MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
FROM: Sylvia Hartwell, Specialist Partner, Tax Calderwood & Harkness LLP 425 Lexington Avenue New York, New York 10017
TO: Claudia Merritt, Responsible Partner, Banking & Finance Marcus Leung, Lead Associate, Banking & Finance Sophie Tremblay, Working Associate, Banking & Finance Calderwood & Harkness LLP
CC: Ian Blackwood, Billing Partner, Banking & Finance Calderwood & Harkness LLP
DATE: March 7, 2025
RE: Withholding Tax Considerations for Lenders — FATCA and Treaty Analysis in Connection with the $1,400,000,000 Senior Secured Term Loan B — Nexford Industrial Holdings Inc.
Matter No.: 1005-00001
Billing Code: IBL-NIH-2025-031
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I. Executive Summary
The purpose of this memorandum is to analyze the U.S. federal withholding tax obligations of Nexford Industrial Holdings Inc. (EIN: 36-4178552), as Borrower, and Crescent Harbor Bank, N.A., as Administrative Agent, with respect to interest payments under the $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B" or the "Facility"). This analysis is provided to assist the Banking & Finance team in structuring and drafting the tax provisions of the credit agreement, and to identify withholding tax risks arising from the anticipated syndication of the Term Loan B to a broad group of institutional lenders.
The Term Loan B bears interest at a rate of Term SOFR plus 400 basis points, with a SOFR floor of 0.75%. Based on current market conditions as of the date of this memorandum, the estimated all-in annual interest rate is approximately 8.45%, calculated as Term SOFR at approximately 4.35% plus a 0.10% credit spread adjustment plus the 4.00% margin. On estimated average outstanding balances in Year 1, annual interest expense under the Facility is expected to be approximately $117.7 million. This represents a substantial stream of U.S.-source fixed or determinable annual or periodical ("FDAP") income to the lenders and, accordingly, raises significant withholding tax considerations for lenders that are not U.S. persons.
With respect to the syndication context, Crescent Harbor Bank, N.A. is serving as lead left arranger and bookrunner, with a target final hold of $175,000,000. Crescent Harbor is syndicating the remaining commitments to a broad group of institutional lenders, including collateralized loan obligation ("CLO") vehicles, direct lending funds, insurance companies, and institutional credit funds, some of which may be organized outside the United States or may have non-U.S. beneficial owners. The key identified syndicate participants, together with their anticipated commitments, are as follows:
Based on our analysis, and subject to the limitations set forth in Section II below, our principal conclusions are as follows:
(a) U.S. Lenders. Interest payments to U.S. lenders are generally not subject to U.S. federal withholding tax, provided that such lenders furnish a properly completed IRS Form W-9 certifying their U.S. person status and taxpayer identification number. Backup withholding at a rate of 24% may apply to any U.S. lender that fails to provide a valid Form W-9.
(b) Non-U.S. Lenders — Chapter 3 Withholding. Interest payments to non-U.S. lenders are subject to the 30% statutory withholding tax under Sections 871(a) and 881(a) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), unless such withholding is reduced or eliminated by (i) the portfolio interest exemption under Sections 871(h) and 881(c) of the Code, or (ii) an applicable income tax treaty between the United States and the lender's country of tax residence. The portfolio interest exemption should be available for the Term Loan B, as the Facility will be maintained in registered form and the interest is not contingent interest, subject to the 10-percent shareholder and controlled foreign corporation ("CFC") related-lender limitations.
(c) FATCA. The Foreign Account Tax Compliance Act ("FATCA"), codified in Sections 1471 through 1474 of the Code, imposes a separate 30% withholding regime on "withholdable payments" (including U.S.-source interest) made to non-compliant foreign financial institutions ("FFIs") and non-financial foreign entities ("NFFEs"). The Term Loan B will close on March 28, 2025, and accordingly will not benefit from the grandfathering provisions applicable to obligations outstanding on or before July 1, 2014. FATCA withholding can be avoided through proper documentation and compliance certification by each non-U.S. lender.
(d) Credit Agreement Provisions. The credit agreement must contain robust tax provisions, including a borrower gross-up obligation for "Indemnified Taxes," a clearly defined "Excluded Taxes" carve-out, comprehensive tax documentation delivery requirements, tax indemnity provisions, and FATCA-specific compliance and withholding provisions. These provisions are critical to allocating withholding tax risk appropriately between the Borrower and the lenders and must be carefully coordinated with the gross-up and yield protection provisions expected in a market Term Loan B credit agreement.
Each of these conclusions is discussed in detail below.
II. Scope and Limitations
This memorandum addresses U.S. federal income tax withholding considerations only. State and local withholding tax considerations, including potential state-level withholding obligations and mortgage recording tax implications arising from the collateral grants under the Term Loan B security documents, are addressed separately in the Tax Memorandum — State and Local Tax Implications of Collateral Grants and Mortgage Recording, dated March 10, 2025, prepared by this office.
The analysis set forth herein is based upon the Internal Revenue Code of 1986, as amended, applicable Treasury Regulations (including proposed, temporary, and final regulations), published rulings and administrative guidance of the Internal Revenue Service ("IRS"), and relevant bilateral income tax treaties between the United States and other jurisdictions, all as of the date of this memorandum, March 7, 2025. The tax law and interpretive guidance in this area are subject to change, potentially with retroactive effect, and no assurance can be given that the IRS or a court would not take a position contrary to the analysis set forth herein.
This memorandum does not constitute a tax opinion with respect to the tax status of any particular lender or prospective lender in the syndication. Each lender must independently determine its own U.S. federal income tax treatment with respect to the interest and other payments received under the Term Loan B, including the availability of the portfolio interest exemption, treaty benefits, and FATCA compliance status. Nothing in this memorandum should be construed as advice to any lender.
For purposes of this analysis, we have assumed the following facts, which have been confirmed by the deal team and the Borrower's representatives:
• Nexford Industrial Holdings Inc. (the "Borrower" or "Nexford") is a corporation organized under the laws of the State of Delaware, with its principal executive offices and headquarters located at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford is tax resident in the State of Illinois and files its U.S. federal income tax returns on the basis of a fiscal year ending December 31.
