ASSIGNMENT AND ASSUMPTION AGREEMENT
Dated as of September 12, 2023
Driftwood CLO 2023-I
Relating to the $250,000,000 Revolving Credit Facility dated as of May 22, 2023
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made and entered into as of September 12, 2023 (the "Closing Date"), by and among:
(1) DRIFTWOOD CREDIT MANAGEMENT LLC, a Delaware limited liability company ("DCM" or the "Assignor"), with its principal office at 200 Brickell Avenue, Suite 3100, Miami, Florida 33131, acting in its capacity as borrower under the Warehouse Credit Agreement (as defined below) and as collateral manager;
(2) DRIFTWOOD CLO 2023-I, LTD., an exempted company incorporated with limited liability under the laws of the Cayman Islands (the "Issuer" or the "Assignee"), with its registered office at PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306, Cayman Islands;
(3) DRIFTWOOD CLO 2023-I, LLC, a Delaware limited liability company (the "Co-Issuer"), with its registered agent at National Registered Agents Inc., 1209 Orange Street, Wilmington, Delaware 19801 (DE File No. 7429831);
(4) HAVENWOOD BANK, NATIONAL ASSOCIATION, a national banking association ("Havenwood Bank" or the "Releasing Party"), with its principal office at 227 West Monroe Street, Chicago, Illinois 60606; and
(5) IRONCLAD TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association ("Ironclad Trust" or the "Trustee"), with its principal corporate trust office at 100 Wall Street, Suite 1650, New York, New York 10005.
Each of the foregoing is sometimes referred to herein individually as a "Party" and collectively as the "Parties."
The Parties acknowledge that Driftwood Absolute Return Fund Ltd. ("DARF"), an exempted company incorporated with limited liability under the laws of the Cayman Islands (CIMA Registration No. MC-2017-02834), is the parent of DCM and the sponsor of the CLO transaction described herein. DARF is not a party to this Agreement but is referenced herein for identification purposes and in connection with certain representations regarding the sponsorship and organizational structure of the transaction.
RECITALS
WHEREAS:
A. DCM, as borrower, and Havenwood Bank, as lender, are parties to that certain Revolving Credit Agreement dated as of May 22, 2023 (as amended, restated, supplemented, or otherwise modified from time to time prior to the date hereof, the "Warehouse Credit Agreement"), pursuant to which Havenwood Bank provided DCM with a revolving credit facility in an aggregate commitment amount of $250,000,000, bearing interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus 150 basis points, with an advance rate of 85% of the par value of eligible collateral, for the purpose of enabling DCM to acquire and warehouse broadly syndicated first-lien senior secured leveraged loans (collectively, the "Warehouse Collateral") in anticipation of a collateralized loan obligation transaction;
B. The warehouse ramp period under the Warehouse Credit Agreement commenced on May 25, 2023, during which period DCM, acting as collateral manager under the direction of David Hwan, Managing Director, Structured Credit, acquired the Warehouse Collateral for the purpose of establishing the collateral pool for the CLO transaction contemplated by the Indenture (as defined below). DCM exercised its investment management discretion in acquiring the Warehouse Collateral in accordance with the eligibility criteria and concentration limits set forth in the Warehouse Credit Agreement and the investment guidelines agreed upon between DCM and Havenwood Bank;
C. As of August 15, 2023, the warehouse ramp was approximately 85% complete, and DCM has continued to acquire additional collateral obligations through the date hereof. As of the date hereof, the outstanding balance under the Warehouse Credit Agreement is $212,500,000, representing the aggregate amount of advances drawn by DCM to fund acquisitions of Warehouse Collateral during the ramp period;
D. The Issuer, the Co-Issuer, and Ironclad Trust, as Trustee, are parties to that certain Indenture dated as of August 22, 2023 (as supplemented by the First Supplemental Indenture dated September 8, 2023, together the "Indenture"), pursuant to which the Issuer and the Co-Issuer are issuing $400,000,000 in aggregate principal amount of secured and subordinated notes (collectively, the "Notes"), consisting of the following classes:
E. Today, September 12, 2023, is the Closing Date under the Indenture and the warehouse take-out date, on which the proceeds from the issuance of the Notes will be used, in part, to repay in full the $212,500,000 outstanding under the Warehouse Credit Agreement together with all accrued interest and fees thereon, and the Warehouse Collateral will be assigned and transferred from DCM to the Issuer and pledged by the Issuer to the Trustee under the Indenture as part of the collateral pool securing the Notes;
F. DCM, the Issuer, and Havenwood Bank are parties to that certain Warehouse Facility Termination and Release Agreement dated as of September 12, 2023 (the "Warehouse Termination Agreement"), pursuant to which Havenwood Bank is releasing all liens and security interests in the Warehouse Collateral upon receipt of the payoff amount specified in the Warehouse Payoff Letter dated September 12, 2023 issued by Havenwood Bank (the "Warehouse Payoff Letter");
G. The Issuer and DCM (SEC CRD #182447) are parties to that certain Collateral Management Agreement dated as of August 22, 2023 (the "Collateral Management Agreement"), pursuant to which DCM will continue to serve as collateral manager of the Issuer's collateral pool following the Closing Date, subject to the terms and conditions set forth therein and in the Indenture; and
H. The Parties desire to effectuate the assignment, transfer, release, and pledge of the Warehouse Collateral as described herein, all on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Indenture, the Collateral Management Agreement, or the Warehouse Credit Agreement, as applicable, unless the context otherwise requires.
