[slide 1]
Driftwood CLO 2023-I — Rating Agency Presentation
Driftwood CLO 2023-I, Ltd. / Driftwood CLO 2023-I, LLC
$400,000,000 Broadly Syndicated Collateralized Loan Obligation
Presentation to Brindoval Analytical Services Inc.
June 12, 2023
CONFIDENTIAL
[slide 2]
Agenda
I. Driftwood Platform Overview
II. Collateral Manager — Driftwood Credit Management LLC
III. Transaction Summary & Capital Structure
IV. Collateral Eligibility Criteria & Quality Tests
V. Overcollateralization & Interest Coverage Tests
VI. Priority of Payments Waterfall
VII. Target Portfolio Characteristics
VIII. Key Structural Features & Timeline
IX. Appendix — Key Parties & Contacts
[slide 3]
Driftwood Platform Overview
Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") — Cayman Islands exempted company with limited liability
Registered Office: PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306
Principal Office: 200 Brickell Avenue, Suite 3100, Miami, FL 33131
Assets Under Management: ~$6.8 billion (as of Q1 2023)
Core strategies: asset management and banking across credit markets
CIMA Registration No.: MC-2017-02834
Audited by Greystone Audit Partners LLP
[slide 4]
Senior Leadership
Marcus Sorensen — Founder & Chief Investment Officer; former head of leveraged finance at Creston Merchant Bank; 22 years of structured credit experience
Elena Voss — President & Chief Operating Officer; previously COO of Pinnacle Credit Advisors
David Hwan — Managing Director, Structured Credit; portfolio manager for DARF's CLO platform; responsible for collateral selection and warehouse ramp
[slide 5]
Collateral Manager — Driftwood Credit Management LLC
Full Legal Name: Driftwood Credit Management LLC ("DCM")
Delaware limited liability company
Registered investment adviser under the Investment Advisers Act of 1940 (SEC CRD #182447)
Principal Office: 200 Brickell Avenue, Suite 3100, Miami, FL 33131
Wholly owned subsidiary of Driftwood Absolute Return Fund Ltd.
Role: Collateral manager responsible for portfolio selection, trading, credit surveillance, and ongoing management of the CLO collateral pool
[slide 6]
Collateral Manager Investment Process & Track Record
Bottom-up fundamental credit analysis across broadly syndicated leveraged loan market
Focus on first-lien senior secured loans to U.S. obligors
Rigorous credit surveillance and watch-list process
Experienced in warehouse ramp management and portfolio construction within CLO eligibility parameters
Track record of managing CLO portfolios within indenture-defined quality tests
[slide 7]
Transaction Summary
Transaction: Driftwood CLO 2023-I — $400,000,000 broadly syndicated cash-flow CLO
Issuer: Driftwood CLO 2023-I, Ltd. (Cayman Islands; Reg. No. EX-382916)
Co-Issuer: Driftwood CLO 2023-I, LLC (Delaware; File No. 7429831)
Collateral Manager: Driftwood Credit Management LLC
Trustee / Collateral Administrator: Ironclad Trust Company, N.A.
Lead Placement Agent: Meridian Atlantic Securities LLC; Co-Placement Agent: Northbridge Capital Markets Inc.
