[slide 1]
Cover Slide
Driftwood CLO 2023-I
$400,000,000 Broadly Syndicated CLO
Presentation to Ridgeline Credit Ratings LLC
June 19, 2023
CONFIDENTIAL
[slide 2]
Agenda
I. Driftwood Platform Overview & Track Record
II. Collateral Manager — Driftwood Credit Management LLC
III. Transaction Overview & Capital Structure
IV. Collateral Eligibility Criteria & Portfolio Parameters
V. Overcollateralization & Interest Coverage Tests
VI. Priority of Payments Waterfall
VII. Target Portfolio Characteristics
VIII. Key Structural Features
IX. Tax & Regulatory Considerations
X. Timeline & Next Steps
[slide 3]
Driftwood Platform Overview
Driftwood Absolute Return Fund Ltd. — Cayman Islands-domiciled hedge fund operating across asset management and banking
Approximately $6.8 billion AUM as of Q1 2023
Principal Office: 200 Brickell Avenue, Suite 3100, Miami, FL 33131
Founded and led by Marcus Sorensen, Founder & CIO — 22 years of structured credit experience; former head of leveraged finance at Creston Merchant Bank
Elena Voss, President & COO — formerly COO of Pinnacle Credit Advisors
Registered with the Cayman Islands Monetary Authority (CIMA Reg. No. MC-2017-02834)
[slide 4]
Collateral Manager — Driftwood Credit Management LLC
Driftwood Credit Management LLC (DCM) — wholly owned subsidiary of Driftwood Absolute Return Fund Ltd.
Delaware LLC; SEC-registered investment adviser under the Investment Advisers Act of 1940 (CRD #182447)
Principal Office: 200 Brickell Avenue, Suite 3100, Miami, FL 33131
David Hwan, Managing Director, Structured Credit — portfolio manager for Driftwood's CLO platform; responsible for collateral selection and warehouse ramp
Role: Collateral manager responsible for portfolio selection, trading, credit surveillance, and ongoing management of the CLO collateral pool
Disciplined, fundamental credit analysis approach with proprietary credit scoring
[slide 5]
Investment Process & Credit Selection
Focus on broadly syndicated first-lien senior secured leveraged loans — primarily U.S. obligors
Bottom-up fundamental credit analysis supplemented by proprietary credit scoring models
Dedicated credit analyst team with industry specialization
Active portfolio monitoring and credit surveillance with ongoing obligor review
Emphasis on capital preservation and downside protection in collateral selection
Trading strategy designed to maximize portfolio quality while respecting eligibility constraints
[slide 6]
Transaction Overview
Transaction: Driftwood CLO 2023-I — $400,000,000 broadly syndicated cash-flow CLO
Issuer: Driftwood CLO 2023-I, Ltd. (Cayman Islands exempted company)
Co-Issuer: Driftwood CLO 2023-I, LLC (Delaware LLC — disregarded entity for U.S. tax purposes)
Collateral Manager: Driftwood Credit Management LLC
Trustee / Paying Agent / Custodian / Collateral Administrator: Ironclad Trust Company, N.A.
Structuring Lead / Placement Agent: Meridian Atlantic Securities LLC
Co-Placement Agent: Northbridge Capital Markets Inc.