"Agreement" means this Assignment and Assumption Agreement, dated as of September 12, 2023, including all schedules and exhibits hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Assigned Collateral" means all loan assets, participations, sub-participations, and related rights listed on Schedule A hereto, together with all proceeds thereof (whether in the form of cash, instruments, securities, or other property), including without limitation all rights to receive payments of principal, interest, fees, and other amounts arising therefrom, all voting, consent, and amendment rights associated therewith, and all records, files, and documentation relating thereto. The term "Assigned Collateral" shall also include any collateral obligations that are in a pending settlement status as of the Closing Date and that are listed on Schedule A, which shall be deemed assigned to the Issuer upon settlement thereof in accordance with Section 6.2 of this Agreement.
"Closing Date" means September 12, 2023.
"Collateral Administration Agreement" means the Collateral Administration Agreement dated as of August 22, 2023 between the Issuer and Ironclad Trust, pursuant to which Ironclad Trust serves as collateral administrator and custodian with respect to the Issuer's collateral pool.
"Collateral Management Agreement" has the meaning set forth in Recital G.
"Collateral Quality Tests" means, as defined in and as more fully set forth in the Indenture, the following portfolio-level tests applicable to the Issuer's collateral pool:
(a) Minimum Weighted Average Spread: 350 basis points;
(b) Maximum Weighted Average Life: 7.5 years;
(c) Minimum Diversity Score: 60;
(d) Maximum CCC-Rated Obligations: 7.5% of the aggregate collateral par amount (i.e., $30,000,000 based on a $400,000,000 target par amount);
(e) Maximum Second-Lien Obligations: 5.0% of the aggregate collateral par amount (i.e., $20,000,000 based on a $400,000,000 target par amount);
(f) Maximum Fixed-Rate Obligations: 10.0% of the aggregate collateral par amount (i.e., $40,000,000 based on a $400,000,000 target par amount);
(g) Minimum Weighted Average Recovery Rate: 45.0%; and
(h) Minimum Weighted Average Rating Factor (WARF): 2,850, as calculated in accordance with the Brindoval Analytical Services Inc. ("Brindoval") rating scale (the "Brindoval scale").
"Co-Issuer" has the meaning set forth in the preamble.
"Effective Date Deadline" means December 12, 2023, the date by which the Issuer's collateral pool must satisfy all Collateral Quality Tests, as set forth in the Indenture.
"Eligible Collateral Obligations" means, as defined in the Indenture, broadly syndicated first-lien senior secured leveraged loans (primarily of U.S. obligors) that satisfy the eligibility criteria and other requirements set forth in the Indenture, including minimum par amount, minimum spread, credit quality requirements, and other criteria specified therein.
"Indenture" has the meaning set forth in Recital D, and includes the Indenture dated as of August 22, 2023 and the First Supplemental Indenture dated September 8, 2023, each among the Issuer, the Co-Issuer, and Ironclad Trust, as Trustee.
"Issuer" has the meaning set forth in the preamble.
"Notes" has the meaning set forth in Recital D.
"Trustee" means Ironclad Trust Company, National Association, acting in its capacity as indenture trustee and collateral agent under the Indenture.
"Warehouse Collateral" has the meaning set forth in Recital A.
"Warehouse Credit Agreement" has the meaning set forth in Recital A.
"Warehouse Lien" means all liens, security interests, pledges, assignments, charges, and encumbrances of any kind whatsoever granted to, or held by, Havenwood Bank (or any agent, sub-agent, or designee thereof) on or in respect of the Warehouse Collateral pursuant to the Warehouse Credit Agreement or any related security documentation, including any UCC financing statements, control agreements, or other perfection instruments filed or entered into in connection therewith.
"Warehouse Payoff Letter" has the meaning set forth in Recital F.
"Warehouse Termination Agreement" has the meaning set forth in Recital F.
Section 1.2 — Rules of Construction
(a) The rules of interpretation and construction set forth in Section 1.2 of the Indenture are hereby incorporated by reference and shall apply to this Agreement, mutatis mutandis, as if set forth in full herein.
(b) References to "Sections," "Articles," "Schedules," and "Exhibits" are references to the sections, articles, schedules, and exhibits of this Agreement, unless otherwise specified. References to "herein," "hereof," "hereby," "hereto," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision hereof.