• Nexford is a direct, wholly owned subsidiary of Granite Peak NIH Holdings, LLC, which in turn is a portfolio company of Granite Peak Capital Partners V, L.P., a private equity fund.
• The Administrative Agent under the credit agreement is Crescent Harbor Bank, N.A., a national banking association with its principal office at 320 Federal Street, Boston, Massachusetts 02110. Crescent Harbor will serve as the withholding agent in practice under the credit agreement framework.
• The Borrower's obligation to withhold arises at the time interest payments are made or credited to the lenders. The Administrative Agent, acting on behalf of the Borrower, will be responsible for collecting tax documentation from each lender, determining applicable withholding rates, and remitting withheld amounts to the IRS.
As a coordination note, Sylvia Hartwell's separate memorandum dated March 5, 2025, addresses the deductibility of interest on the Term Loan B under Section 163(j) of the Code, including the business interest limitation, the adjusted taxable income computation, and the treatment of disallowed interest carryforwards. That memorandum should be read in conjunction with this one, as the deductibility analysis and the withholding analysis together form the comprehensive federal income tax framework for the Term Loan B.
III. U.S. Federal Withholding Tax on Interest Payments — General Framework
A. Statutory Withholding Under IRC Sections 871 and 881
The starting point for the withholding tax analysis is the default statutory withholding regime applicable to U.S.-source income paid to non-U.S. persons. Under the Code, the United States imposes a flat-rate tax on certain categories of U.S.-source income received by foreign persons that is not effectively connected with the conduct of a U.S. trade or business. This tax is collected through a withholding mechanism at the source of payment.
Section 881(a) — Foreign Corporations. Section 881(a)(1) of the Code imposes a tax of 30% on the amount received from sources within the United States by a foreign corporation as interest (including original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical ("FDAP") gains, profits, and income. This 30% rate applies on a gross basis — that is, without deduction for expenses — and is collected through withholding at the source of payment pursuant to Section 1441 and Section 1442 of the Code.
Section 871(a) — Nonresident Alien Individuals. Section 871(a)(1) of the Code imposes a parallel 30% tax on FDAP income received by a nonresident alien individual from U.S. sources. Although individual lenders are unlikely in the institutional Term Loan B syndication context, certain fund structures may have individual beneficial owners, and the withholding analysis at the beneficial owner level may implicate Section 871(a) in addition to Section 881(a).
U.S.-Source Characterization. Interest on the Term Loan B constitutes U.S.-source income under Section 861(a)(1) of the Code because it is interest on an obligation of a U.S. corporation — namely, Nexford Industrial Holdings Inc., a Delaware corporation. The source of interest income is generally determined by reference to the residence of the obligor, not the place of payment or the location of the lender. Accordingly, all interest paid on the Term Loan B is U.S.-source FDAP income, regardless of where any particular lender is organized or resident.
Withholding Obligation. The withholding obligation under Sections 1441 and 1442 of the Code falls on the "withholding agent," which is defined broadly under Treasury Regulation Section 1.1441-7(a) as any person, U.S. or foreign, having the control, receipt, custody, disposal, or payment of an item of income of a foreign person. In a syndicated credit facility, the Administrative Agent typically acts as the withholding agent, as it is the entity that controls the disbursement of interest payments to the lenders. Under the credit agreement framework for the Term Loan B, Crescent Harbor Bank, N.A. will serve in this capacity.
Default Rate. Absent an applicable exemption or treaty reduction, the default withholding rate is 30% of the gross interest paid or credited to a non-U.S. lender. On estimated annual interest expense of approximately $117.7 million, the withholding tax cost for a non-U.S. lender receiving its proportionate share of interest payments (absent an exemption) would be substantial and would significantly reduce the effective yield on the loan from such lender's perspective.
Backup Withholding. Separately, backup withholding at a rate of 24% under Section 3406 of the Code applies to payments of interest to U.S. persons who fail to provide a properly completed IRS Form W-9 with a valid taxpayer identification number. Backup withholding is discussed further in Section VII of this memorandum.
B. Portfolio Interest Exemption (IRC Sections 871(h) and 881(c))
The portfolio interest exemption is the primary mechanism by which non-U.S. lenders in a syndicated loan transaction avoid the 30% statutory withholding tax on interest income. This exemption, enacted as part of the Deficit Reduction Act of 1984 and subsequently amended, was designed to encourage foreign investment in U.S. debt obligations by eliminating the withholding tax on interest paid to foreign persons who are portfolio investors (as distinguished from related parties or significant shareholders).
General Rule. Under Sections 871(h) and 881(c) of the Code, interest paid on an obligation that qualifies as "portfolio debt" is exempt from the 30% withholding tax imposed by Sections 871(a) and 881(a). To qualify for this exemption, the following conditions must be satisfied:
(i) Registered Form Requirement. The obligation on which the interest is paid must be in "registered form" within the meaning of Section 163(f) of the Code and the Treasury Regulations thereunder. An obligation is in registered form if it is registered as to both principal and any stated interest with the issuer (or its agent) and if transfer of the obligation may be effected only by surrender of the old instrument and either the reissuance by the issuer to the new holder, the registration of transfer on the books of the issuer, or both. Treasury Regulation Section 5f.103-1(c) provides detailed rules on the registered form requirement.
Application to the Term Loan B: The Term Loan B will be maintained in registered form through a register of lenders maintained by the Administrative Agent, Crescent Harbor Bank, N.A., in accordance with the terms of the credit agreement. Transfers and assignments of commitments and loans under the credit agreement will be effected only through registration on the books of the Administrative Agent. This satisfies the registered form requirement. We note that Section 5.04 of the current draft credit agreement (Third Draft, dated March 3, 2025) includes a register provision that is consistent with this requirement, and we recommend that this provision be retained without material modification.
(ii) Non-10-Percent Shareholder. The non-U.S. person receiving the interest must not be a "10-percent shareholder" of the borrower within the meaning of Section 871(h)(3)(B) of the Code. A 10-percent shareholder is defined as any person who owns 10% or more of the total combined voting power of all classes of stock of the borrower entitled to vote. For this purpose, constructive ownership rules under Section 318(a) of the Code apply, with certain modifications.