Issuer's Counsel: Calderwood & Harkness LLP
Offering: Rule 144A / Regulation S under the Securities Act of 1933
[slide 7]
Capital Structure
Class A-1 Notes: $256,000,000 (64.00%) — Target AAA/AAA — SOFR + 155 bps
Class A-2 Notes: $40,000,000 (10.00%) — Target AA/AA — SOFR + 190 bps
Class B Notes: $28,000,000 (7.00%) — Target A/A — SOFR + 230 bps
Class C Notes: $24,000,000 (6.00%) — Target BBB/BBB — SOFR + 310 bps
Class D Notes: $16,000,000 (4.00%) — Target BB/BB — SOFR + 625 bps
Subordinated Notes (Equity): $36,000,000 (9.00%) — NR/NR — Residual cash flow
Total: $400,000,000 — Total Rated Notes: $364,000,000
[slide 8]
Subordination Levels
Class A-1 Subordination: 36.00% — ($400M − $256M) ÷ $400M
Class A-2 Subordination: 26.00% — ($400M − $296M) ÷ $400M
Class B Subordination: 19.00% — ($400M − $324M) ÷ $400M
Class C Subordination: 13.00% — ($400M − $348M) ÷ $400M
Class D Subordination: 9.00% — ($400M − $364M) ÷ $400M
Robust subordination levels consistent with target ratings at each level
[slide 9]
Collateral Eligibility Criteria
Minimum Weighted Average Spread: 350 bps
Maximum Weighted Average Life: 7.5 years
Minimum Diversity Score: 60
Maximum CCC Bucket: 7.5% of aggregate collateral par ($30,000,000)
Maximum Second-Lien Bucket: 5.0% of aggregate collateral par ($20,000,000)
Maximum Fixed-Rate Bucket: 10.0% of aggregate collateral par ($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%
Failure triggers diversion of cash flow to accelerate principal repayment to senior tranches
Cure mechanics available through collateral manager trading and cash flow management
[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%
Measures ratio of available interest proceeds to required interest payments at each level
Failure triggers interest diversion to deleverage senior notes
[slide 12]
Priority of Payments Waterfall
1. Trustee fees and expenses ($25,000 p.a.; expense cap $50,000 per payment date) and administrative expenses
2. Senior collateral management fee: 0.15% p.a. ($600,000/yr)
3. Class A-1 Note interest, then Class A-2 Note interest
4. Class B Note interest
5. Class C Note interest
6. Class D Note interest
7. O/C and I/C test compliance — if tests fail, principal repayment to senior notes in order of priority
8. Subordinate collateral management fee: 0.35% p.a. ($1,400,000/yr)
9. Subordinated Note distributions (residual)
10. Incentive management fee: 20% of excess residual above 12% IRR hurdle to subordinated noteholders
[slide 13]
Warehouse Facility & Ramp
Warehouse Lender: Havenwood Bank, N.A.
Facility Amount: $250,000,000 revolving credit facility
Interest Rate: SOFR + 150 bps; Advance Rate: 85% of eligible collateral par
Facility Date: May 22, 2023; Ramp began May 25, 2023
Current Ramp Status: Ongoing — targeting approximately 85% ramped by mid-August 2023
Warehouse take-out at CLO closing — expected outstanding balance of approximately $212,500,000
Warehouse Lender's Counsel: Kenton & Caldwell LLP (Victor Salazar)
[slide 14]
Target Portfolio Characteristics
Target Portfolio Par: $400,000,000
Asset Class: Broadly syndicated first-lien senior secured leveraged loans — primarily U.S. obligors
Target WA Spread: ≥ 350 bps (comfortably above indenture minimum)
Target WA Life: ≤ 7.5 years
Target Diversity Score: ≥ 60
Target WARF: ≥ 2,850
Target WA Recovery Rate: ≥ 45.0%
CCC exposure targeted well below 7.5% cap; second-lien and fixed-rate exposures within limits
[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 (approximately 13 years from closing)
Effective Date Deadline: December 12, 2023 (90 days post-pricing)
Discretionary trading rights during reinvestment period subject to collateral quality tests
Post-reinvestment period trading limited to credit risk / credit improved sales and proceeds reinvestment
Events of default and acceleration remedies per standard CLO indenture provisions
[slide 16]
Tax & Regulatory Considerations
Issuer (Cayman): Not subject to Cayman income tax; structured to avoid U.S. trade or business treatment
Co-Issuer (Delaware): 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. tax purposes