(c) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(d) References to any agreement, document, or instrument shall mean such agreement, document, or instrument as amended, restated, supplemented, or otherwise modified from time to time, unless otherwise expressly provided.
(e) This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of New York (without regard to its conflicts-of-law principles), as further set forth in Section 9.1 hereof.
ARTICLE II — ASSIGNMENT AND TRANSFER OF COLLATERAL
Section 2.1 — Assignment by DCM
DCM, as Assignor, hereby irrevocably and unconditionally assigns, transfers, conveys, sets over, and delivers to the Issuer, as Assignee, effective as of the Closing Date (September 12, 2023), all of DCM's right, title, and interest in, to, and under the Assigned Collateral described on Schedule A attached hereto and made a part hereof, including without limitation:
(a) all loan positions, including the outstanding principal amounts, all accrued and unpaid interest thereon (whether or not yet due and payable), all fees (including commitment fees, facility fees, amendment fees, and consent fees), and all other amounts owing or to become owing to DCM with respect to such loan positions;
(b) all rights of DCM under the underlying credit agreements, loan agreements, note purchase agreements, and other operative documents governing the Assigned Collateral, including without limitation all voting rights, consent rights, amendment rights, waiver rights, rights to receive payments and distributions, and rights to exercise remedies upon the occurrence of a default or event of default thereunder;
(c) all proceeds of the foregoing, whether in the form of cash, instruments, securities, general intangibles, or other property, and whether arising from payments by the obligors, from any disposition of the Assigned Collateral, from insurance or guaranty proceeds, or otherwise;
(d) all records, files, data, documentation, and information (whether in tangible or electronic form) relating to the Assigned Collateral, including credit files, financial statements of obligors, correspondence with administrative agents, and trade confirmations; and
(e) all rights under any participation agreements, sub-participation arrangements, or similar agreements pursuant to which DCM holds or has the right to acquire any interest in the Assigned Collateral, including all rights to convert any such participation interest into an assignment of the underlying loan.
The assignment and transfer effected pursuant to this Section 2.1 is intended to constitute a true sale and absolute assignment of the Assigned Collateral from DCM to the Issuer, and not a pledge or grant of a security interest by DCM. The Parties intend that, following the effectiveness of this Agreement, DCM shall have no further right, title, or interest in or to the Assigned Collateral (other than in its capacity as collateral manager under the Collateral Management Agreement).
Section 2.2 — Assumption by the Issuer
The Issuer hereby accepts and assumes the assignment and transfer of the Assigned Collateral effected pursuant to Section 2.1, subject to and in accordance with the terms and conditions of this Agreement, the Indenture, and the Collateral Management Agreement. By accepting such assignment and transfer, the Issuer agrees to be bound by, and to comply with, the terms of the underlying credit agreements governing the Assigned Collateral to the extent applicable to it as a lender or assignee thereunder.
The Issuer acknowledges and agrees that the Assigned Collateral, upon transfer to the Issuer, will form part of the collateral pool securing the Notes issued under the Indenture and will be subject to the coverage tests, concentration limitations, collateral quality tests, and other provisions of the Indenture applicable to the Issuer's collateral pool. The Issuer further acknowledges that DCM, as collateral manager, will manage the Assigned Collateral (and all other collateral obligations acquired by the Issuer) in accordance with the Collateral Management Agreement and the Indenture.
Section 2.3 — Release of Warehouse Liens
Havenwood Bank hereby acknowledges and confirms that, simultaneously with and conditioned upon receipt of the payoff amount of $212,500,000, together with all accrued and unpaid interest and fees thereon, in accordance with the Warehouse Payoff Letter dated September 12, 2023, by wire transfer of immediately available funds to the account designated in Schedule B hereto:
(a) all Warehouse Liens on the Assigned Collateral are hereby irrevocably and unconditionally released, discharged, and terminated in their entirety, and the Assigned Collateral is released from all claims, encumbrances, and security interests of Havenwood Bank arising under or in connection with the Warehouse Credit Agreement or any related documentation;
(b) Havenwood Bank has no further right, title, interest, claim, or lien of any kind in, to, or against the Assigned Collateral, any proceeds thereof, or any accounts in which the Assigned Collateral or proceeds thereof are held;
(c) Havenwood Bank hereby irrevocably authorizes DCM, the Issuer, and their respective counsel to prepare and file UCC-3 termination statements, lien releases, and any other instruments, documents, or filings with any governmental authority or other person as may be necessary or desirable to evidence, confirm, or effectuate the release and termination of the Warehouse Liens contemplated by this Section 2.3; and
(d) Thomas Eriksen, Managing Director, Structured Finance Lending, Havenwood Bank, is hereby authorized to execute, on behalf of Havenwood Bank, any additional release documents, termination statements, lien releases, or other instruments that may be required or requested by the Issuer, the Trustee, or any administrative agent under the underlying credit agreements to evidence the release of the Warehouse Liens.