Application to the Term Loan B: Nexford is 100% owned, directly or indirectly, by Granite Peak Capital Partners V, L.P. through the intermediary holding company, Granite Peak NIH Holdings, LLC. Given the syndicated nature of the Term Loan B, in which lenders are arms-length institutional investors acquiring loan participations, it is unlikely that any syndicate lender would hold (directly or constructively under the modified Section 318(a) rules) 10% or more of the total combined voting power of Nexford. However, this determination must be made on a lender-by-lender basis, particularly if any non-U.S. lender is affiliated with or related to Granite Peak Capital Partners or any entity in the Nexford ownership chain. We recommend that the credit agreement include a representation from each non-U.S. lender claiming the portfolio interest exemption that it is not a 10-percent shareholder of the Borrower.
(iii) Non-CFC-Related Lender. The non-U.S. person receiving the interest must not be a "controlled foreign corporation" ("CFC") that is related to the borrower within the meaning of Section 881(c)(3)(C) of the Code. A CFC is related to the borrower if the CFC and the borrower are members of the same "expanded affiliated group" within the meaning of Section 1504(a) of the Code (with certain modifications). This limitation is designed to prevent the use of the portfolio interest exemption to eliminate withholding on intercompany financing between related parties conducted through offshore entities.
Application to the Term Loan B: Given the arm's-length nature of the institutional syndication, it is unlikely that any syndicate lender would be a CFC related to Nexford. However, as with the 10-percent shareholder limitation, this must be confirmed on a lender-by-lender basis. We recommend inclusion of an appropriate negative certification in the credit agreement.
(iv) Valid IRS Form W-8BEN or W-8BEN-E. The non-U.S. lender must provide a valid IRS Form W-8BEN (for individuals) or IRS Form W-8BEN-E (for entities) to the withholding agent, certifying the lender's non-U.S. status and entitlement to the portfolio interest exemption. The form must be provided to the Administrative Agent before or at the time interest is paid.
Contingent Interest Exclusion. Section 871(h)(4) of the Code provides that interest does not qualify for the portfolio interest exemption if it is "contingent interest" — that is, interest the amount of which is determined by reference to any receipts, sales or other cash flow of the debtor or a related person, any income or profits of the debtor or a related person, any change in value of any property of the debtor or a related person, or any dividend, partnership distributions, or similar payments made by the debtor or a related person. This exclusion is intended to prevent the use of the portfolio interest exemption for equity-like returns disguised as interest.
Application to the Term Loan B: The interest rate on the Term Loan B is a fixed margin of 400 basis points over Term SOFR, with a SOFR floor of 0.75%. The interest rate is not determined by reference to the receipts, sales, cash flow, income, or profits of Nexford or any related person. While the credit agreement includes a mandatory prepayment provision in the form of an excess cash flow sweep (requiring prepayment of a percentage of "Excess Cash Flow," as defined), this mechanism operates as a mandatory prepayment of principal and does not affect the rate of interest payable on outstanding loans. The excess cash flow sweep is a prepayment mechanism, not a contingent interest feature, and should not cause the interest on the Term Loan B to be recharacterized as contingent interest within the meaning of Section 871(h)(4). Similarly, default interest at an increased rate of 200 basis points above the otherwise applicable rate does not constitute contingent interest, as it is not determined by reference to the debtor's income, profits, or cash flow but rather is triggered by a contractual event of default. Accordingly, we conclude that the interest on the Term Loan B should not constitute contingent interest and should qualify for the portfolio interest exemption, assuming all other conditions are satisfied.
Bank Loan Qualification. We note that the portfolio interest exemption is not limited to publicly offered debt obligations. Loans maintained in registered form, including syndicated bank loans, qualify for the portfolio interest exemption, provided the registered form and other requirements are met. The legislative history of the Tax Reform Act of 1984 and subsequent IRS guidance confirm that the exemption extends to bank loans and other non-publicly offered obligations that satisfy the registered form requirement. Accordingly, the Term Loan B, as a registered syndicated bank loan, is eligible for the portfolio interest exemption.
C. Income Tax Treaty Reductions
Where the portfolio interest exemption is not available — for example, because the interest constitutes contingent interest, the non-U.S. lender is a 10-percent shareholder of the Borrower, or the non-U.S. lender is a CFC related to the Borrower — non-U.S. lenders may nonetheless obtain reduced withholding rates under applicable bilateral income tax treaties between the United States and the lender's country of tax residence.
Common Treaty Rates for Interest. The United States maintains a network of over sixty bilateral income tax treaties, many of which provide for reduced rates of withholding on interest income. The treaty-reduced rate for interest varies by treaty partner and, in many cases, by the type of interest. Common provisions include:
• 0% Rate (Full Exemption): The U.S.-United Kingdom Income Tax Treaty (2001), the U.S.-Netherlands Income Tax Treaty (1992, as amended), and the U.S.-Japan Income Tax Treaty (2003) each provide for a 0% withholding rate on interest paid to qualifying financial institutions or in respect of qualifying indebtedness. For example, Article 11(3) of the U.S.-U.K. Treaty provides that interest arising in the United States and beneficially owned by a resident of the United Kingdom shall be taxable only in the United Kingdom, effectively eliminating U.S. withholding, subject to certain conditions.
• 10% or 15% Rate: Certain other U.S. income tax treaties provide for reduced withholding rates of 10% or 15% on interest, rather than full exemption. The specific rate depends on the treaty partner and the nature of the interest.
• No Treaty or No Reduction: Where no applicable treaty exists between the United States and the lender's country of residence, or where the applicable treaty does not provide a reduced rate for the specific type of interest at issue, the full 30% statutory withholding rate applies.
Requirements for Claiming Treaty Benefits. To claim a reduced rate of withholding under an applicable income tax treaty, a non-U.S. lender must satisfy the following conditions:
(i) Treaty Residence. The lender must be a "resident" of the treaty country within the meaning of the applicable treaty's residence article. This typically requires that the lender be liable to tax in that country by reason of its domicile, residence, place of management, place of incorporation, or other similar criterion. Dual residents and entities that are fiscally transparent in their country of residence may face complications in establishing treaty residence.