FATCA / CRS: Issuer registered as Reporting Foreign Financial Institution with Cayman Tax Information Authority
ERISA: Rated notes are ERISA eligible; Subordinated Notes restricted to non-benefit plan investors
Investment Company Act: Exempt under Rule 3a-7
[slide 17]
Fee Structure Summary
Senior Collateral Management Fee: 0.15% p.a. on aggregate collateral par ($600,000/yr)
Subordinate Collateral Management Fee: 0.35% p.a. on aggregate collateral par ($1,400,000/yr) — junior in waterfall
Incentive Management Fee: 20% of excess residual above 12% IRR hurdle to subordinated noteholders
Trustee Fee: $25,000 p.a. (flat); Expense Cap: $50,000 per payment date
Placement Fee: 0.50% of rated-note principal ($1,820,000) to Meridian Atlantic Securities
Co-Placement Fee: 0.25% of subordinated-note principal ($90,000) to Northbridge Capital Markets
[slide 18]
Key Investors / Anchor Noteholders
Marlowe Asset Management Peak Institutional Credit Fund LP — Anchor investor in Class A-1 Notes ($80,000,000 allocation); Robert Calloway, Portfolio Manager
Blackpine Insurance Holdings Ltd. — Class A-2 and Class B Note investor ($45,000,000 combined); Sarah Liang, CIO
Stonehill Public Employees' Retirement System — Class C and Class D Note investor ($22,000,000 combined); James Whitaker, Director of Fixed Income
Broad and diversified institutional investor base across insurance, pension, and fund sectors
[slide 19]
Transaction Parties Summary
Issuer: Driftwood CLO 2023-I, Ltd. (Cayman)
Collateral Manager: Driftwood Credit Management LLC
| Trustee / Custodian / Administrator: Ironclad Trust Company, N.A. (Catherine Nowak) | Counsel: Ashworth & Pratt LLP (Lillian Marchetti) |
| Placement Agent: Meridian Atlantic Securities LLC (Jonathan Halevy, Priya Ramanathan) | Counsel: Barrington, Locke & Hayes LLP (Gregory Fontaine, Miriam Saldaña) |
Co-Placement Agent: Northbridge Capital Markets Inc. (Raymond Cho)
Warehouse Lender / Account Bank: Havenwood Bank, N.A. (Thomas Eriksen)
Issuer's Counsel: Calderwood & Harkness LLP (Samuel Eklund, Linda Osei, Hannah Brinkley, Patrick Gallagher, Sylvia Hartwell)
Cayman Counsel: Applegategate Offshore Services Ltd. (Nigel Pemberton)
Independent Auditors: Greystone Audit Partners LLP
Rating Agencies: Ridgeline Credit Ratings LLC (Kenji Matsuda) and Brindoval Analytical Services Inc. (Anita Delgado, Brian Whitford)
[slide 20]
Transaction Timeline
May 15, 2023 — Engagement opened at Calderwood & Harkness
May 22, 2023 — Warehouse facility executed with Havenwood Bank
May 25, 2023 — Warehouse ramp begins; first collateral purchases
June 12, 2023 — Rating agency presentation to Brindoval Analytical Services
June 19, 2023 — Rating agency presentation to Ridgeline Credit Ratings (today)
Target: Late July 2023 — Rating agency model review complete
Target: Early August 2023 — Preliminary ratings received
Target: Mid-August 2023 — Offering memorandum finalized; warehouse ~85% ramped
Target: Late August 2023 — Signing (Indenture, CMA, ancillary agreements)
Target: September 2023 — Pricing, Closing / warehouse take-out, final settlement
Effective Date Deadline: 90 days post-pricing
Non-Call Period End: 2 years from Closing
Stated Maturity: October 15, 2036
[slide 21]
Summary & Key Credit Highlights
Experienced collateral manager with 22+ years of structured credit expertise and $6.8 billion AUM platform
Well-ramped portfolio of broadly syndicated first-lien senior secured leveraged loans
Conservative collateral eligibility criteria (350 bps min WA spread, 60 min diversity, 7.5% max CCC, 45% min recovery)
Robust subordination levels (36% for Class A-1 down to 9% for Class D)
Strong O/C and I/C test framework with cure mechanics
Market-standard fee structure with manager incentive alignment
Institutional anchor investor demand across all tranches
Clean tax structure with Investment Company Act exemption
[slide 22]
Appendix — Contact Information
Driftwood: Marcus Sorensen (CIO), Elena Voss (COO), David Hwan (MD, Structured Credit) — 200 Brickell Avenue, Suite 3100, Miami, FL 33131
Calderwood & Harkness LLP: Samuel Eklund (Partner), Hannah Brinkley (Lead Associate), Sylvia Hartwell (Tax) — 450 Park Avenue, New York, NY 10022