Section 2.4 — Pledge to the Trustee
Simultaneously with the assignment and transfer effected pursuant to Section 2.1, the Issuer hereby grants, pledges, assigns, transfers, and conveys to Ironclad Trust, as Trustee and collateral agent under the Indenture, for the benefit of the secured parties under the Indenture (including the holders of the Class A-1 Notes, Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes, and Subordinated Notes), a first-priority security interest in and to all Assigned Collateral and all proceeds thereof, subject to the terms and conditions of the Indenture. Such security interest shall be a continuing, first-priority, perfected security interest, and shall secure the prompt and complete payment and performance of all obligations of the Issuer and the Co-Issuer under the Indenture and the Notes.
Catherine Nowak, Vice President, Corporate Trust, Ironclad Trust Company, National Association, is authorized and directed to receive and hold the Assigned Collateral on behalf of the Trustee in accordance with the Indenture and the Collateral Administration Agreement dated as of August 22, 2023 between the Issuer and Ironclad Trust, pursuant to which Ironclad Trust serves as custodian and collateral administrator with respect to the Issuer's collateral pool. The Trustee shall hold the Assigned Collateral in the collateral accounts established under the Indenture and shall administer such collateral in accordance with the terms thereof.
Section 2.5 — Effective Time
The assignment, transfer, release, and pledge contemplated by this Article II shall be effective simultaneously as of 10:00 a.m. (Eastern Time) on September 12, 2023, immediately following receipt by Havenwood Bank of the warehouse payoff amount in full in accordance with the Warehouse Payoff Letter and Schedule B hereto. For the avoidance of doubt, the release of the Warehouse Liens pursuant to Section 2.3 and the grant of the security interest to the Trustee pursuant to Section 2.4 shall occur simultaneously, such that at no time shall the Assigned Collateral be free of a perfected security interest. The Parties acknowledge that the chronological sequence of events on the Closing Date is set forth in the Closing Funds Flow Memorandum dated September 12, 2023 prepared by Calderwood & Harkness LLP, and each Party agrees to perform its obligations hereunder in accordance with such sequence.
ARTICLE III — REPRESENTATIONS AND WARRANTIES OF DCM (ASSIGNOR)
DCM hereby represents and warrants to the Issuer, the Co-Issuer, Havenwood Bank, and the Trustee as follows, as of the Closing Date:
Section 3.1 — Organization and Authority
(a) DCM is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification, except where the failure to be so qualified would not have a material adverse effect on DCM's ability to perform its obligations under this Agreement.
(b) DCM is duly registered as an investment adviser with the United States Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (CRD #182447), and is in compliance in all material respects with the requirements of such registration.
(c) DCM has full power, authority, and legal right to execute and deliver this Agreement and to consummate the transactions contemplated hereby, including the assignment and transfer of the Assigned Collateral to the Issuer. The execution, delivery, and performance of this Agreement by DCM, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of DCM, including all requisite approvals of DCM's members, managers, or other governing body, and no further action or approval is required on the part of DCM to make this Agreement valid and binding upon DCM.
(d) This Agreement has been duly executed and delivered by DCM and constitutes the legal, valid, and binding obligation of DCM, enforceable against DCM in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 3.2 — Good Title; Free and Clear
(a) DCM is the sole legal and beneficial owner of each item of Assigned Collateral listed on Schedule A hereto, and has good and marketable title to the Assigned Collateral.
(b) Upon the release of the Warehouse Liens pursuant to Section 2.3, the Assigned Collateral will be free and clear of all liens, claims, encumbrances, charges, pledges, security interests, and adverse claims of any kind whatsoever, other than (i) the security interest being granted to the Trustee pursuant to Section 2.4 hereof, (ii) permitted liens as defined in and permitted under the Indenture, and (iii) liens arising by operation of law that are not yet due and payable.
(c) No person or entity other than Havenwood Bank holds, or at any time during the warehouse ramp period has held, any security interest, lien, pledge, charge, or encumbrance on or in any item of Assigned Collateral.
(d) DCM has not sold, transferred, assigned, or otherwise disposed of any interest in the Assigned Collateral to any person or entity other than as contemplated by this Agreement.
Section 3.3 — Eligibility of Assigned Collateral
(a) Each item of Assigned Collateral listed on Schedule A constitutes an "Eligible Collateral Obligation" as defined in the Indenture as of the Closing Date and satisfies all eligibility criteria set forth therein, including credit quality, lien priority, obligor jurisdiction, and documentation requirements.
(b) Each loan comprising the Assigned Collateral is a broadly syndicated first-lien senior secured leveraged loan of a primarily U.S. obligor, denominated in U.S. dollars, bearing interest at a floating rate based on SOFR (or, in limited cases, a fixed rate subject to the fixed-rate bucket limitation), and documented under credit agreements containing customary covenants, events of default, and other terms.