(ii) Limitation on Benefits (LOB). Modern U.S. income tax treaties contain a Limitation on Benefits ("LOB") article (commonly Article 22 or Article 23) that imposes substantial qualification requirements designed to prevent "treaty shopping" — that is, the use of entities organized in a treaty country primarily to obtain treaty benefits that would not otherwise be available to the ultimate beneficial owners. LOB provisions typically require the treaty claimant to satisfy one or more objective tests, such as the publicly traded company test, the ownership and base erosion test, the active trade or business test, the derivative benefits test, or the discretionary determination by the competent authority. CLO vehicles, special purpose entities, and certain fund structures may have difficulty qualifying under LOB articles, as they may not satisfy the ownership and base erosion test (if owned by persons who are not themselves treaty residents) and may not be actively conducting a trade or business in the treaty country.
(iii) Beneficial Ownership. The lender must be the "beneficial owner" of the interest within the meaning of the applicable treaty. Agents, nominees, conduit entities, and other intermediaries that receive interest but are not the beneficial owners thereof are not entitled to treaty benefits on their own behalf. The beneficial ownership requirement has been the subject of significant interpretive guidance and judicial decisions, particularly in the context of back-to-back financing arrangements and conduit structures.
(iv) Valid IRS Form W-8BEN-E or W-8BEN. To claim treaty benefits, the non-U.S. lender must provide a valid IRS Form W-8BEN-E (for entities) or IRS Form W-8BEN (for individuals) to the withholding agent, claiming the specific treaty article and reduced rate. The form must identify the applicable treaty country, the specific article under which the reduced rate is claimed, and the rate of withholding claimed.
Flow-Through Entities. If a lender in the syndication is a partnership, limited liability company treated as a partnership for U.S. federal income tax purposes, or other fiscally transparent entity, the treaty analysis must be conducted at the level of the partners or other beneficial owners, not at the entity level. This is because a fiscally transparent entity is generally not considered a "resident" of a treaty country for purposes of claiming treaty benefits; rather, the partners or members who are themselves residents of a treaty country may be entitled to claim treaty benefits with respect to their allocable share of the interest income. In such cases, the entity provides IRS Form W-8IMY to the withholding agent, along with Forms W-8BEN-E or W-8BEN from each underlying beneficial owner claiming treaty benefits. The withholding agent must then apply the appropriate withholding rate to each beneficial owner's allocable share of the interest payment based on the documentation received.
This flow-through entity analysis is particularly relevant for the Term Loan B syndication, as several of the identified lenders are organized as limited partnerships (Ridgeline Asset Management, LP; Verdant Institutional Investors, LP; Cascadia Loan Fund III, LP; Bluewater Fixed Income Fund, LP). If any of these entities has non-U.S. partners, the withholding analysis must be conducted at the partner level, and additional documentation requirements apply.
IV. FATCA (Foreign Account Tax Compliance Act) — Sections 1471–1474
A. Overview of the FATCA Regime
The Foreign Account Tax Compliance Act, enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 and codified in Sections 1471 through 1474 of the Code, established a comprehensive information reporting and withholding regime targeting U.S. tax evasion through offshore financial accounts and entities. FATCA imposes a 30% withholding tax on certain U.S.-source payments made to foreign persons that do not comply with FATCA's identification and reporting requirements.
FATCA operates through two principal channels:
(i) Foreign Financial Institutions (FFIs) — Section 1471. Section 1471 of the Code imposes a 30% withholding tax on "withholdable payments" made to an FFI unless the FFI enters into an agreement with the IRS (becoming a "participating FFI") or is otherwise deemed compliant with FATCA's requirements (a "deemed-compliant FFI"). Under a participating FFI agreement, the FFI agrees to identify and report information about its U.S. account holders, including account balances, income, and gross proceeds. An FFI that does not enter into such an agreement and is not otherwise exempt is classified as a "non-participating FFI," and payments to such an entity are subject to the 30% FATCA withholding.
(ii) Non-Financial Foreign Entities (NFFEs) — Section 1472. Section 1472 of the Code imposes a 30% withholding tax on "withholdable payments" made to an NFFE unless the NFFE certifies that it has no "substantial U.S. owners" or provides the name, address, and taxpayer identification number of each substantial U.S. owner. A "substantial U.S. owner" is generally defined as any U.S. person who owns (directly or indirectly) more than 10% of the stock of a corporation, more than 10% of the profits or capital interests in a partnership, or more than 10% of the beneficial interests of certain trusts. Certain categories of NFFEs are "excepted NFFEs" — including publicly traded entities and their affiliates, entities organized in U.S. territories, active NFFEs (entities for which less than 50% of gross income is passive income and less than 50% of assets produce passive income), and direct reporting NFFEs — and need only provide the applicable certification of their excepted status.
"Withholdable Payments." The term "withholdable payment" is defined in Section 1473(1) of the Code as (a) any payment of interest (including OID), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States, and (b) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States. Interest on the Term Loan B, as U.S.-source FDAP income, clearly constitutes a "withholdable payment" for FATCA purposes.
We note that FATCA withholding on gross proceeds from the sale or disposition of property producing U.S.-source interest or dividends was originally scheduled to take effect on January 1, 2019, but has been indefinitely deferred by the IRS pursuant to Notice 2018-72 and subsequent guidance. Accordingly, gross proceeds from the sale or assignment of loan participations or commitments under the Term Loan B are not currently subject to FATCA withholding. This deferral should be monitored, however, as the IRS has reserved the right to implement gross proceeds withholding in the future.
Relationship to Chapter 3 Withholding. FATCA withholding (imposed under Chapter 4 of Subtitle A of the Code, Sections 1471–1474) is separate from and operates independently of the Chapter 3 withholding regime (Sections 1441–1443, implementing the statutory 30% withholding under Sections 871 and 881). In practice, however, FATCA withholding generally does not result in additional tax if valid documentation is provided. If a non-U.S. lender provides a valid IRS Form W-8BEN-E or other applicable form that satisfies both Chapter 3 and Chapter 4 requirements, and is otherwise FATCA-compliant, no FATCA withholding will apply. FATCA withholding is a backstop that targets non-compliant payees; for compliant lenders, FATCA should not impose any incremental withholding cost.
