | Residual Cash Flows
Total | $400,000,000 | 100.00%
Class | 144A CUSIP | Reg S CUSIP
Class A-1 Notes | 26738TAA5 | G2694LAA7
Class A-2 Notes | 26738TAB3 | —
Class B Notes | 26738TAC1 | —
Class C Notes | 26738TAD9 | —
Class D Notes | 26738TAE7 | —
Subordinated Notes | 26738TAF4 | —
Test | Class A O/C | Class B O/C | Class C O/C | Class D O/C
O/C Ratio | 128.00% | 118.00% | 110.00% | 105.50%
I/C Ratio | 120.00% | 115.00% | 110.00% | 105.00%

CALDERWOOD & HARKNESS LLP Counselors at Law

CALDERWOOD & HARKNESS LLP

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