(c) As of the Closing Date, the Assigned Collateral, together with any additional collateral obligations to be acquired on or about the Closing Date using remaining Note proceeds, satisfies or, upon full ramp by the Effective Date Deadline of December 12, 2023, will satisfy, each of the Collateral Quality Tests set forth in the Indenture, including without limitation:
(i) Minimum Weighted Average Spread: not less than 350 basis points;
(ii) Maximum Weighted Average Life: not greater than 7.5 years;
(iii) Minimum Diversity Score: not less than 60;
(iv) Maximum CCC-Rated Obligations: not greater than 7.5% of the aggregate collateral par amount (i.e., not more than $30,000,000 based on a $400,000,000 target par amount);
(v) Maximum Second-Lien Obligations: not greater than 5.0% of the aggregate collateral par amount (i.e., not more than $20,000,000 based on a $400,000,000 target par amount);
(vi) Maximum Fixed-Rate Obligations: not greater than 10.0% of the aggregate collateral par amount (i.e., not more than $40,000,000 based on a $400,000,000 target par amount);
(vii) Minimum Weighted Average Recovery Rate: not less than 45.0%; and
(viii) Minimum Weighted Average Rating Factor (WARF): not less than 2,850, calculated in accordance with the Brindoval scale.
(d) DCM has no knowledge of any event, circumstance, or condition that has occurred or is reasonably expected to occur that would cause any item of Assigned Collateral to fail to constitute an Eligible Collateral Obligation as of the Closing Date.
Section 3.4 — No Conflicts
The execution, delivery, and performance by DCM of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not:
(a) violate, conflict with, or result in a breach of any provision of DCM's Certificate of Formation or Limited Liability Company Agreement (each as amended through the date hereof);
(b) violate any applicable law, statute, rule, regulation, order, judgment, injunction, or decree of any governmental authority having jurisdiction over DCM or the Assigned Collateral;
(c) conflict with, result in a breach of, constitute a default (or an event that, with the giving of notice or the passage of time, or both, would constitute a default) under, or give rise to a right of termination, acceleration, or modification of, any material agreement, contract, indenture, mortgage, or other instrument to which DCM is a party or by which DCM or any of its properties or assets is bound; or
(d) require any consent, approval, authorization, order, registration, qualification, or filing with, any governmental authority or regulatory body that has not already been obtained or made.
Section 3.5 — No Litigation
No action, suit, litigation, proceeding, arbitration, or investigation of any nature is pending before, or to the knowledge of DCM, threatened by or before, any court, arbitrator, or governmental authority against DCM or any of its affiliates that (a) would materially and adversely affect DCM's ability to execute, deliver, or perform its obligations under this Agreement or to consummate the transactions contemplated hereby, or (b) would affect the title, validity, enforceability, or collectability of any item of Assigned Collateral.
Section 3.6 — Accuracy of Schedule A
Schedule A attached hereto is complete and accurate in all material respects as of the Closing Date and sets forth, for each item of Assigned Collateral, the following information:
(a) the name of the obligor (i.e., the underlying borrower under the applicable credit agreement);
(b) the CUSIP number and/or Loan Identification Number ("LIN"), as applicable;
(c) the outstanding par amount being transferred;
(d) the acquisition cost (i.e., the price paid by DCM to acquire such loan position during the warehouse ramp period);
(e) the spread or coupon (expressed in basis points over SOFR, or, if applicable, a fixed rate);
(f) the stated maturity date of the underlying loan;
(g) the lien position (first lien or second lien);
(h) the credit rating (as assigned by Brindoval Analytical Services Inc. and/or the Ridgeline Credit Ratings LLC equivalent);
(i) the industry classification of the obligor (based on the industry classification system used in the Indenture); and
(j) the settlement status (settled or pending) as of the Closing Date.
To the extent any information set forth on Schedule A changes between the date hereof and the settlement of any pending trade, DCM shall promptly notify the Issuer and the Trustee in writing of any such change.
Section 3.7 — Warehouse Compliance
(a) All acquisitions of Assigned Collateral by DCM during the warehouse ramp period (May 25, 2023 through the date hereof) were made in compliance with the eligibility criteria, concentration limits, advance rate requirements, and other limitations and conditions set forth in the Warehouse Credit Agreement, and no default or event of default has occurred and is continuing under the Warehouse Credit Agreement.
(b) All notices, reports, compliance certificates, borrowing base reports, and other information required to be delivered by DCM to Havenwood Bank during the warehouse ramp period pursuant to the Warehouse Credit Agreement have been duly and timely delivered, and such notices, reports, certificates, and other information were accurate and complete in all material respects as of their respective dates.