Governing Law: New York (Indenture, CMA, Placement Agreement); Cayman Islands (Issuer corporate matters)
[slide 8]
Proposed Capital Structure
Class A-1 Notes: $256.00M (64.00%) — Target AAA/AAA — SOFR + 155 bps — 36.00% subordination
Class A-2 Notes: $40.00M (10.00%) — Target AA/AA — SOFR + 190 bps — 26.00% subordination
Class B Notes: $28.00M (7.00%) — Target A/A — SOFR + 230 bps — 19.00% subordination
Class C Notes: $24.00M (6.00%) — Target BBB/BBB — SOFR + 310 bps — 13.00% subordination
Class D Notes: $16.00M (4.00%) — Target BB/BB — SOFR + 625 bps — 9.00% subordination
Subordinated Notes (Equity): $36.00M (9.00%) — NR/NR — Residual cash flows
Total: $400,000,000 — Total Rated Notes: $364,000,000
[slide 9]
Collateral Eligibility Criteria
Collateral Type: Broadly syndicated first-lien senior secured leveraged loans (primarily U.S. obligors)
Target Portfolio Par: $400,000,000 — Minimum Weighted Average Spread: 350 bps
Maximum Weighted Average Life: 7.5 years — Minimum Diversity Score: 60
Maximum CCC Bucket: 7.5% of collateral par ($30,000,000)
Maximum Second-Lien Bucket: 5.0% ($20,000,000) — Maximum Fixed-Rate Bucket: 10.0% ($40,000,000)
Minimum Weighted Average Recovery Rate: 45.0%
Minimum Weighted Average Rating Factor (WARF): 2,850 (Brindoval scale)
[slide 10]
Overcollateralization Tests
Class A O/C Test: 128.00%
Class B O/C Test: 118.00%
Class C O/C Test: 110.00%
Class D O/C Test: 105.50%
O/C tests calculated based on the ratio of adjusted collateral par to outstanding rated notes at each class level
Failure of an O/C test diverts cash flows from subordinate tranches to cure the deficiency
[slide 11]
Interest Coverage Tests
Class A I/C Test: 120.00%
Class B I/C Test: 115.00%
Class C I/C Test: 110.00%
Class D I/C Test: 105.00%
I/C tests calculated based on the ratio of scheduled interest collections to required interest payments at each class level
Failure diverts interest proceeds from subordinate tranches
[slide 12]
Priority of Payments — Interest Waterfall
1. Taxes and registration fees
2. Trustee fees ($25,000 p.a.) and trustee expenses (capped at $50,000 per payment date)
3. Senior collateral management fee: 0.15% p.a. ($600,000/yr)
4. Administrative expenses and hedge payments
5–9. Note interest payments: Class A-1 → A-2 → B → C → D (sequential priority)
10. Subordinate collateral management fee: 0.35% p.a. ($1,400,000/yr)
11. O/C and I/C cure payments (if applicable)
12. Incentive management fee: 20% of excess above 12% IRR hurdle
13. Residual to Subordinated Noteholders
[slide 13]
Priority of Payments — Principal Waterfall
1. Unpaid taxes, trustee fees, and administrative expenses (to the extent not paid from interest proceeds)
2. Class A-1 Note principal (until paid in full)
3. Class A-2 Note principal (until paid in full)
4. Class B Note principal (until paid in full)
5. Class C Note principal (until paid in full)
6. Class D Note principal (until paid in full)
7. Remaining amounts to Subordinated Noteholders
[slide 14]
Target Portfolio Characteristics
Target collateral par: $400,000,000 — Broadly syndicated first-lien senior secured leveraged loans
Primary obligor geography: United States
Expected weighted average spread: ≥350 bps (significantly above minimum)
Expected weighted average life: within 7.5-year maximum
Expected diversity score: above minimum of 60 — Expected WARF: at or above 2,850 floor
Expected WA recovery rate: at or above 45.0% minimum
CCC concentration expected well within 7.5% cap
Warehouse ramp commenced May 25, 2023; portfolio construction underway
[slide 15]
Key Structural Features
Non-Call Period: 2 years from Closing Date (ends September 12, 2025)
Reinvestment Period: 5 years from Closing Date (ends September 12, 2028)
Stated Maturity: October 15, 2036 (~13 years from closing)
Effective Date Deadline: December 12, 2023 (90 days post-pricing)
Payment Dates: Quarterly — 15th of January, April, July, and October
Reference Rate: Compounded SOFR — Day Count: Actual/360
Offering Exemption: Rule 144A / Regulation S under the Securities Act of 1933
Minimum Denomination: $250,000 (rated notes in $1,000 increments; subordinated notes in $1 increments)
[slide 16]
Tax Structure Overview
Issuer (Cayman): Not subject to Cayman income tax; structured to avoid U.S. trade or business treatment
Co-Issuer (Delaware): Classified as a disregarded entity for U.S. federal income tax purposes