B. Application to the Term Loan B Syndication
The FATCA regime has direct and practical implications for the syndication of the Term Loan B. Crescent Harbor Bank, N.A., as Administrative Agent and withholding agent, will need to obtain FATCA-compliant documentation from each lender at or before closing and must evaluate each lender's FATCA status to determine whether FATCA withholding is required.
The following summarizes the FATCA analysis for each category of lender expected to participate in the syndication:
U.S. Lenders. U.S. lenders — that is, lenders that are "United States persons" within the meaning of Section 7701(a)(30) of the Code — are not subject to FATCA withholding. U.S. lenders will provide IRS Form W-9, which certifies the lender's U.S. person status and taxpayer identification number. No FATCA compliance issues arise with respect to U.S. lenders.
Foreign Financial Institutions — Participating or Deemed-Compliant FFIs. The majority of non-U.S. institutional lenders expected to participate in the Term Loan B syndication — particularly Cayman Islands and Irish CLO vehicles, non-U.S. banks, and non-U.S. investment funds — will be FFIs. To avoid FATCA withholding, an FFI must be a "participating FFI" that has entered into an FFI agreement with the IRS, or must qualify as a "deemed-compliant FFI" under Treasury Regulation Section 1.1471-5(f). A participating FFI or deemed-compliant FFI provides IRS Form W-8BEN-E with a valid Global Intermediary Identification Number ("GIIN"), which is a unique identification number assigned by the IRS and published in the IRS FFI List. No FATCA withholding applies if a valid form and GIIN are provided.
Non-Participating FFIs. An FFI that has not entered into an FFI agreement with the IRS and does not qualify as a deemed-compliant FFI is classified as a "non-participating FFI." Payments of withholdable payments (including interest on the Term Loan B) to a non-participating FFI are subject to 30% FATCA withholding. As a practical matter, a non-participating FFI effectively cannot participate in the syndication of the Term Loan B without incurring a significant withholding cost that would substantially reduce (or entirely eliminate) its return on the investment. Accordingly, we anticipate that non-participating FFIs will not seek to join the syndicate, and the credit agreement should include provisions addressing FATCA non-compliance as a condition to participation.
Non-Financial Foreign Entities (NFFEs). An NFFE that wishes to receive interest payments on the Term Loan B without FATCA withholding must provide IRS Form W-8BEN-E certifying either (a) that the entity has no "substantial U.S. owners," or (b) the identity of each substantial U.S. owner, including the owner's name, address, and U.S. taxpayer identification number. Alternatively, an NFFE that qualifies as an "excepted NFFE" — such as a publicly traded entity, an entity organized in a U.S. territory, an active NFFE, or a direct reporting NFFE — need only provide the applicable certification of its excepted NFFE status on IRS Form W-8BEN-E. The excepted NFFE classification is potentially relevant for certain non-U.S. operating companies or holding companies that may participate in the syndication.
Intergovernmental Agreements (IGAs). Many countries have entered into Intergovernmental Agreements with the United States under one of two models — Model 1 IGAs and Model 2 IGAs — that modify the FATCA compliance framework for FFIs in those jurisdictions. Under a Model 1 IGA, FFIs in the IGA partner jurisdiction report information about their U.S. account holders to their local tax authority, which in turn exchanges that information with the IRS. Under a Model 2 IGA, FFIs in the partner jurisdiction report directly to the IRS but with the consent and support of their local tax authority. FFIs in IGA jurisdictions are generally treated as deemed-compliant FFIs or registered deemed-compliant FFIs for FATCA purposes, provided they comply with the IGA obligations. As of the date of this memorandum, over 100 jurisdictions have entered into IGAs with the United States, including the Cayman Islands (Model 1), Ireland (Model 1), the United Kingdom (Model 1), Luxembourg (Model 1), and Japan (Model 2). The IGA framework is relevant for the general syndication, as many potential non-U.S. lenders (particularly Cayman Islands and Irish CLO issuers) will rely on their home country IGA to satisfy FATCA compliance.
Grandfathering. FATCA's withholding provisions do not apply to payments made under "grandfathered obligations" — that is, obligations outstanding on or before July 1, 2014, and not materially modified thereafter. An obligation that is "materially modified" after July 1, 2014, loses its grandfathered status. The Term Loan B will close on March 28, 2025, well after the July 1, 2014, grandfathering date. Accordingly, the Term Loan B is not a grandfathered obligation, and FATCA is fully applicable to all interest and other withholdable payments under the Facility.
C. FATCA Documentation Requirements for the Syndicate
The following IRS forms are required from lenders under the Term Loan B for purposes of FATCA (Chapter 4) and Chapter 3 compliance:
• IRS Form W-9: Required from each U.S. lender (U.S. person). The Form W-9 certifies the lender's U.S. person status and provides the lender's taxpayer identification number. A properly completed Form W-9 exempts the lender from both FATCA withholding and Chapter 3 withholding, and, assuming the TIN is valid and the lender is not subject to an IRS notification, from backup withholding.
• IRS Form W-8BEN-E: Required from each non-U.S. entity lender, including for purposes of establishing the entity's Chapter 4 (FATCA) status (e.g., participating FFI, deemed-compliant FFI, excepted NFFE, passive NFFE) and, where applicable, for claiming Chapter 3 treaty benefits. Part III of Form W-8BEN-E requires the entity to certify its FATCA classification, and Part II allows the entity to claim benefits under an applicable income tax treaty.
• IRS Form W-8BEN: Required from any non-U.S. individual lender. While unlikely in an institutional Term Loan B syndication, certain fund structures or individual investors could participate through nominee or custody arrangements. Form W-8BEN is used by non-U.S. individuals to claim the portfolio interest exemption or treaty benefits, and to certify non-U.S. status for FATCA purposes.
• IRS Form W-8IMY: Required from any intermediary, flow-through entity, or agent receiving interest on behalf of other persons. This form is used by entities such as partnership lenders, certain CLO structures with pass-through characteristics, nominees, and custodians. The Form W-8IMY must be accompanied by a "withholding statement" allocating the payment among the entity's beneficial owners, together with Forms W-8BEN-E, W-8BEN, or W-9 from each underlying beneficial owner.
• IRS Form W-8ECI: Required from any non-U.S. lender that certifies the interest income is effectively connected with the conduct of a U.S. trade or business ("ECI"). This is relevant for non-U.S. lenders that book the loan through a U.S. branch or that otherwise have a U.S. trade or business to which the income is attributable. No withholding applies to ECI (which is instead taxed on a net income basis), but the lender must file a U.S. federal income tax return.
Validity Period. IRS Forms W-8 are generally valid for a period beginning on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a "change in circumstances" makes any information on the form incorrect. For example, a Form W-8BEN-E signed on March 28, 2025, would generally be valid through December 31, 2028. A change in circumstances — such as a change in the lender's country of residence, FATCA classification, or treaty eligibility — requires the submission of an updated form within 30 days. The Administrative Agent must monitor form expiration dates and request renewals in advance of expiration to ensure continuous compliance.
We cross-reference the W-8/W-9 Collection Memorandum and Checklist dated March 14, 2025, currently being prepared by Sophie Tremblay under the direction of Sylvia Hartwell, which will provide a detailed checklist of tax documentation required from each identified and prospective syndicate lender, a form of cover letter for distribution to the syndicate, and tracking protocols for the Administrative Agent's use in monitoring form validity and renewal.
V. Credit Agreement Tax Provisions — Key Recommendations
The tax provisions of the credit agreement are a critical component of the overall transaction structure, as they allocate the economic risk of withholding taxes between the Borrower and the lenders. The following recommendations are based on market practice for Term Loan B credit agreements and are informed by the withholding tax analysis set forth in Sections III and IV above. Marcus Leung and Sophie Tremblay should incorporate these recommendations into the current third draft of the credit agreement, with the goal of producing an execution-ready version by March 24, 2025.
A. Withholding Tax Gross-Up Obligation
The credit agreement should include a standard Term Loan B gross-up provision obligating the Borrower to make additional payments ("gross-up payments") to each lender to ensure that each lender receives the full amount of interest and other payments it would have received in the absence of any withholding or deduction for taxes. This is a fundamental yield-protection mechanism for lenders and is market standard in virtually all institutional syndicated credit facilities.
The gross-up obligation should be subject to the following customary exceptions, under which the Borrower is not required to make additional payments:
(i) Failure to Provide Documentation. No gross-up is required with respect to taxes imposed as a result of the lender's failure to provide required tax documentation (IRS Forms W-8 or W-9, as applicable) to the Administrative Agent in accordance with the credit agreement's documentation delivery requirements. This exception ensures that the Borrower is not economically responsible for withholding that could have been avoided if the lender had complied with its documentation obligations.
(ii) Change in Lender Circumstances. No gross-up is required with respect to taxes resulting from a change in a lender's circumstances after the date such lender became a party to the credit agreement — for example, if a lender that was previously eligible for the portfolio interest exemption or treaty benefits loses such eligibility due to a change in its tax status, ownership, or organizational structure. This exception is commonly referred to as the "grandfathering" or "status change" exception and protects the Borrower from open-ended gross-up exposure arising from events outside its control.
(iii) FATCA Withholding. No gross-up is required with respect to FATCA withholding imposed as a result of the lender's failure to comply with FATCA, including failure to provide valid FATCA documentation or failure to maintain participating FFI, deemed-compliant FFI, or excepted NFFE status. This exception is market standard and reflects the principle that FATCA compliance is the lender's responsibility.
(iv) Taxes Imposed Under Section 3406. No gross-up is required with respect to backup withholding under Section 3406 of the Code imposed as a result of the lender's failure to provide a valid IRS Form W-9.
"Excluded Taxes" and "Indemnified Taxes" Definitions. The gross-up and indemnity provisions are built around two key defined terms: "Excluded Taxes" and "Indemnified Taxes." These definitions are the most heavily negotiated tax provisions in a Term Loan B credit agreement and must be drafted with precision. The "Excluded Taxes" definition should clearly carve out the following categories of taxes from the Borrower's gross-up and indemnity obligations:
• Taxes imposed on or measured by a lender's overall net income (however denominated), franchise taxes, and branch profits taxes, in each case imposed by the jurisdiction in which the lender is organized, in which its principal office is located, or in which its applicable lending office is located;
• Taxes imposed as a result of a present or former connection between the lender and the jurisdiction imposing the tax, other than a connection arising solely from the lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, the credit agreement or any other loan document;
• FATCA withholding imposed as a result of the lender's failure to comply with FATCA;
• Backup withholding imposed under Section 3406 of the Code as a result of the lender's failure to provide a valid IRS Form W-9; and
• Taxes attributable to a lender's failure to comply with the tax documentation delivery requirements of the credit agreement.
"Indemnified Taxes" should be defined as all taxes other than Excluded Taxes. This ensures that the Borrower's gross-up and indemnity obligations extend to all taxes for which the lender is not itself responsible.
Economic Risk Assessment. We note that the gross-up obligation creates a significant economic risk for Nexford if non-U.S. lenders that cannot provide valid exemption documentation (i.e., cannot claim the portfolio interest exemption or a treaty-reduced rate) enter the syndicate through the general syndication process or through subsequent assignments. In a worst-case scenario, a non-U.S. lender subject to the full 30% statutory withholding rate would require a gross-up payment of approximately 42.86% of the net interest payment (to arrive at a gross payment that, after 30% withholding, equals the originally scheduled net payment). On estimated annual interest of $117.7 million, even a small allocation to non-exempt non-U.S. lenders could result in material additional cost to the Borrower. Careful attention to the "Excluded Taxes" and "Indemnified Taxes" definitions is therefore essential to limit the Borrower's exposure.
B. Tax Documentation Requirements in the Credit Agreement
The credit agreement should include comprehensive tax documentation delivery requirements applicable to each lender and each assignee or participant. Specifically:
• Each lender must deliver, at the time it becomes a party to the credit agreement (whether as an original lender at closing or as an assignee or participant thereafter), and from time to time thereafter as reasonably requested by the Borrower or the Administrative Agent, the applicable IRS tax forms — IRS Form W-9 (for U.S. persons), IRS Form W-8BEN (for non-U.S. individuals), IRS Form W-8BEN-E (for non-U.S. entities), IRS Form W-8ECI (for lenders claiming ECI treatment), or IRS Form W-8IMY (for intermediaries and flow-through entities), in each case properly completed and duly executed by the lender.
• The Administrative Agent, Crescent Harbor Bank, N.A., is responsible for maintaining a register of all lenders under the credit agreement, together with each lender's tax documentation. This register serves the dual purpose of establishing the registered form requirement (for purposes of the portfolio interest exemption) and providing the Administrative Agent with the information necessary to determine the applicable withholding rate for each lender.
• The credit agreement should require that, as a condition to the effectiveness of any assignment or participation of commitments or loans, the assignee or participant deliver to the Administrative Agent all applicable IRS tax forms. This requirement is essential to ensure that withholding tax documentation is maintained on a current basis as the composition of the syndicate evolves over time.
• The credit agreement should include a specific "U.S. Tax Compliance Certificate" to be provided by non-U.S. lenders that are not treated as corporations for U.S. federal income tax purposes (i.e., non-U.S. partnerships or other fiscally transparent entities) and that claim the portfolio interest exemption. The U.S. Tax Compliance Certificate should certify that neither the entity nor any of its direct or indirect partners/members is a 10-percent shareholder of the Borrower or a CFC related to the Borrower.
Participant-Level Withholding. Under IRC Section 1446(f) and Treasury Regulation Section 1.1441-1(b)(2)(v), the withholding obligation may differ for participants (who hold a beneficial interest in a lender's loan through a participation agreement) as compared to direct lenders (who hold a direct lending relationship with the Borrower through an assignment). In a participation structure, the selling lender (the "grantor") receives interest payments from the Borrower (through the Administrative Agent) and makes corresponding participation payments to the participant. The withholding obligation with respect to the participation payment falls on the grantor (as the person having control, receipt, or custody of the payment), not on the Borrower or the Administrative Agent. The credit agreement should address this distinction, and the grantor should be required to collect tax documentation from its participants and comply with applicable withholding obligations.
C. Tax Indemnity
The credit agreement should include the following tax indemnity provisions:
• Borrower Indemnification for Indemnified Taxes. The Borrower should indemnify and hold harmless each lender and the Administrative Agent against all Indemnified Taxes — that is, all taxes other than Excluded Taxes — that are imposed on, or required to be withheld or deducted from, any payment made by the Borrower under the credit agreement. This indemnification covers both the tax itself and any penalties, interest, and expenses arising from the imposition of such tax.
• Lender Indemnification of Administrative Agent. Each lender should indemnify and hold harmless the Administrative Agent against any taxes that the Administrative Agent is required to pay (including penalties, interest, and expenses) on account of the lender's failure to provide proper tax documentation or on account of the lender's tax status. This provision protects the Administrative Agent from the economic consequences of withholding tax liability that is attributable to a particular lender's non-compliance.
• Refund Provisions. If the Administrative Agent or a lender determines that it has received a refund of taxes for which it has been indemnified by the Borrower (or with respect to which the Borrower has paid additional amounts by way of gross-up), such party shall promptly repay the amount of such refund (net of all out-of-pocket expenses incurred in obtaining the refund) to the Borrower. The refund obligation should be subject to the proviso that the repayment will not put the recipient in a less favorable after-tax position than it would have been in if the tax giving rise to the refund had never been imposed. This provision ensures that the Borrower receives the economic benefit of any refund or credit attributable to taxes for which it bore the cost.
D. FATCA-Specific Provisions
Given the complexity and importance of FATCA compliance in a broadly syndicated loan transaction, the credit agreement should include the following FATCA-specific provisions:
• FATCA Definition. The term "FATCA" should be defined broadly to include Sections 1471 through 1474 of the Code, any current or future Treasury Regulations or IRS guidance promulgated thereunder, any applicable Intergovernmental Agreement (including any legislation or guidance adopted by any government or taxing authority pursuant to an IGA), and any agreement with the IRS implementing the foregoing. This broad definition ensures that the credit agreement's FATCA provisions cover the full scope of the FATCA regime, including as it may be modified or supplemented over time.
• FATCA Status Certification. Each lender must certify its FATCA status at the time it becomes a party to the credit agreement and must update such certification in the event of any change. FATCA status categories include: participating FFI, registered deemed-compliant FFI, certified deemed-compliant FFI, excepted NFFE, passive NFFE (with or without substantial U.S. owners), active NFFE, and U.S. person. The credit agreement should require that this certification be delivered as part of the lender's IRS Form W-8BEN-E (for non-U.S. entities) or Form W-9 (for U.S. persons).
• FATCA Withholding and Excluded Taxes. The Borrower's obligation to withhold on payments to FATCA-non-compliant lenders should be clearly stated in the credit agreement, and such FATCA withholding should be expressly included within the "Excluded Taxes" definition. This means that the Borrower is not required to gross up payments to a lender that is subject to FATCA withholding due to its own non-compliance. This allocation is market standard and reflects the principle that FATCA compliance is the lender's obligation.
• Administrative Agent's FATCA Withholding Rights. The Administrative Agent should have the express right to withhold under FATCA from any payment to a lender if the Administrative Agent has reason to believe that FATCA withholding is required. The Administrative Agent should also have the right to request additional tax documentation from any lender if the Administrative Agent reasonably determines that such documentation is necessary to establish the lender's FATCA compliance status. The Administrative Agent should not be liable to any lender for any FATCA withholding imposed in good faith on the basis of the documentation received.
VI. Analysis of Identified Syndicate Lenders
A. U.S. Domestic Lenders — No Withholding Concerns
Based on our review of the identified syndicate lenders, the named participants in the Term Loan B syndication are predominantly domestic U.S. entities. Assuming proper IRS Form W-9 certification is obtained, interest payments to these lenders should not be subject to U.S. federal withholding tax. The following is a lender-by-lender analysis:
Crescent Harbor Bank, N.A. Crescent Harbor is a national banking association organized under the laws of the United States, with its principal office at 320 Federal Street, Boston, Massachusetts 02110. As a U.S. person, Crescent Harbor will provide IRS Form W-9. No withholding tax applies, and no FATCA issues arise. Crescent Harbor's dual role as Administrative Agent (withholding agent) and lender (final hold of $175,000,000) does not create any conflict for purposes of withholding compliance.
Ironwood Capital Markets, LLC. Ironwood is a Delaware limited liability company, headquartered at 1100 Avenue of the Americas, New York, New York 10036. As a domestic LLC treated as a U.S. person for federal income tax purposes, Ironwood will provide IRS Form W-9. Commitment: $200,000,000. No withholding issues. We note that if Ironwood is treated as a disregarded entity for federal income tax purposes (i.e., has a single member), it should provide the Form W-9 of its regarded owner; if treated as a partnership or corporation, it provides its own Form W-9. Confirmation of Ironwood's tax classification should be obtained during the documentation collection process.
Northvane Securities, Inc. Northvane is a Delaware corporation, headquartered at 200 South Wacker Drive, Chicago, Illinois 60606. As a domestic corporation and U.S. person, Northvane will provide IRS Form W-9. Commitment: $150,000,000. No withholding issues.
Ridgeline Asset Management, LP. Ridgeline is a Delaware limited partnership, headquartered at 55 East 52nd Street, New York, New York 10055. As a domestic limited partnership, Ridgeline is a U.S. person and will provide IRS Form W-9. Commitment: $125,000,000. However, we note that as a partnership, Ridgeline is a flow-through entity, and income is allocated to and taxed at the partner level. If any of Ridgeline's partners (including limited partners) are non-U.S. persons, withholding obligations may arise at the partnership level under Section 1446 of the Code (withholding on effectively connected income allocable to foreign partners). In such a case, Ridgeline might need to provide an IRS Form W-8IMY rather than a Form W-9, with underlying documentation from its non-U.S. partners. However, if Ridgeline is a domestic partnership with all U.S. partners, a Form W-9 is sufficient for purposes of the Borrower's and Administrative Agent's withholding obligations. Recommendation: Confirm with Ridgeline's counsel or tax advisors that all partners are U.S. persons. If any partner is a non-U.S. person, further analysis is required.
Halcyon Credit Partners, LLC. Halcyon is a Delaware limited liability company, headquartered at 2000 K Street NW, Washington, DC 20006. As a domestic LLC treated as a U.S. person, Halcyon will provide IRS Form W-9. Commitment: $100,000,000. No withholding issues, subject to the same tax classification confirmation noted for Ironwood above.
Verdant Institutional Investors, LP. Verdant is a Connecticut limited partnership, headquartered at One Financial Center, Hartford, Connecticut 06103. As a domestic limited partnership and U.S. person, Verdant will provide IRS Form W-9. Commitment: $100,000,000. Based on the institutional investor profile (insurance company/institutional lender structure), we note that the tax-exempt status of Verdant should be confirmed. Insurance companies are generally taxable entities subject to U.S. federal income tax under Subchapter L of the Code (Sections 801–848) and are not typically exempt from tax under Section 501(c). If Verdant is, however, a pension fund or other tax-exempt organization within the meaning of Section 501(a), the analysis may differ with respect to unrelated business taxable income ("UBTI"), but no withholding implications arise for purposes of this memorandum, as Verdant is a domestic entity.
Cascadia Loan Fund III, LP. Cascadia Loan Fund III, LP is a Delaware limited partnership, managed by Cascadia Credit Advisors, LLC, with offices in Portland, Oregon. Commitment: $75,000,000. This lender requires further diligence. Cascadia Loan Fund III is described as a CLO vehicle, and CLO structures frequently involve a foreign issuing entity — typically organized in the Cayman Islands or Ireland — that issues the rated notes and equity tranches, with a Delaware limited partnership or LLC serving as the co-issuer or warehouse vehicle. The withholding tax analysis for Cascadia depends critically on whether the entity that will be the "Lender" under the credit agreement is a domestic entity (in which case a Form W-9 is required and no withholding applies) or a foreign entity (in which case Form W-8BEN-E or W-8IMY is required, and the lender must establish eligibility for the portfolio interest exemption or treaty benefits, and must certify FATCA-compliant status).
Recommendation: Request structural details from Cascadia Credit Advisors, LLC regarding the tax classification and jurisdiction of organization of Cascadia Loan Fund III, LP, including: (a) whether the entity that will hold the loan commitment under the credit agreement is a domestic or foreign entity for U.S. federal income tax purposes; (b) whether any foreign co-issuer, noteholder, or other foreign entity has a beneficial interest in the loans; and (c) whether the CLO structure involves any intermediary or pass-through arrangement that triggers additional FATCA or Chapter 3 withholding obligations. This diligence should be completed before the March 28, 2025, closing date.
Bluewater Fixed Income Fund, LP. Bluewater is a Delaware limited partnership, headquartered at 300 Biscayne Boulevard, Miami, Florida 33131. As a domestic limited partnership and U.S. person, Bluewater will provide IRS Form W-9. Commitment: $75,000,000. The same analysis applicable to Ridgeline Asset Management regarding the potential presence of non-U.S. partners applies to Bluewater. If Bluewater has any non-U.S. limited partners, additional withholding considerations under Section 1446 may arise at the partnership level, though the Borrower's and Administrative Agent's withholding obligations are satisfied by the Form W-9 from the domestic partnership. Recommendation: Confirm with Bluewater's counsel or tax advisors that all partners are U.S. persons, or obtain further information regarding partner composition.
B. Potential Non-U.S. Lenders in General Syndication
Approximately $400,000,000 of commitments under the Term Loan B remain to be syndicated to additional institutional investors and CLO vehicles through the general syndication process, with a target completion date of March 21, 2025. This portion of the syndication presents the primary withholding tax risk, as some of the prospective lenders may be non-U.S. entities.
The following categories of non-U.S. lenders are most likely to participate in the general syndication, along with the applicable withholding tax analysis:
CLO Vehicles (Cayman Islands and Irish Issuers). CLO vehicles are among the most active participants in the institutional term loan market. Many CLO issuers are organized in the Cayman Islands or Ireland as exempted limited partnerships, exempted limited companies, or designated activity companies. These entities are FFIs for FATCA purposes and must provide IRS Form W-8BEN-E with a valid GIIN, certifying participating FFI or deemed-compliant FFI status (typically relying on the Model 1 IGA in the Cayman Islands or Ireland). For Chapter 3 purpos