(c) No event has occurred during the warehouse ramp period that would constitute a "Market Value Event," "Margin Call Event," or other triggering event under the Warehouse Credit Agreement requiring DCM to post additional collateral, reduce outstanding borrowings, or take any other remedial action, other than events that were timely cured or resolved in accordance with the terms of the Warehouse Credit Agreement.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF THE ISSUER (ASSIGNEE)
The Issuer hereby represents and warrants to DCM, Havenwood Bank, and the Trustee as follows, as of the Closing Date:
Section 4.1 — Organization and Authority
(a) The Issuer is an exempted company duly incorporated, validly existing, and in good standing under the laws of the Cayman Islands (Registration No. EX-382916), with its registered office at PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306, Cayman Islands.
(b) The Issuer has full power, authority, and legal right to execute and deliver this Agreement, to accept the assignment and transfer of the Assigned Collateral, and to grant the security interest in the Assigned Collateral to the Trustee pursuant to Section 2.4 hereof. The execution, delivery, and performance of this Agreement by the Issuer have been duly authorized by all necessary corporate action on the part of the Issuer, including the resolutions of the board of directors of the Issuer adopted on August 20, 2023, and no further action or approval is required on the part of the Issuer.
(c) This Agreement has been duly executed and delivered by the Issuer and constitutes the legal, valid, and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 4.2 — Indenture and Notes
(a) The Indenture has been duly executed and delivered by the Issuer and the Co-Issuer, and constitutes a valid and binding obligation of each of the Issuer and the Co-Issuer, enforceable in accordance with its terms.
(b) The issuance of $400,000,000 in aggregate principal amount of Notes on the Closing Date has been duly authorized by all necessary corporate action on the part of the Issuer and the Co-Issuer, and such Notes, when issued and delivered in accordance with the Indenture, will constitute valid and binding obligations of the Issuer and the Co-Issuer, as applicable.
(c) The Assigned Collateral, upon transfer to the Issuer and pledge to the Trustee pursuant to this Agreement, will be held subject to the terms and conditions of the Indenture for the benefit of the secured parties thereunder, including the holders of each class of Notes.
Section 4.3 — No Conflicts
The acceptance of the assignment and transfer of the Assigned Collateral by the Issuer, and the grant of the security interest to the Trustee pursuant to Section 2.4 hereof, do not and will not (a) violate, conflict with, or result in a breach of any provision of the Issuer's Memorandum and Articles of Association (as amended through the date hereof), (b) violate any applicable law, statute, rule, regulation, order, or decree of any governmental authority having jurisdiction over the Issuer, or (c) conflict with, or result in a breach or default under, any material agreement, contract, or instrument to which the Issuer is a party or by which the Issuer or any of its properties is bound.
ARTICLE V — REPRESENTATIONS AND WARRANTIES OF HAVENWOOD BANK
Havenwood Bank hereby represents and warrants to DCM, the Issuer, the Co-Issuer, and the Trustee as follows, as of the Closing Date:
Section 5.1 — Authority
(a) Havenwood Bank is a national banking association duly organized, validly existing, and in good standing under the laws of the United States, operating pursuant to a charter granted by the Office of the Comptroller of the Currency.
(b) Havenwood Bank has full power, authority, and legal right to execute and deliver this Agreement, to release the Warehouse Liens as contemplated by Section 2.3, and to perform its obligations hereunder. The execution, delivery, and performance of this Agreement by Havenwood Bank have been duly authorized by all necessary action on the part of Havenwood Bank, and no further action or approval is required.
(c) This Agreement has been duly executed and delivered by Havenwood Bank and constitutes the legal, valid, and binding obligation of Havenwood Bank, enforceable against Havenwood Bank in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 5.2 — Release
(a) Upon receipt of the payoff amount of $212,500,000, together with all accrued and unpaid interest and fees, in accordance with the Warehouse Payoff Letter dated September 12, 2023, Havenwood Bank will have no further claim, right, title, interest, lien, or encumbrance of any kind in or to the Assigned Collateral or any proceeds thereof.
(b) Upon receipt of such payoff amount, all obligations of DCM under the Warehouse Credit Agreement relating to the Assigned Collateral, including all obligations to repay advances, pay interest, and comply with covenants and conditions, will have been fully satisfied, paid, and discharged, and the Warehouse Credit Agreement will be terminated in accordance with the Warehouse Termination Agreement.
Section 5.3 — No Other Liens
Havenwood Bank has not sold, transferred, assigned, pledged, hypothecated, or further encumbered its Warehouse Liens or any interest therein to any third party. No person or entity other than Havenwood Bank holds any interest in or claim against the Warehouse Liens or the Assigned Collateral arising through Havenwood Bank. Havenwood Bank has not granted any participation interest or sub-participation interest in the Warehouse Credit Agreement or the Warehouse Liens to any third party.