Rated Notes: Treated as debt for U.S. federal income tax purposes
Subordinated Notes: Treated as equity for U.S. federal income tax purposes
FATCA/CRS: Issuer registered as a Reporting Foreign Financial Institution with the Cayman Tax Information Authority
ERISA: Rated notes are ERISA-eligible; subordinated notes restricted to non-benefit plan investors
[slide 17]
Warehouse Facility & Ramp Status
Warehouse Lender: Havenwood Bank, N.A. — Facility Size: $250,000,000 revolving credit facility
Advance Rate: 85% of eligible collateral par — Interest Rate: SOFR + 150 bps
Facility Date: May 22, 2023 — Warehouse Ramp Began: May 25, 2023
Expected ramp to ~85% by mid-August 2023
Expected outstanding balance at take-out: ~$212,500,000
Full take-out from CLO note proceeds at closing
[slide 18]
Transaction Timeline
May 15–25, 2023: Engagement opened, warehouse facility executed, ramp begins
June 12, 2023: Rating agency presentation — Brindoval (today)
June 19, 2023: Rating agency presentation — Ridgeline
Late July 2023: Rating agency model review complete (target July 28)
Early August 2023: Preliminary ratings received (target August 4)
Mid-August 2023: Warehouse ramp ~85% complete; Offering memorandum finalized
Late August 2023: Signing — Indenture, CMA, and ancillary agreements (target August 22)
September 8–12, 2023: Pricing, closing, and warehouse take-out
September 20, 2023: Final DTC settlement
December 12, 2023: Effective Date deadline — January 15, 2024: First Payment Date
[slide 19]
Key Transaction Parties & Counsel
Issuer: Driftwood CLO 2023-I, Ltd. (Cayman) / Co-Issuer: Driftwood CLO 2023-I, LLC (Delaware)
Collateral Manager: Driftwood Credit Management LLC
Issuer's Counsel: Calderwood & Harkness LLP (Samuel Eklund, Hannah Brinkley, Sylvia Hartwell)
Trustee / Collateral Administrator: Ironclad Trust Company, N.A. (Catherine Nowak); Counsel: Ashworth & Pratt LLP
Lead Placement Agent: Meridian Atlantic Securities LLC (Jonathan Halevy, Priya Ramanathan); Counsel: Barrington, Locke & Hayes LLP
Co-Placement Agent: Northbridge Capital Markets Inc. (Raymond Cho)
Warehouse Lender / Account Bank: Havenwood Bank, N.A. (Thomas Eriksen); Counsel: Kenton & Caldwell LLP
Cayman Counsel: Applegategate Offshore Services Ltd. (Nigel Pemberton)
Independent Auditors: Greystone Audit Partners LLP
Rating Agencies: Brindoval Analytical Services Inc. & Ridgeline Credit Ratings LLC
[slide 20]
Anchor Investor Base
Marlowe Asset Management Peak Institutional Credit Fund LP — Anchor investor, Class A-1 Notes ($80M target allocation); Robert Calloway, Portfolio Manager
Blackpine Insurance Holdings Ltd. — Class A-2 and B Notes ($45M combined target); Sarah Liang, CIO
Stonehill Public Employees' Retirement System — Class C and D Notes ($22M combined target); James Whitaker, Director of Fixed Income
Diverse institutional investor base including insurance companies, pension funds, and credit funds
[slide 21]
Summary of Credit Strengths
Experienced collateral manager with 22+ years of structured credit expertise (Marcus Sorensen)
SEC-registered investment adviser (CRD #182447) with robust compliance and governance infrastructure
Strong subordination levels: 36.0% for Class A-1, 26.0% for A-2, 19.0% for B, 13.0% for C, 9.0% for D
Conservative eligibility criteria: min 350 bps WA spread, min diversity score 60, 7.5% CCC cap, 5.0% second-lien cap
Comprehensive O/C and I/C test framework with cash flow diversion mechanics
Significant excess spread: portfolio WA spread ≥350 bps vs. ~195 bps blended liability cost
Experienced trustee and collateral administrator (Ironclad Trust Company, N.A.)
Robust institutional investor base
[slide 22]
Appendix: CUSIP / ISIN Identifiers
Class A-1 Notes (144A): CUSIP 26738TAA5 / ISIN US26738TAA51
Class A-1 Notes (Reg S): CUSIP G2694LAA7
Class A-2 Notes (144A): CUSIP 26738TAB3
Class B Notes (144A): CUSIP 26738TAC1
Class C Notes (144A): CUSIP 26738TAD9
Class D Notes (144A): CUSIP 26738TAE7
Subordinated Notes (144A): CUSIP 26738TAF4
DTC Participant No. (Ironclad Trust): 2176
[slide 23]
Contact Information
Driftwood Credit Management LLC — David Hwan, Managing Director: 200 Brickell Avenue, Suite 3100, Miami, FL 33131
Calderwood & Harkness LLP — Samuel Eklund, Partner / Hannah Brinkley, Lead Associate: 450 Park Avenue, New York, NY 10022