ARTICLE VI — COVENANTS
Section 6.1 — Further Assurances
Each Party hereby agrees to execute and deliver, or cause to be executed and delivered, such further instruments, documents, agreements, certificates, and filings as may be reasonably necessary or desirable to effectuate the purposes of this Agreement and to carry out the intent and provisions hereof, including without limitation:
(a) UCC-3 termination statements to terminate the financing statements filed by or on behalf of Havenwood Bank in connection with the Warehouse Liens;
(b) UCC-1 financing statements (and any amendments thereto) to perfect the security interest granted by the Issuer to the Trustee pursuant to Section 2.4;
(c) LSTA-form assignment agreements (substantially in the form attached hereto as Exhibit A) for the assignment of each individual loan position from DCM to the Issuer, as required by the underlying credit agreements;
(d) notices to administrative agents and collateral agents under the underlying credit agreements regarding the assignment and transfer of the Assigned Collateral;
(e) any instruments or documents required by the Depository Trust Company ("DTC") or any clearinghouse to effectuate the transfer of positions; and
(f) any other instruments, documents, or filings as may be reasonably requested by any Party or its counsel.
Section 6.2 — Settlement of Pending Trades
To the extent any items of Assigned Collateral listed on Schedule A are in a pending settlement status as of the Closing Date (each, a "Pending Position"), DCM shall use commercially reasonable efforts to complete settlement thereof as promptly as practicable following the Closing Date, and in any event within the time periods customarily applicable to such settlements in the broadly syndicated loan market. All Pending Positions shall be deemed assigned and transferred to the Issuer upon settlement thereof, without the necessity of any further act or instrument, and the Issuer and the Trustee shall have the benefit of the pledge and security interest granted pursuant to Section 2.4 with respect to such Pending Positions immediately upon settlement. DCM shall promptly notify the Issuer and the Trustee in writing upon the settlement of each Pending Position. In the event that any Pending Position fails to settle within thirty (30) calendar days following the Closing Date, DCM shall promptly notify the Issuer and the Trustee and shall cooperate with the Issuer and the Trustee to identify and, if necessary, replace such position in accordance with the terms of the Indenture and the Collateral Management Agreement.
Section 6.3 — Cooperation with Trustee
DCM and the Issuer shall cooperate fully with Ironclad Trust to complete the transfer of custody of the Assigned Collateral to the Trustee's accounts established under the Indenture, including without limitation:
(a) the transfer of positions held through the Depository Trust Company to Ironclad Trust's DTC account (Participant No. 2176);
(b) the delivery of original or certified copies of credit agreements, loan documents, and other operative documents to the Trustee for its files;
(c) the execution and delivery of LSTA-form assignment documentation for each loan position; and
(d) the provision of all information, data, and records reasonably requested by the Trustee to enable the Trustee to perform its duties as custodian and collateral administrator under the Collateral Administration Agreement and the Indenture.
Section 6.4 — Notification to Agents
DCM shall, as promptly as practicable following the Closing Date and in any event within five (5) business days thereafter, notify the administrative agent and/or collateral agent under each underlying credit agreement governing the Assigned Collateral of the assignment and transfer of the applicable loan position from DCM to the Issuer, and shall direct all future payments of principal, interest, fees, and other amounts in respect of the Assigned Collateral to the payment accounts designated by the Trustee under the Indenture. DCM shall provide the Issuer and the Trustee with copies of all such notifications promptly upon delivery thereof. To the extent any underlying credit agreement requires the consent of the administrative agent or any other party to the assignment contemplated hereby, DCM shall use commercially reasonable efforts to obtain such consent as promptly as practicable.
Section 6.5 — Tax Matters
(a) The Parties acknowledge and agree that the Issuer (Driftwood CLO 2023-I, Ltd.) is structured and intended to operate in a manner that avoids being treated as engaged in a United States trade or business for United States federal income tax purposes and avoids being subject to United States federal income tax on a net-income basis. The Parties shall not take any action that is inconsistent with such intended tax treatment unless required by applicable law.
(b) The Parties further acknowledge and agree that the Co-Issuer (Driftwood CLO 2023-I, LLC) is treated as an entity disregarded as separate from the Issuer for United States federal income tax purposes, and the Parties shall not take any action that is inconsistent with such classification.
(c) The assignment, transfer, and pledge contemplated by this Agreement shall be treated for United States federal, state, and local income tax purposes consistently with the tax opinions delivered at the closing of the Note issuance by Calderwood & Harkness LLP (Sylvia Hartwell, Specialist Partner, Tax), copies of which have been provided to the Parties. Each Party agrees to file all tax returns and reports consistent with such tax opinions unless otherwise required by a change in applicable law or a determination by the Internal Revenue Service or a court of competent jurisdiction.
ARTICLE VII — CONDITIONS PRECEDENT
Section 7.1 — Conditions to Effectiveness
This Agreement, and the assignment, transfer, release, and pledge contemplated by Article II hereof, shall become effective simultaneously with the satisfaction (or waiver by the applicable Party) of each of the following conditions precedent, each of which shall be satisfied on or prior to the Effective Time specified in Section 2.5:
(a) Warehouse Payoff. Havenwood Bank shall have received the warehouse payoff amount of $212,500,000, together with all accrued and unpaid interest and fees, in accordance with the Warehouse Payoff Letter dated September 12, 2023, via wire transfer of immediately available funds to the account designated in Schedule B hereto and in the Warehouse Payoff Letter.
(b) Warehouse Termination Agreement. The Warehouse Facility Termination and Release Agreement dated September 12, 2023, among DCM, the Issuer, and Havenwood Bank, shall have been duly executed and delivered by each party thereto, and all conditions to effectiveness thereof shall have been satisfied.
(c) Issuance of Notes. The Notes shall have been issued by the Issuer and the Co-Issuer under the Indenture, and the Issuer shall have received the net proceeds from the sale of the Notes in an amount sufficient to fund, together with equity contributions, the warehouse payoff and the acquisition of any additional collateral obligations on the Closing Date.
(d) Officer's Certificate. The Issuer shall have delivered to the Trustee an Officer's Certificate of the Issuer, dated September 12, 2023, certifying that all conditions to closing under the Indenture have been satisfied or waived and that the representations and warranties of the Issuer contained in the Indenture and this Agreement are true and correct as of the Closing Date.
(e) Closing Funds Flow Memorandum. Calderwood & Harkness LLP shall have prepared and distributed to the Parties the Closing Funds Flow Memorandum dated September 12, 2023 (C&H Matter No. 1024-00004), setting forth the sequence and amounts of all payments to be made on the Closing Date, and each Party shall have confirmed its agreement with the payment instructions set forth therein.
(f) Ratings Confirmations. Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC shall each have delivered their respective confirmation letters, each dated September 8, 2023, confirming the final ratings assigned to the rated classes of Notes as follows:
(g) U.S. Legal Opinion and Tax Opinion. Calderwood & Harkness LLP shall have delivered to the Parties (i) a U.S. legal opinion addressed to the Issuer, the Trustee, and the initial purchasers of the Notes, dated September 12, 2023, covering the due authorization, execution, and enforceability of the Indenture, this Agreement, and the Notes, and (ii) a tax opinion addressed to the Issuer, dated September 12, 2023, covering the United States federal income tax treatment of the Issuer, the Co-Issuer, and the transactions contemplated by the Indenture and this Agreement.
(h) Cayman Legal Opinion. Applegategate Offshore Services Ltd. (Nigel Pemberton) shall have delivered to the Parties a Cayman Islands legal opinion addressed to the Issuer, the Trustee, and the initial purchasers of the Notes, dated September 12, 2023, covering the due incorporation and valid existence of the Issuer, the capacity and authority of the Issuer to enter into and perform the Indenture and this Agreement, and such other matters as are customary in CLO transactions involving Cayman Islands issuers.
(i) Trustee's Counsel Opinion. Ashworth & Pratt LLP (Lillian Marchetti) shall have delivered to the Parties a legal opinion addressed to the Trustee, dated September 12, 2023, covering the due authorization, execution, and enforceability of the Indenture, the Collateral Administration Agreement, and this Agreement as against the Issuer and the Co-Issuer, and such other matters as are customary for opinions delivered on behalf of the indenture trustee in CLO transactions.
ARTICLE VIII — INDEMNIFICATION
Section 8.1 — Indemnification by DCM
DCM shall indemnify, defend, and hold harmless the Issuer, the Co-Issuer, the Trustee, and their respective officers, directors, employees, agents, and successors (collectively, the "DCM Indemnified Parties") from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses and costs of investigation) (collectively, "Losses") incurred by any DCM Indemnified Party and arising out of or resulting from:
(a) any breach of any representation, warranty, or covenant of DCM contained in this Agreement;
(b) any failure of any item of Assigned Collateral to conform in any material respect to the descriptions set forth on Schedule A hereto;
(c) any failure of any item of Assigned Collateral to constitute an Eligible Collateral Obligation under the Indenture as of the Closing Date;
(d) any claim by a third party asserting a lien, security interest, encumbrance, or other adverse claim on or in any item of Assigned Collateral (other than the security interest granted to the Trustee pursuant to Section 2.4 and permitted liens under the Indenture), to the extent such claim arises from or relates to actions or omissions of DCM during the warehouse ramp period; or
(e) any failure by DCM to comply with its obligations under Section 6.2, Section 6.3, or Section 6.4 of this Agreement.
Section 8.2 — Indemnification by Havenwood Bank
Havenwood Bank shall indemnify, defend, and hold harmless the Issuer, the Co-Issuer, the Trustee, and their respective officers, directors, employees, agents, and successors (collectively, the "Havenwood Indemnified Parties") from and against any and all Losses incurred by any Havenwood Indemnified Party and arising out of or resulting from: