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MEMORANDUM

TO: Leonard Cross, Responsible Partner, Tax; Sylvia Hartwell, Billing Partner, Tax — Calderwood & Harkness LLP

FROM: Robert Jansen, Lead Associate, Tax; Garrett Simmons, Working Associate, Tax — Calderwood & Harkness LLP

DATE: June 16, 2025

RE: IRC § 752 Liability Shifting Analysis — Solara Digital Infrastructure LP Cross-Border Fund-Platform Reorganization

ENGAGEMENT NUMBER: 20250527-SDILP-PLR

CLIENT: Solara Digital Infrastructure LP

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I. Executive Summary

This memorandum analyzes the shifts in partner-level shares of partnership liabilities that will result from the proposed five-step reorganization of the Solara Digital Infrastructure LP ("Solara" or "SDILP") fund platform. The reorganization involves the consolidation of four Legacy Offshore Vehicles — Solara Digital Partners Fund IV-A (Cayman) LP, Solara Digital Partners Fund IV-B (Luxembourg) SCSp, Solara Digital Partners Fund V-A (Cayman) LP, and Solara Digital Partners Fund V-B (Luxembourg) SCSp — into a single master-feeder platform anchored by the newly formed Solara Consolidated Master Fund LP (the "Consolidated Master Fund" or "Master Fund"). In connection with the asset contributions effectuated in Steps 2 through 4 of the reorganization, the Consolidated Master Fund will assume approximately $1.34 billion in aggregate portfolio-level liabilities currently held at the Legacy Offshore Vehicle level.

The core question addressed in this memorandum is whether the reallocation of these liabilities among the partners of the Legacy Offshore Vehicles and the partners of the Consolidated Master Fund will trigger deemed contributions of money under IRC § 752(a) or deemed distributions of money under IRC § 752(b) that would, in turn, result in gain recognition under IRC § 731(a)(1). Because the four Legacy Offshore Vehicles are each separate partnerships with separate liability pools, and because the Consolidated Master Fund will constitute a new partnership with its own liability allocation methodology, the consolidation of these liability pools will necessarily alter each partner's proportionate share of partnership liabilities. Any decrease in a partner's share of liabilities is treated under § 752(b) as a deemed distribution of money, which — if it exceeds the partner's adjusted outside basis in its partnership interest — would trigger taxable gain under § 731(a)(1).

Conclusion. Based on our analysis of the applicable statutory and regulatory framework, and in reliance on the financial data provided by Caldwell Pierce & Co. LLP and Redstone Advisory Group LLC, we conclude that the netting rules under Treasury Regulation § 1.752-1(f) allow deemed contributions and deemed distributions occurring as part of the same integrated transaction to be netted against one another. Under this netting approach, the resulting net adjustments to each partner's share of liabilities do not cause any partner to receive a net deemed distribution in excess of its outside basis in its partnership interest. Accordingly, no gain is recognized under § 731(a)(1) as a result of the liability shifts occasioned by the reorganization.

Recommendation. We recommend that the private letter ruling ("PLR") request to be submitted to the Internal Revenue Service include, as Ruling 5, a ruling that the liability shifts resulting from the reorganization do not trigger gain recognition under IRC §§ 752(a), 752(b), and 731(a)(1). The PLR request should be supported by detailed representations regarding the applicability of the netting rule under Treas. Reg. § 1.752-1(f), the characterization of the reorganization steps as a single integrated transaction, and the tiered partnership liability allocation analysis. The supporting schedules and netting calculations should be included as PLR Exhibit E. We further recommend that this analysis be presented during the pre-submission conference with IRS Chief Counsel (International), Branch 1, currently scheduled for July 22, 2025.

II. Scope and Limitations

This memorandum is limited in scope to an analysis of the United States federal income tax consequences of the liability shifts arising under IRC § 752 and related provisions in connection with the proposed reorganization of the Solara fund platform. The analysis addresses the deemed contribution and deemed distribution implications under IRC §§ 752(a) and 752(b), the application of the netting rule under Treas. Reg. § 1.752-1(f), the tiered partnership allocation rules under Treas. Reg. § 1.752-4, and the gain recognition provisions of IRC § 731(a)(1).

This memorandum does not address the following matters, which are the subject of separate memoranda prepared by this firm or by coordinating counsel:

(a) The Cayman Islands tax consequences of the liability assumptions and the reorganization generally, which are being addressed in a separate memorandum coordinated with Meridian Offshore Legal, Grand Cayman.

(b) The Luxembourg tax consequences of the liability assumptions and the dissolution of the Luxembourg SCSp vehicles, which are being addressed in a separate memorandum coordinated with Veldhuis & Gérard S.à r.l., Luxembourg City.

(c) The nonrecognition analysis under IRC § 721(a) with respect to the asset contributions in Steps 2 through 4 (addressed in the separate § 721 Contribution Nonrecognition Memorandum).

(d) The built-in gain analysis under IRC § 704(c) and the selection of the remedial allocation method under Treas. Reg. § 1.704-3(d) (addressed in the separate § 704(c) Built-In Gain Memorandum).

(e) The entity classification analysis under Treas. Reg. § 301.7701-3 for each entity involved in the reorganization (addressed in the separate Entity Classification Memorandum).

(f) The marketable securities analysis under IRC § 731(c) (addressed in the separate § 731(c) Memorandum).

(g) The credit facility consent and restructuring implications relating to the Ashford National Bank subscription credit facilities (addressed in the separate Credit Facility Implications Memorandum).

(h) The § 1446 withholding analysis for non-U.S. partners (addressed in the separate § 1446 Withholding Memorandum).

All financial data relied upon in this memorandum has been provided by Caldwell Pierce & Co. LLP (Helen Okamoto, Partner, Financial Services Tax) and Redstone Advisory Group LLC (Marco DeLuca, Managing Director) and is current as of March 31, 2025. We have not independently verified the accuracy of the financial data and have relied on the representations of Caldwell Pierce and Redstone Advisory in connection with our analysis. Any material changes to asset values, liability balances, or partnership terms subsequent to March 31, 2025, could affect the conclusions set forth herein, and this memorandum should be updated accordingly prior to the PLR submission.

This memorandum assumes that all entities identified herein are, or will be upon formation, classified as partnerships for U.S. federal income tax purposes. The basis for that assumption, including the analysis of check-the-box elections under Treas. Reg. § 301.7701-3 for the Cayman exempted limited partnerships and the Luxembourg special limited partnerships (SCSps), is set forth in the Entity Classification Memorandum and is not repeated here.

All euro-denominated amounts have been converted to U.S. dollars at a uniform EUR/USD exchange rate of 1.08, consistent with the rate applied in the financial data provided by Caldwell Pierce & Co. LLP. This rate reflects the approximate spot rate as of March 31, 2025, and is used for illustrative purposes in this memorandum. The actual exchange rate applicable at the time of each reorganization step may differ, and any material variance should be incorporated into the final PLR submission schedules.

This memorandum is not intended to constitute a formal opinion of counsel. It reflects our analysis and conclusions based on current law and the facts as represented to us. This memorandum should not be relied upon by any party other than the addressees without the express written consent of Calderwood & Harkness LLP.

III. Factual Background

A. The Existing Fund Structure

Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership organized on March 17, 2014, and registered with the Delaware Division of Corporations. As of March 31, 2025, Solara manages approximately $14.7 billion in assets under management ("AUM") across a family of parallel fund vehicles focused on digital infrastructure investments, including data centers, fiber-optic networks, cloud computing platforms, edge computing infrastructure, and software-as-a-service ("SaaS") holding companies.

Solara Digital Infrastructure GP LLC ("Solara GP"), a Delaware limited liability company classified as a disregarded entity for U.S. federal income tax purposes, serves as the general partner of SDILP. Viktor Raines, Managing Partner and Founder, serves as the manager of Solara GP and exercises ultimate investment authority over the fund platform. Solara maintains its principal offices at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801.

The Solara platform currently operates through six parallel fund vehicles organized across three jurisdictions (Delaware, the Cayman Islands, and the Grand Duchy of Luxembourg), grouped into two vintage families:

Fund IV Family (Vintage 2021). Fund IV held its final close on June 15, 2021, and as of March 31, 2025, is approximately 72% deployed. The Fund IV family consists of three parallel vehicles:

(i) Solara Digital Partners Fund IV LP (the "Fund IV LP"), a Delaware limited partnership with approximately $4.2 billion in committed capital. Employer Identification Number ("EIN"): 85-2103748. This vehicle serves as the main domestic fund for U.S. taxable investors.

(ii) Solara Digital Partners Fund IV-A (Cayman) LP ("Fund IV-A Cayman"), a Cayman Islands exempted limited partnership with approximately $1.85 billion in committed capital. EIN: 98-6241503. Registered with the Cayman Islands Monetary Authority ("CIMA") under registration number MF-72491. The general partner is Solara Offshore GP Ltd., a Cayman Islands exempted company. This vehicle accommodates U.S. tax-exempt investors seeking UBTI blocker benefits and certain non-U.S. investors.

(iii) Solara Digital Partners Fund IV-B (Luxembourg) SCSp ("Fund IV-B Luxembourg" or "Fund IV-B Lux"), a Luxembourg société en commandite spéciale with approximately €1.15 billion (equivalent to approximately $1.242 billion at the applicable exchange rate) in committed capital. EIN: 98-6241571. Registered with the Luxembourg Registre de Commerce et des Sociétés ("RCS") under number B 248193. The general partner (gérant commandité) is Solara Luxembourg Management S.à r.l., RCS B 248194. This vehicle accommodates European institutional investors.

Fund V Family (Vintage 2023). Fund V held its final close on September 30, 2023, and as of March 31, 2025, is approximately 38% deployed. The Fund V family consists of three parallel vehicles:

(i) Solara Digital Partners Fund V LP (the "Fund V LP"), a Delaware limited partnership with approximately $5.6 billion in committed capital. EIN: 88-3467219. This vehicle serves as the main domestic fund for U.S. taxable investors.

(ii) Solara Digital Partners Fund V-A (Cayman) LP ("Fund V-A Cayman"), a Cayman Islands exempted limited partnership with approximately $2.45 billion in committed capital. EIN: 98-7891234. CIMA registration number MF-89103. The general partner is Solara Offshore GP Ltd. This vehicle accommodates U.S. tax-exempt investors and certain non-U.S. investors.

(iii) Solara Digital Partners Fund V-B (Luxembourg) SCSp ("Fund V-B Luxembourg" or "Fund V-B Lux"), a Luxembourg société en commandite spéciale with approximately €1.38 billion (equivalent to approximately $1.49 billion) in committed capital. EIN: 98-7891267. RCS B 271056. The general partner is Solara Luxembourg Management S.à r.l. This vehicle accommodates European institutional investors.

The investor base is segmented by tax status and domicile, with each category directed to the parallel vehicle most appropriate for its tax profile:

U.S. Taxable Investors. U.S. taxable investors, including high-net-worth individuals, family offices, and taxable corporate investors, invest through the Delaware main funds (Fund IV LP and Fund V LP). Representative investors include Argyle Family Office Holdings LLC, which has $95 million committed to Fund IV LP and $130 million committed to Fund V LP.

U.S. Tax-Exempt Investors. U.S. tax-exempt investors — principally public pension systems, university endowments, and charitable foundations — invest through the Cayman parallel vehicles to achieve UBTI blocker benefits afforded by the Cayman entity structure. Representative investors include Pinnacle State Employees' Retirement System, with $275 million committed to Fund IV-A Cayman and $340 million committed to Fund V-A Cayman, and Grandview University Endowment, with $120 million committed to Fund IV-A Cayman and $185 million committed to Fund V-A Cayman.

Non-U.S. Investors. Non-U.S. investors — including sovereign wealth funds, foreign pension funds, and non-U.S. insurance companies — invest through either the Cayman or Luxembourg parallel vehicles depending on their domicile and applicable tax treaty considerations. Representative investors include Nordhaven Sovereign Wealth Fund, with $380 million committed to Fund IV-A Cayman and $500 million committed to Fund V-A Cayman, and Kestrel Pacific Insurance Group, with €200 million (approximately $216 million) committed to Fund IV-B Luxembourg and €275 million (approximately $297 million) committed to Fund V-B Luxembourg.

B. The Proposed Reorganization — Five-Step Transaction

The proposed reorganization consists of five integrated steps, to be executed sequentially over the period from September 15, 2025, through December 1, 2025, pursuant to a single reorganization plan (the "Reorganization Plan") approved by the Solara GP board of managers on March 14, 2025, and subsequently approved by the Limited Partner Advisory Committees ("LPACs") of each Legacy Offshore Vehicle on April 22, 2025, with an aggregate affirmative vote of 78% in interest. The Reorganization Plan has been described in detail in the separate Transaction Structure Memorandum; for purposes of this § 752 analysis, we provide the following summary of each step:

Step 1 — Formation of New Entities (Target Date: September 15, 2025). Solara will cause the formation of four new entities: (a) Solara Consolidated Master Fund GP LLC, a Delaware limited liability company to serve as the general partner of the Master Fund; (b) Solara Consolidated Master Fund LP, a Delaware limited partnership to serve as the consolidated master fund vehicle; (c) Solara International Feeder (Cayman) LP, a Cayman Islands exempted limited partnership to serve as the feeder vehicle for non-U.S. investors; and (d) Solara Tax-Exempt Feeder (Cayman) LP, a Cayman Islands exempted limited partnership to serve as the feeder vehicle for U.S. tax-exempt investors. Form 8832 check-the-box elections will be filed to confirm partnership classification for each entity for U.S. federal income tax purposes. This step does not involve any transfer of assets or liabilities and has no § 752 implications in isolation.

Step 2 — Fund IV-A (Cayman) LP Contribution (Target Date: October 1, 2025). Fund IV-A Cayman will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. The contributed assets have an aggregate fair market value of approximately $2.31 billion, an aggregate adjusted tax basis of approximately $1.62 billion, and aggregate built-in gain of approximately $690 million. In connection with this contribution, the Consolidated Master Fund will assume Fund IV-A Cayman's share of the portfolio-level liabilities associated with the contributed assets.

Step 3 — Fund IV-B (Luxembourg) SCSp Contribution (Target Date: October 15, 2025). Fund IV-B Luxembourg will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. The contributed assets have an aggregate fair market value of approximately €1.07 billion ($1.16 billion), an aggregate adjusted tax basis of approximately €782 million ($844.6 million), and aggregate built-in gain of approximately €288 million ($311 million). In connection with this contribution, the Consolidated Master Fund will assume Fund IV-B Luxembourg's share of the portfolio-level liabilities associated with the contributed assets.

Step 4 — Fund V-A (Cayman) LP and Fund V-B (Luxembourg) SCSp Contributions (Target Date: November 1, 2025). Fund V-A Cayman will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. These assets have an aggregate fair market value of approximately $2.89 billion, an aggregate adjusted tax basis of approximately $2.34 billion, and aggregate built-in gain of approximately $550 million. Simultaneously, Fund V-B Luxembourg will contribute all of its portfolio assets to the Consolidated Master Fund in exchange for a limited partnership interest. These assets have an aggregate fair market value of approximately €1.29 billion ($1.39 billion), an aggregate adjusted tax basis of approximately €1.14 billion ($1.23 billion), and aggregate built-in gain of approximately €150 million ($162 million). In connection with these contributions, the Consolidated Master Fund will assume the respective portfolio-level liabilities associated with the contributed assets.

Step 5 — Dissolution of Legacy Offshore Vehicles and LP Rollover (Target Date: December 1, 2025). Following the completion of Steps 2 through 4, each of the four Legacy Offshore Vehicles will be dissolved. Upon dissolution, the limited partnership interests in the Consolidated Master Fund received by each Legacy Offshore Vehicle in Steps 2 through 4 will be distributed to the limited partners of each dissolving vehicle. Upon receipt of Master Fund interests, non-U.S. limited partners will contribute their Master Fund interests to the Solara International Feeder (Cayman) LP in exchange for limited partnership interests in the International Feeder. U.S. tax-exempt limited partners will contribute their Master Fund interests to the Solara Tax-Exempt Feeder (Cayman) LP in exchange for limited partnership interests in the Tax-Exempt Feeder. The target effective date for completion of Step 5 is December 1, 2025.

The five steps are intended to be treated as an integrated transaction for all relevant tax purposes, including for purposes of the netting rule under Treas. Reg. § 1.752-1(f). This characterization is discussed in detail in Section VIII.A below.

C. Aggregate Liabilities Subject to the § 752 Analysis

The total aggregate liabilities being assumed by the Consolidated Master Fund LP in connection with the asset contributions in Steps 2 through 4 amount to approximately $1.34 billion. These liabilities consist of portfolio-level debt incurred at the portfolio company level or fund-level leverage directly associated with portfolio acquisitions, in each case currently allocated to the limited partners of the four Legacy Offshore Vehicles under the respective partnership agreements.

The $1.34 billion aggregate is composed of the following contributions by each Legacy Offshore Vehicle:

Fund IV-A (Cayman) LP: $487.6 million. This amount includes: (a) Fund IV-A Cayman's 60% allocable share of the liabilities of NovaBright Data Systems Inc. (approximately $198.4 million, consisting of a senior secured term loan and a revolving credit facility used to finance data center construction and expansion); (b) 100% of the liabilities of Thorngate Fiber Networks LP (approximately $174.2 million, consisting of infrastructure revenue bonds and equipment financing obligations); and (c) other Fund IV-A portfolio company debt allocable to Fund IV-A Cayman (approximately $115.0 million across four additional portfolio company investments).

Fund IV-B (Luxembourg) SCSp: $213.8 million. This amount includes: (a) 100% of the liabilities of Crestline Cloud Solutions LLC (approximately $156.3 million, consisting of a unitranche credit facility and subordinated vendor financing), which is a disregarded entity wholly owned by Fund IV-B Luxembourg; and (b) other Fund IV-B portfolio company debt allocable to Fund IV-B Luxembourg (approximately $57.5 million across two additional portfolio company investments).

Fund V-A (Cayman) LP: $468.2 million. This amount includes: (a) Fund V-A Cayman's 55% allocable share of the liabilities of Veridian Edge Computing Corp. (approximately $214.7 million, consisting of a term loan A, term loan B, and a capital lease obligation for edge computing infrastructure); (b) 100% of the liabilities of Helix SaaS Holdings Ltd. (approximately $162.8 million, consisting of an acquisition financing facility and a mezzanine tranche); and (c) other Fund V-A portfolio company debt allocable to Fund V-A Cayman (approximately $90.7 million across four additional portfolio company investments).

Fund V-B (Luxembourg) SCSp: $170.4 million. This amount includes portfolio company debt allocable to Fund V-B Luxembourg across six portfolio company investments, consisting principally of term loan facilities and vendor take-back notes incurred in connection with European digital infrastructure acquisitions.

It is important to note that the subscription revolving credit facilities — the $1.1 billion Fund IV subscription credit facility with Ashford National Bank, N.A. (Thomas Greenleaf, Managing Director, Fund Finance), and the $1.5 billion Fund V subscription revolving credit facility with Ashford National Bank, N.A. and Sentinel Capital Markets LLC (Laura Pak, Vice President) as co-lender and administrative agent — are not included in this $1.34 billion aggregate. These subscription credit facilities are fund-level obligations of the Delaware main funds (Fund IV LP and Fund V LP, respectively), which are not being reorganized as part of the current transaction. The Delaware main funds remain in place post-reorganization and continue to hold their respective subscription credit facility obligations. While lender consent to the reorganization is required under certain negative covenant provisions of the credit agreements, the § 752 analysis of the subscription credit facilities is unaffected by the reorganization because the partners of Fund IV LP and Fund V LP do not experience any shift in their respective shares of these facility obligations. The credit facility consent implications are addressed in the separate Credit Facility Implications Memorandum.

In total, there are 23 portfolio companies across all fund vehicles: 11 held by Fund IV vehicles (with allocable interests split between Fund IV LP and Fund IV-A Cayman or Fund IV-B Luxembourg, as applicable) and 12 held by Fund V vehicles (with allocable interests split between Fund V LP and Fund V-A Cayman or Fund V-B Luxembourg, as applicable). Only the liabilities attributable to the Legacy Offshore Vehicle interests in these portfolio companies are relevant to the instant analysis, as those are the liabilities being assumed by the Consolidated Master Fund.

D. Key Portfolio Company Liabilities (Representative)

To illustrate the liability allocation analysis, we describe below the five portfolio companies with the most significant liability balances being transferred to the Consolidated Master Fund:

NovaBright Data Systems Inc. NovaBright is a privately held data center operator headquartered in Ashburn, Virginia, with facilities in Northern Virginia, Dallas-Fort Worth, and Amsterdam. NovaBright is held 60% by Fund IV-A Cayman and 40% by Fund IV LP. NovaBright's total outstanding indebtedness as of March 31, 2025, is approximately $330.7 million, consisting of a $245 million senior secured term loan (maturity 2028) and an $85.7 million revolving credit facility (maturity 2027). Fund IV-A Cayman's 60% allocable share of these liabilities ($198.4 million) is included in the liabilities being assumed by the Consolidated Master Fund. Fund IV LP's 40% allocable share ($132.3 million) remains with Fund IV LP and is not part of this reorganization analysis.

Crestline Cloud Solutions LLC. Crestline is a SaaS platform operator organized as a Delaware LLC and classified as a disregarded entity for U.S. federal income tax purposes. Crestline is 100% owned by Fund IV-B Luxembourg. Crestline's total outstanding indebtedness is approximately $156.3 million, consisting of a $118 million unitranche credit facility (maturity 2029) and $38.3 million in subordinated vendor financing. The entirety of these liabilities is allocable to Fund IV-B Luxembourg and will be assumed by the Consolidated Master Fund.

Veridian Edge Computing Corp. Veridian is an edge computing infrastructure provider incorporated in Delaware, with operations in the United States, the United Kingdom, and Singapore. Veridian is held 55% by Fund V-A Cayman and 45% by Fund V LP. Veridian's total outstanding indebtedness is approximately $390.3 million, consisting of a $180 million term loan A (maturity 2030), a $145 million term loan B (maturity 2031), and $65.3 million in capital lease obligations for edge computing equipment. Fund V-A Cayman's 55% allocable share ($214.7 million) is included in the liabilities being assumed by the Consolidated Master Fund. Fund V LP's 45% allocable share ($175.6 million) remains with Fund V LP.

Thorngate Fiber Networks LP. Thorngate is a fiber-optic network operator organized as a Delaware limited partnership, with fiber routes across the Mid-Atlantic and Southeast regions. Thorngate is held 100% by Fund IV-A Cayman. Thorngate's total outstanding indebtedness is approximately $174.2 million, consisting of $112 million in infrastructure revenue bonds (maturity 2032) and $62.2 million in equipment financing obligations. The entirety of these liabilities is allocable to Fund IV-A Cayman and will be assumed by the Consolidated Master Fund.

Helix SaaS Holdings Ltd. Helix is a SaaS holding company organized under the laws of the Cayman Islands, with operating subsidiaries in the United States and Europe. Helix is held 100% by Fund V-A Cayman. Helix's total outstanding indebtedness is approximately $162.8 million, consisting of a $120 million acquisition financing facility (maturity 2031) and a $42.8 million mezzanine tranche (maturity 2032). The entirety of these liabilities is allocable to Fund V-A Cayman and will be assumed by the Consolidated Master Fund.

Together, these five portfolio companies account for approximately $906.4 million, or approximately 67.6%, of the $1.34 billion in aggregate liabilities subject to this analysis.

IV. Applicable Legal Framework

A. IRC § 752 — Treatment of Certain Liabilities

Section 752 of the Internal Revenue Code governs the treatment of partnership liabilities and their effect on the adjusted basis of partners' interests in the partnership. The foundational premise of § 752 is that a partner's share of the liabilities of a partnership is treated as part of the partner's investment in the partnership — increases in a partner's share of liabilities are treated as contributions to the partnership, while decreases are treated as distributions from the partnership. This construct ensures that a partner's outside basis reflects the partner's economic exposure to the partnership's obligations and prevents the creation of artificial losses through the leverage of partnership debt.

1. IRC § 752(a) — Increase in Partner's Share of Liabilities

Section 752(a) provides that any increase in a partner's share of the liabilities of a partnership, or any increase in a partner's individual liabilities by reason of the assumption by the partner of partnership liabilities, "shall be considered as a contribution of money by such partner to the partnership." This deemed contribution of money increases the partner's outside basis in its partnership interest under IRC § 722, which provides that the basis of a contributing partner's interest in the partnership is increased by the amount of money contributed.

In the context of the proposed reorganization, certain partners may experience increases in their shares of partnership liabilities. For example, a partner that was allocated a relatively smaller share of liabilities in a Legacy Offshore Vehicle but receives a proportionately larger share through the Consolidated Master Fund (due to changes in profits interests, guarantee structures, or the aggregation of liability pools) would be treated as making a deemed contribution under § 752(a). Such deemed contributions are favorable from the partner's perspective, as they increase outside basis without requiring any actual cash outlay, and do not trigger any adverse tax consequences.

2. IRC § 752(b) — Decrease in Partner's Share of Liabilities

Section 752(b) provides that any decrease in a partner's share of the liabilities of a partnership, or any decrease in a partner's individual liabilities by reason of the assumption by the partnership of such individual liabilities, "shall be considered as a distribution of money by the partnership to such partner." This deemed distribution of money reduces the partner's outside basis in its partnership interest under IRC § 733, which provides that basis is reduced (but not below zero) by the amount of money distributed to the partner.

The critical interaction occurs between § 752(b) and IRC § 731(a)(1). Under § 731(a)(1), gain is recognized by a partner to the extent that any money distributed to the partner exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. Because a deemed distribution of money under § 752(b) is treated as a distribution of money for purposes of § 731, any deemed distribution that exceeds the partner's outside basis would trigger taxable gain — typically characterized as gain from the sale or exchange of the partnership interest, which is generally capital gain under § 741.

This interaction between §§ 752(b) and 731(a)(1) is the central concern of this memorandum. If the reorganization causes any partner to experience a decrease in its share of partnership liabilities that, treated as a deemed distribution of money, exceeds the partner's adjusted outside basis, taxable gain would result. As developed in the analysis below, the netting rule under Treas. Reg. § 1.752-1(f) plays a critical role in mitigating this risk.

3. IRC § 752(c) — Definition of Liability

Section 752(c) provides that, for purposes of § 752, a liability to which property is subject shall, to the extent of the fair market value of such property, be treated as a liability of the owner of the property. This provision is relevant to the reorganization insofar as the portfolio assets being contributed to the Consolidated Master Fund may be subject to liabilities (e.g., nonrecourse debt secured by portfolio company assets). Upon contribution of the encumbered property to the Consolidated Master Fund, the Master Fund will be treated as the owner of such property, and the liabilities to which the property is subject will become liabilities of the Master Fund.

Section 752(c) also establishes the scope of the term "liability" for § 752 purposes. While the Code does not provide an exhaustive definition, the regulations and case law have interpreted the term broadly to encompass recourse liabilities, nonrecourse liabilities, and certain contingent and assumed liabilities, subject to the special rules of Treas. Reg. § 1.752-7 for contingent liabilities (discussed in Section XI.C below).

B. Treasury Regulation § 1.752-1 — General Rules

1. Treas. Reg. § 1.752-1(a) — Classification of Liabilities

Treasury Regulation § 1.752-1(a) establishes the fundamental classification of partnership liabilities into two categories: recourse liabilities and nonrecourse liabilities. This classification drives the methodology for determining each partner's share of such liabilities.

Under Treas. Reg. § 1.752-1(a)(1), a partnership liability is a recourse liability to the extent that any partner or related person bears the economic risk of loss for that liability under Treas. Reg. § 1.752-2. The economic risk of loss analysis requires a determination of which partners (or related persons) would bear the ultimate economic burden if the partnership were unable to satisfy its obligations. This determination is made under a constructive liquidation scenario prescribed by Treas. Reg. § 1.752-2(b), in which all of the partnership's assets are assumed to become worthless, all liabilities are assumed to become due, the partnership is assumed to dispose of its assets for nothing, and partners are assumed to satisfy their obligations (including guarantees, indemnities, and deficit restoration obligations) in accordance with the partnership agreement and applicable law.

Under Treas. Reg. § 1.752-1(a)(2), a partnership liability is a nonrecourse liability to the extent that no partner or related person bears the economic risk of loss for that liability. In the private equity fund context, many portfolio-level liabilities are nonrecourse in nature, as they are secured only by the assets of the portfolio companies and no fund-level partner has guaranteed or otherwise assumed economic risk of loss for such liabilities.

The determination of each partner's share of recourse liabilities is governed by Treas. Reg. § 1.752-2 (economic risk of loss analysis), while the determination of each partner's share of nonrecourse liabilities is governed by Treas. Reg. § 1.752-3, which employs a three-tier allocation methodology based on partnership minimum gain, § 704(c) minimum gain, and profits interests.

2. Treas. Reg. § 1.752-1(f) — Netting Rule

Treasury Regulation § 1.752-1(f) is the critical provision for this analysis and merits detailed discussion.

Treas. Reg. § 1.752-1(f) provides as follows:

"If, as the result of a single transaction, a partner incurs both an increase and a decrease in the partner's share of the liabilities of a partnership (or patnerships [sic]), only the net increase or decrease shall be taken into account in applying section 752."

The netting rule recognizes that, in the context of complex transactions involving partnerships — particularly reorganizations, mergers, divisions, and tiered partnership restructurings — a partner may simultaneously experience both increases and decreases in its share of partnership liabilities. Without the netting rule, a partner could be treated as receiving a deemed distribution under § 752(b) and making a separate deemed contribution under § 752(a) in the same transaction, potentially triggering gain under § 731(a)(1) on the deemed distribution even though the partner's net economic position has not meaningfully changed (or has actually improved due to a simultaneous deemed contribution).

The netting rule prevents this potentially anomalous result by requiring that only the net increase or decrease in a partner's share of liabilities be treated as a contribution or distribution of money. If the partner's net change is an increase, only the net increase is treated as a deemed contribution under § 752(a). If the partner's net change is a decrease, only the net decrease is treated as a deemed distribution under § 752(b). The net decrease is then compared to the partner's outside basis to determine whether gain is recognized under § 731(a)(1).

Application to multi-step reorganizations. The netting rule is particularly significant in multi-step transactions such as the proposed reorganization. Here, the contributions in Steps 2 through 4 and the dissolution and roll-over in Step 5 are executed as sequential steps of a single integrated transaction. As a result of the contributions, each partner of a contributing Legacy Offshore Vehicle will experience a change in its share of liabilities: the partner will cease to bear liabilities of the Legacy Offshore Vehicle (as that vehicle contributes its assets and associated liabilities to the Master Fund) and will begin to bear liabilities of the Consolidated Master Fund (through its direct or indirect interest in the Master Fund). These changes — the decrease in Legacy Offshore Vehicle liabilities and the corresponding increase in Master Fund liabilities — occur as part of the same integrated transaction and are subject to netting under § 1.752-1(f).

What constitutes the "same transaction." The regulation does not define "single transaction" with precision. However, the legislative history and IRS guidance support a facts-and-circumstances approach in which steps that are undertaken pursuant to a single plan, are mutually interdependent, and are not meaningfully independent of one another may be treated as a single transaction for netting purposes. In the present case, the five reorganization steps were authorized under a single Reorganization Plan, approved by the GP board on March 14, 2025, and by the LPAC on April 22, 2025. Each step is expressly conditioned on the completion of the preceding steps, and no step has independent economic significance apart from the integrated reorganization. The compressed timeline (September 15 through December 1, 2025) further supports treatment of the steps as a single transaction. We discuss this issue in greater detail in Section VIII.A below.

3. Treas. Reg. § 1.752-1(e) — Assumption of Partner's Liability

Treasury Regulation § 1.752-1(e) provides that if a partnership assumes a liability of a partner (other than a § 1.752-7 liability), the partnership is treated as having satisfied the liability, resulting in a deemed distribution of money to the contributing partner under § 752(b). This provision is relevant in the reorganization because each Legacy Offshore Vehicle's portfolio-level liabilities are being assumed by the Consolidated Master Fund in connection with the asset contributions. From the perspective of the Legacy Offshore Vehicles' partners, the relief from their proportionate shares of the Legacy Offshore Vehicle's liabilities is treated as a deemed distribution under § 752(b).

However, simultaneously, those same partners (through their direct or indirect interests in the Consolidated Master Fund post-contribution) will be allocated shares of the Master Fund's liabilities, resulting in a deemed contribution under § 752(a). It is the interaction of these two effects — and their netting under § 1.752-1(f) — that drives the analysis in this memorandum.

C. Tiered Partnership Rules

1. Treas. Reg. § 1.752-4 — Special Rules for Tiered Partnerships

Following the completion of the reorganization, the Solara fund platform will operate through a tiered partnership structure. The Consolidated Master Fund LP will serve as the lower-tier partnership, holding all portfolio assets and their associated liabilities. The International Feeder (Cayman) LP and the Tax-Exempt Feeder (Cayman) LP will serve as upper-tier partnerships, holding limited partnership interests in the Master Fund.

Treasury Regulation § 1.752-4 governs the allocation of liabilities in tiered partnership structures. Under these rules, an upper-tier partnership's share of the liabilities of a lower-tier partnership is determined under the general principles of §§ 1.752-2 and 1.752-3, treating the upper-tier partnership as a partner of the lower-tier partnership. Each upper-tier partnership's share of lower-tier liabilities is then treated as a liability of the upper-tier partnership for purposes of applying § 752 at the upper-tier level — that is, each upper-tier partnership allocates its share of lower-tier liabilities to its own partners under the general § 752 allocation principles.

The look-through analysis creates a multi-tier allocation chain: portfolio company liabilities are first attributed to the Consolidated Master Fund LP under § 752 principles; the Master Fund's liabilities are then allocated among its partners (including the feeder LPs) under §§ 1.752-2 and 1.752-3; each feeder LP's share of Master Fund liabilities becomes a liability of the feeder LP; and the feeder LP's liabilities are then allocated to the feeder LP's individual limited partners. The end result is that each individual limited partner bears an allocable share of the $1.34 billion in aggregate liabilities, determined through the tiered look-through analysis.

This multi-tier allocation is critical to the § 752 analysis because the post-reorganization liability shares of individual limited partners will depend not only on the Master Fund's liability allocation provisions but also on the feeder LP's allocation provisions and the relative interests of the individual limited partners within each feeder. The tiered analysis is developed in Section IX below.

2. Anti-Abuse Rule under Treas. Reg. § 1.752-2(j)

Treasury Regulation § 1.752-2(j) provides an anti-abuse rule for recourse liabilities, under which an obligation of a partner or related person to make a payment may be disregarded if the facts and circumstances indicate that a principal purpose of the arrangement is to eliminate the partner's economic risk of loss or to create the appearance of economic risk of loss where none exists. This rule is designed to prevent partners from manipulating the § 752 allocation through sham guarantees, circular indemnification arrangements, or other devices intended to shift liabilities artificially among partners.

We have reviewed the guarantee and indemnification arrangements of the Consolidated Master Fund GP LLC and the feeder LP general partners and have determined that all such arrangements reflect bona fide commercial obligations undertaken in the ordinary course of the fund's operations. The recourse liability allocations in the Consolidated Master Fund are based on genuine guarantee obligations of Solara Consolidated Master Fund GP LLC, consistent with market-standard private equity fund structures. There is no indication of any arrangement designed to create the appearance of economic risk of loss where none exists, and the anti-abuse rule under § 1.752-2(j) does not apply to disregard any partner's obligations.

D. IRC § 731 — Gain Recognition on Distributions

Section 731(a)(1) provides that, in the case of a distribution by a partnership to a partner, gain shall not be recognized to the partner except to the extent that any money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. As noted above, deemed distributions under § 752(b) are treated as distributions of money for § 731 purposes. Accordingly, the threshold question in this analysis is whether, after application of the netting rule under Treas. Reg. § 1.752-1(f), any partner has a net deemed distribution (representing a net decrease in its share of partnership liabilities) that exceeds the partner's adjusted outside basis in its partnership interest.

If the answer is no — as we conclude below — then no gain is recognized under § 731(a)(1), and the liability shifts resulting from the reorganization are fully nonrecognition events.

It bears emphasis that § 731(a)(1) applies on a partner-by-partner basis. Even if the aggregate liability pool remains constant at $1.34 billion, individual partners may experience increases or decreases in their respective shares. The analysis must be conducted at the individual partner level to confirm that no partner is adversely affected.

E. Interaction with Other Provisions

The § 752 analysis interacts with several other Code provisions that are addressed in separate memoranda prepared in connection with this engagement:

IRC § 721(a) — Nonrecognition on Contributions. Section 721(a) provides the general rule of nonrecognition on the contribution of property to a partnership in exchange for a partnership interest. The asset contributions in Steps 2 through 4 are intended to qualify for nonrecognition under § 721(a). However, § 721(a) nonrecognition can be overridden if the liability assumptions in connection with the contribution trigger gain under §§ 752(b) and 731(a)(1). The analysis in this memorandum is therefore directly relevant to preserving § 721(a) nonrecognition for the contribution transactions. The § 721(a) analysis is addressed in the separate § 721 Contribution Nonrecognition Memorandum.

IRC § 704(c) — Built-In Gain Accounts. The aggregate built-in gain of approximately $1.72 billion ($7.75 billion fair market value minus $6.03 billion aggregate adjusted tax basis) across all contributed assets carries over to the Consolidated Master Fund under § 704(c). The § 704(c) minimum gain allocations affect the allocation of nonrecourse liabilities under the second tier of the three-tier allocation methodology prescribed by Treas. Reg. § 1.752-3. The § 704(c) analysis, including the selection of the remedial allocation method under Treas. Reg. § 1.704-3(d), is addressed in the separate § 704(c) Built-In Gain Memorandum and is cross-referenced in Section X below.

IRC § 731(c) — Marketable Securities. To the extent that any distributed partnership interests may be treated as marketable securities under § 731(c), the distribution of Master Fund interests to limited partners in Step 5 could potentially be subject to gain recognition. This issue is analyzed in the separate § 731(c) Memorandum and does not directly affect the § 752 liability shifting analysis.

V. Pre-Reorganization Liability Allocation Analysis

A. Overview of Pre-Reorganization Liability Shares

Prior to the reorganization, the $1.34 billion in aggregate portfolio-level liabilities is held across four separate partnerships — Fund IV-A Cayman, Fund IV-B Luxembourg, Fund V-A Cayman, and Fund V-B Luxembourg — each of which is a separate partnership for U.S. federal income tax purposes with its own partnership agreement and its own liability allocation methodology. Each Legacy Offshore Vehicle allocates its liabilities to its own partners under the general principles of IRC § 752 and the applicable treasury regulations.

Because each Legacy Offshore Vehicle is a separate partnership, each partner's pre-reorganization share of liabilities is determined independently within each vehicle. A limited partner that holds interests in more than one Legacy Offshore Vehicle (e.g., Nordhaven Sovereign Wealth Fund, which holds interests in both Fund IV-A Cayman and Fund V-A Cayman) will have separate liability shares in each vehicle, which must be aggregated for purposes of the pre-reorganization baseline.

B. Fund IV-A (Cayman) LP — Pre-Reorganization

Fund IV-A Cayman holds total portfolio-level liabilities of $487.6 million, as described in Section III.C above. These liabilities are classified as follows:

Recourse Liabilities: $42.3 million. A portion of the Fund IV-A Cayman portfolio-level debt is classified as recourse liabilities under Treas. Reg. § 1.752-1(a)(1), based on the guarantee obligations of Solara Offshore GP Ltd. (the general partner of Fund IV-A Cayman) under the applicable credit agreements. Solara Offshore GP Ltd. has provided limited guarantees with respect to certain senior secured facilities, creating economic risk of loss under the constructive liquidation analysis of Treas. Reg. § 1.752-2(b). Under Treas. Reg. § 1.752-2, these recourse liabilities are allocated entirely to Solara Offshore GP Ltd. as the partner bearing the economic risk of loss. No limited partner of Fund IV-A Cayman bears economic risk of loss for these recourse liabilities.

Nonrecourse Liabilities: $445.3 million. The remaining portfolio-level debt is classified as nonrecourse liabilities under Treas. Reg. § 1.752-1(a)(2), as no partner or related person bears economic risk of loss. These nonrecourse liabilities are allocated to the partners of Fund IV-A Cayman under the three-tier allocation methodology of Treas. Reg. § 1.752-3:

First Tier — Partnership Minimum Gain: $87.6 million of nonrecourse liabilities is allocated based on partners' shares of partnership minimum gain under § 704(b). This amount is allocated proportionately to all partners based on their shares of partnership minimum gain as reflected in the capital account maintenance provisions of the Fund IV-A Cayman partnership agreement.

Second Tier — § 704(c) Minimum Gain: $63.4 million of nonrecourse liabilities is allocated based on § 704(c) minimum gain attributable to the contributed assets. This amount is allocated to the contributing partners whose assets gave rise to the § 704(c) built-in gain accounts.

Third Tier — Profit Interests: The remaining $294.3 million of nonrecourse liabilities (excess nonrecourse liabilities) is allocated based on partners' shares of partnership profits as determined under the Fund IV-A Cayman partnership agreement.

The following table summarizes the pre-reorganization liability allocation for the most significant limited partners of Fund IV-A Cayman:

C. Fund IV-B (Luxembourg) SCSp — Pre-Reorganization

Fund IV-B Luxembourg holds total portfolio-level liabilities of $213.8 million. Under the Luxembourg SCSp structure, Solara Luxembourg Management S.à r.l. serves as the general partner (gérant commandité). For U.S. federal income tax purposes, Fund IV-B Luxembourg is classified as a partnership under the check-the-box election analysis in the Entity Classification Memorandum, and § 752 allocation principles apply.

The liability classification is as follows:

Recourse Liabilities: $18.7 million. These recourse liabilities are allocable to Solara Luxembourg Management S.à r.l. as the partner bearing economic risk of loss through guarantee obligations under Luxembourg law and the applicable credit documentation.

Nonrecourse Liabilities: $195.1 million. These nonrecourse liabilities are allocated under the three-tier methodology of Treas. Reg. § 1.752-3, with the third-tier excess nonrecourse liabilities allocated based on profit shares under the Fund IV-B Luxembourg partnership agreement.

The following table summarizes the pre-reorganization liability allocation for the most significant limited partners of Fund IV-B Luxembourg:

D. Fund V-A (Cayman) LP — Pre-Reorganization

Fund V-A Cayman holds total portfolio-level liabilities of $468.2 million. The liability classification is as follows:

Recourse Liabilities: $38.9 million. Allocated to Solara Offshore GP Ltd. based on guarantee obligations.

Nonrecourse Liabilities: $429.3 million. Allocated under the three-tier methodology of Treas. Reg. § 1.752-3, based on partnership minimum gain, § 704(c) minimum gain, and profit interests.

E. Fund V-B (Luxembourg) SCSp — Pre-Reorganization

Fund V-B Luxembourg holds total portfolio-level liabilities of $170.4 million. The liability classification is as follows:

Recourse Liabilities: $14.8 million. Allocated to Solara Luxembourg Management S.à r.l. based on guarantee obligations.

Nonrecourse Liabilities: $155.6 million. Allocated under the three-tier methodology of Treas. Reg. § 1.752-3.

F. Summary Table — Pre-Reorganization Liability Shares

The following table consolidates each identified limited partner's aggregate share of liabilities across all four Legacy Offshore Vehicles in which it participates, prior to the reorganization:

VI. Post-Reorganization Liability Allocation Analysis

A. Overview of Post-Reorganization Structure

Upon completion of Steps 2 through 5 of the reorganization, all $1.34 billion in aggregate portfolio-level liabilities will be liabilities of a single partnership — the Consolidated Master Fund LP. The aggregate amount of liabilities does not change as a result of the reorganization; only the partnership in which those liabilities are held, and the allocation of those liabilities among partners, will change.

The partner composition of the Consolidated Master Fund LP will evolve during the reorganization. During the interim period between the contributions (Steps 2–4) and the dissolution of the Legacy Offshore Vehicles (Step 5), the partners of the Master Fund will include Solara Consolidated Master Fund GP LLC (as general partner) and the four Legacy Offshore Vehicles (as limited partners, having received limited partnership interests in the Master Fund in exchange for their contributed assets). Upon completion of Step 5 — the dissolution of the Legacy Offshore Vehicles and the rollover of interests — the partners of the Master Fund will be:

(a) Solara Consolidated Master Fund GP LLC — the general partner, holding a 1.0% interest.

(b) Solara International Feeder (Cayman) LP — the feeder vehicle for non-U.S. investors, including Nordhaven Sovereign Wealth Fund, Kestrel Pacific Insurance Group, and other non-U.S. limited partners. This feeder will hold an approximately 52.3% interest in the Master Fund, based on the aggregate capital commitments of non-U.S. investors across all Legacy Offshore Vehicles.

(c) Solara Tax-Exempt Feeder (Cayman) LP — the feeder vehicle for U.S. tax-exempt investors, including Pinnacle State Employees' Retirement System, Grandview University Endowment, and other tax-exempt limited partners. This feeder will hold an approximately 22.1% interest in the Master Fund, based on the aggregate capital commitments of U.S. tax-exempt investors.

(d) Direct LP interests — Certain limited partners that do not participate through either feeder may hold direct interests in the Master Fund. For purposes of this analysis, we assume that all limited partners of the Legacy Offshore Vehicles will participate through one of the two feeders based on their investor category, and that no Legacy Offshore Vehicle limited partner will hold a direct interest in the Master Fund post-reorganization (other than through a feeder).

(e) Residual interests — approximately 24.6% of the Master Fund will be allocated to interests held, directly or indirectly, by or on behalf of the U.S. taxable investors who invest through the Delaware main funds (Fund IV LP and Fund V LP). However, as noted above, the Delaware main funds are not participating in this reorganization, and their interests in the Master Fund arise only to the extent that the Delaware main funds' co-investments with the Legacy Offshore Vehicles in the same portfolio companies result in the Delaware main funds holding separate interests in the Consolidated Master Fund or through side-by-side arrangements. For purposes of this memorandum, this 24.6% represents interests held by or on behalf of the non-reorganizing vehicles and is not further analyzed.

The key structural change from the perspective of § 752 is the consolidation of four separate liability pools (each with its own allocation methodology) into a single liability pool (allocated under the Master Fund's partnership agreement) accessed through a tiered structure (with the feeder LPs as intermediaries). This consolidation creates the potential for liability shifts among individual limited partners.

B. Classification of Liabilities in the Consolidated Master Fund

The $1.34 billion in aggregate liabilities assumed by the Consolidated Master Fund must be reclassified as either recourse or nonrecourse liabilities of the Master Fund, based on the Master Fund's own partnership terms and the economic risk of loss borne by its partners.

Recourse Liabilities. Solara Consolidated Master Fund GP LLC, as the general partner of the Master Fund, will provide certain limited guarantees with respect to portfolio-level obligations, consistent with market-standard private equity fund structures. Based on the representations of counsel to Solara GP, the aggregate amount of recourse liabilities of the Master Fund (i.e., liabilities for which Solara Consolidated Master Fund GP LLC bears economic risk of loss under Treas. Reg. § 1.752-2) is estimated at approximately $97.4 million. This amount represents approximately 7.3% of total Master Fund liabilities and is allocated entirely to Solara Consolidated Master Fund GP LLC under Treas. Reg. § 1.752-2.

We note that the pre-reorganization aggregate recourse liabilities across all four Legacy Offshore Vehicles totaled $114.7 million (allocated between Solara Offshore GP Ltd. and Solara Luxembourg Management S.à r.l.). The reduction in aggregate recourse liabilities from $114.7 million to $97.4 million reflects the consolidation of certain overlapping guarantee obligations and the restructuring of credit documentation in connection with the reorganization. The net effect is that recourse liabilities previously allocated to two separate general partners (Solara Offshore GP Ltd. and Solara Luxembourg Management S.à r.l.) will now be allocated to a single general partner (Solara Consolidated Master Fund GP LLC).

Nonrecourse Liabilities. The remaining $1,242.6 million in Master Fund liabilities (approximately 92.7% of total) is classified as nonrecourse liabilities. These liabilities are allocated to the Master Fund's partners under the three-tier allocation methodology of Treas. Reg. § 1.752-3:

First Tier — Partnership Minimum Gain (§ 704(b)): Approximately $218.4 million of nonrecourse liabilities is allocated based on partners' shares of partnership minimum gain as determined under § 704(b). This amount is allocated proportionately to all partners based on their respective shares of minimum gain, as determined under the capital account maintenance and minimum gain provisions of the Master Fund partnership agreement.

Second Tier — § 704(c) Minimum Gain: Approximately $187.5 million of nonrecourse liabilities is allocated based on § 704(c) minimum gain attributable to contributed assets. Under Treas. Reg. § 1.752-3(a)(2), each partner's share of the Master Fund's nonrecourse liabilities includes the partner's share of "§ 704(c) minimum gain" — that is, the amount of gain that would be allocated to the partner under § 704(c) if the Master Fund disposed of the property subject to the nonrecourse liability in a taxable transaction in full satisfaction of the liability and for no other consideration. This tier is particularly significant in the present case, given the $1.72 billion in aggregate built-in gain carried over to the Master Fund under § 704(c). The § 704(c) minimum gain allocation causes a disproportionate share of nonrecourse liabilities to be allocated to the partners (or their successors) that contributed the appreciated assets, reflecting their built-in gain exposure.

Third Tier — Profit Interests (Excess Nonrecourse Liabilities): The remaining approximately $836.7 million in nonrecourse liabilities (excess nonrecourse liabilities) is allocated based on partners' shares of Master Fund profits. Under the Master Fund partnership agreement, profit shares are determined based on each partner's proportionate capital commitment, subject to adjustments for carried interest allocations to the general partner.

C. Allocation to Feeder Partnerships (Tiered Partnership Rules)

Under Treas. Reg. § 1.752-4, each feeder LP's share of the Consolidated Master Fund's liabilities is determined by treating the feeder LP as a partner of the Master Fund and applying the general § 752 allocation principles. Each feeder LP's share of Master Fund liabilities then becomes a liability of the feeder LP, which must in turn be allocated to the feeder LP's own partners.

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum was prepared by Calderwood & Harkness LLP for the exclusive use of the client identified herein. It contains privileged attorney-client communications and attorney work product. Any disclosure, distribution, or copying of this memorandum or its contents without the express written consent of Calderwood & Harkness LLP is strictly prohibited.
MEMORANDUM
TO: Leonard Cross, Responsible Partner, Tax; Sylvia Hartwell, Billing Partner, Tax — Calderwood & Harkness LLP
FROM: Robert Jansen, Lead Associate, Tax; Garrett Simmons, Working Associate, Tax — Calderwood & Harkness LLP
DATE: June 16, 2025
RE: IRC § 752 Liability Shifting Analysis — Solara Digital Infrastructure LP Cross-Border Fund-Platform Reorganization
ENGAGEMENT NUMBER: 20250527-SDILP-PLR
CLIENT: Solara Digital Infrastructure LP
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I. Executive Summary
This memorandum analyzes the shifts in partner-level shares of partnership liabilities that will result from the proposed five-step reorganization of the Solara Digital Infrastructure LP ("Solara" or "SDILP") fund platform. The reorganization involves the consolidation of four Legacy Offshore Vehicles — Solara Digital Partners Fund IV-A (Cayman) LP, Solara Digital Partners Fund IV-B (Luxembourg) SCSp, Solara Digital Partners Fund V-A (Cayman) LP, and Solara Digital Partners Fund V-B (Luxembourg) SCSp — into a single master-feeder platform anchored by the newly formed Solara Consolidated Master Fund LP (the "Consolidated Master Fund" or "Master Fund"). In connection with the asset contributions effectuated in Steps 2 through 4 of the reorganization, the Consolidated Master Fund will assume approximately $1.34 billion in aggregate portfolio-level liabilities currently held at the Legacy Offshore Vehicle level.
The core question addressed in this memorandum is whether the reallocation of these liabilities among the partners of the Legacy Offshore Vehicles and the partners of the Consolidated Master Fund will trigger deemed contributions of money under IRC § 752(a) or deemed distributions of money under IRC § 752(b) that would, in turn, result in gain recognition under IRC § 731(a)(1). Because the four Legacy Offshore Vehicles are each separate partnerships with separate liability pools, and because the Consolidated Master Fund will constitute a new partnership with its own liability allocation methodology, the consolidation of these liability pools will necessarily alter each partner's proportionate share of partnership liabilities. Any decrease in a partner's share of liabilities is treated under § 752(b) as a deemed distribution of money, which — if it exceeds the partner's adjusted outside basis in its partnership interest — would trigger taxable gain under § 731(a)(1).
Conclusion. Based on our analysis of the applicable statutory and regulatory framework, and in reliance on the financial data provided by Caldwell Pierce & Co. LLP and Redstone Advisory Group LLC, we conclude that the netting rules under Treasury Regulation § 1.752-1(f) allow deemed contributions and deemed distributions occurring as part of the same integrated transaction to be netted against one another. Under this netting approach, the resulting net adjustments to each partner's share of liabilities do not cause any partner to receive a net deemed distribution in excess of its outside basis in its partnership interest. Accordingly, no gain is recognized under § 731(a)(1) as a result of the liability shifts occasioned by the reorganization.
Recommendation. We recommend that the private letter ruling ("PLR") request to be submitted to the Internal Revenue Service include, as Ruling 5, a ruling that the liability shifts resulting from the reorganization do not trigger gain recognition under IRC §§ 752(a), 752(b), and 731(a)(1). The PLR request should be supported by detailed representations regarding the applicability of the netting rule under Treas. Reg. § 1.752-1(f), the characterization of the reorganization steps as a single integrated transaction, and the tiered partnership liability allocation analysis. The supporting schedules and netting calculations should be included as PLR Exhibit E. We further recommend that this analysis be presented during the pre-submission conference with IRS Chief Counsel (International), Branch 1, currently scheduled for July 22, 2025.
II. Scope and Limitations
This memorandum is limited in scope to an analysis of the United States federal income tax consequences of the liability shifts arising under IRC § 752 and related provisions in connection with the proposed reorganization of the Solara fund platform. The analysis addresses the deemed contribution and deemed distribution implications under IRC §§ 752(a) and 752(b), the application of the netting rule under Treas. Reg. § 1.752-1(f), the tiered partnership allocation rules under Treas. Reg. § 1.752-4, and the gain recognition provisions of IRC § 731(a)(1).
This memorandum does not address the following matters, which are the subject of separate memoranda prepared by this firm or by coordinating counsel:
(a) The Cayman Islands tax consequences of the liability assumptions and the reorganization generally, which are being addressed in a separate memorandum coordinated with Meridian Offshore Legal, Grand Cayman.
(b) The Luxembourg tax consequences of the liability assumptions and the dissolution of the Luxembourg SCSp vehicles, which are being addressed in a separate memorandum coordinated with Veldhuis & Gérard S.à r.l., Luxembourg City.
(c) The nonrecognition analysis under IRC § 721(a) with respect to the asset contributions in Steps 2 through 4 (addressed in the separate § 721 Contribution Nonrecognition Memorandum).
(d) The built-in gain analysis under IRC § 704(c) and the selection of the remedial allocation method under Treas. Reg. § 1.704-3(d) (addressed in the separate § 704(c) Built-In Gain Memorandum).
(e) The entity classification analysis under Treas. Reg. § 301.7701-3 for each entity involved in the reorganization (addressed in the separate Entity Classification Memorandum).
(f) The marketable securities analysis under IRC § 731(c) (addressed in the separate § 731(c) Memorandum).
(g) The credit facility consent and restructuring implications relating to the Ashford National Bank subscription credit facilities (addressed in the separate Credit Facility Implications Memorandum).
(h) The § 1446 withholding analysis for non-U.S. partners (addressed in the separate § 1446 Withholding Memorandum).
All financial data relied upon in this memorandum has been provided by Caldwell Pierce & Co. LLP (Helen Okamoto, Partner, Financial Services Tax) and Redstone Advisory Group LLC (Marco DeLuca, Managing Director) and is current as of March 31, 2025. We have not independently verified the accuracy of the financial data and have relied on the representations of Caldwell Pierce and Redstone Advisory in connection with our analysis. Any material changes to asset values, liability balances, or partnership terms subsequent to March 31, 2025, could affect the conclusions set forth herein, and this memorandum should be updated accordingly prior to the PLR submission.
This memorandum assumes that all entities identified herein are, or will be upon formation, classified as partnerships for U.S. federal income tax purposes. The basis for that assumption, including the analysis of check-the-box elections under Treas. Reg. § 301.7701-3 for the Cayman exempted limited partnerships and the Luxembourg special limited partnerships (SCSps), is set forth in the Entity Classification Memorandum and is not repeated here.
All euro-denominated amounts have been converted to U.S. dollars at a uniform EUR/USD exchange rate of 1.08, consistent with the rate applied in the financial data provided by Caldwell Pierce & Co. LLP. This rate reflects the approximate spot rate as of March 31, 2025, and is used for illustrative purposes in this memorandum. The actual exchange rate applicable at the time of each reorganization step may differ, and any material variance should be incorporated into the final PLR submission schedules.
This memorandum is not intended to constitute a formal opinion of counsel. It reflects our analysis and conclusions based on current law and the facts as represented to us. This memorandum should not be relied upon by any party other than the addressees without the express written consent of Calderwood & Harkness LLP.
III. Factual Background
A. The Existing Fund Structure
Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership organized on March 17, 2014, and registered with the Delaware Division of Corporations. As of March 31, 2025, Solara manages approximately $14.7 billion in assets under management ("AUM") across a family of parallel fund vehicles focused on digital infrastructure investments, including data centers, fiber-optic networks, cloud computing platforms, edge computing infrastructure, and software-as-a-service ("SaaS") holding companies.
Solara Digital Infrastructure GP LLC ("Solara GP"), a Delaware limited liability company classified as a disregarded entity for U.S. federal income tax purposes, serves as the general partner of SDILP. Viktor Raines, Managing Partner and Founder, serves as the manager of Solara GP and exercises ultimate investment authority over the fund platform. Solara maintains its principal offices at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801.
The Solara platform currently operates through six parallel fund vehicles organized across three jurisdictions (Delaware, the Cayman Islands, and the Grand Duchy of Luxembourg), grouped into two vintage families:
Fund IV Family (Vintage 2021). Fund IV held its final close on June 15, 2021, and as of March 31, 2025, is approximately 72% deployed. The Fund IV family consists of three parallel vehicles:
(i) Solara Digital Partners Fund IV LP (the "Fund IV LP"), a Delaware limited partnership with approximately $4.2 billion in committed capital. Employer Identification Number ("EIN"): 85-2103748. This vehicle serves as the main domestic fund for U.S. taxable investors.
(ii) Solara Digital Partners Fund IV-A (Cayman) LP ("Fund IV-A Cayman"), a Cayman Islands exempted limited partnership with approximately $1.85 billion in committed capital. EIN: 98-6241503. Registered with the Cayman Islands Monetary Authority ("CIMA") under registration number MF-72491. The general partner is Solara Offshore GP Ltd., a Cayman Islands exempted company. This vehicle accommodates U.S. tax-exempt investors seeking UBTI blocker benefits and certain non-U.S. investors.
(iii) Solara Digital Partners Fund IV-B (Luxembourg) SCSp ("Fund IV-B Luxembourg" or "Fund IV-B Lux"), a Luxembourg société en commandite spéciale with approximately €1.15 billion (equivalent to approximately $1.242 billion at the applicable exchange rate) in committed capital. EIN: 98-6241571. Registered with the Luxembourg Registre de Commerce et des Sociétés ("RCS") under number B 248193. The general partner (gérant commandité) is Solara Luxembourg Management S.à r.l., RCS B 248194. This vehicle accommodates European institutional investors.
Fund V Family (Vintage 2023). Fund V held its final close on September 30, 2023, and as of March 31, 2025, is approximately 38% deployed. The Fund V family consists of three parallel vehicles:
(i) Solara Digital Partners Fund V LP (the "Fund V LP"), a Delaware limited partnership with approximately $5.6 billion in committed capital. EIN: 88-3467219. This vehicle serves as the main domestic fund for U.S. taxable investors.
(ii) Solara Digital Partners Fund V-A (Cayman) LP ("Fund V-A Cayman"), a Cayman Islands exempted limited partnership with approximately $2.45 billion in committed capital. EIN: 98-7891234. CIMA registration number MF-89103. The general partner is Solara Offshore GP Ltd. This vehicle accommodates U.S. tax-exempt investors and certain non-U.S. investors.
(iii) Solara Digital Partners Fund V-B (Luxembourg) SCSp ("Fund V-B Luxembourg" or "Fund V-B Lux"), a Luxembourg société en commandite spéciale with approximately €1.38 billion (equivalent to approximately $1.49 billion) in committed capital. EIN: 98-7891267. RCS B 271056. The general partner is Solara Luxembourg Management S.à r.l. This vehicle accommodates European institutional investors.
The investor base is segmented by tax status and domicile, with each category directed to the parallel vehicle most appropriate for its tax profile:
U.S. Taxable Investors. U.S. taxable investors, including high-net-worth individuals, family offices, and taxable corporate investors, invest through the Delaware main funds (Fund IV LP and Fund V LP). Representative investors include Argyle Family Office Holdings LLC, which has $95 million committed to Fund IV LP and $130 million committed to Fund V LP.
U.S. Tax-Exempt Investors. U.S. tax-exempt investors — principally public pension systems, university endowments, and charitable foundations — invest through the Cayman parallel vehicles to achieve UBTI blocker benefits afforded by the Cayman entity structure. Representative investors include Pinnacle State Employees' Retirement System, with $275 million committed to Fund IV-A Cayman and $340 million committed to Fund V-A Cayman, and Grandview University Endowment, with $120 million committed to Fund IV-A Cayman and $185 million committed to Fund V-A Cayman.
Non-U.S. Investors. Non-U.S. investors — including sovereign wealth funds, foreign pension funds, and non-U.S. insurance companies — invest through either the Cayman or Luxembourg parallel vehicles depending on their domicile and applicable tax treaty considerations. Representative investors include Nordhaven Sovereign Wealth Fund, with $380 million committed to Fund IV-A Cayman and $500 million committed to Fund V-A Cayman, and Kestrel Pacific Insurance Group, with €200 million (approximately $216 million) committed to Fund IV-B Luxembourg and €275 million (approximately $297 million) committed to Fund V-B Luxembourg.
B. The Proposed Reorganization — Five-Step Transaction
The proposed reorganization consists of five integrated steps, to be executed sequentially over the period from September 15, 2025, through December 1, 2025, pursuant to a single reorganization plan (the "Reorganization Plan") approved by the Solara GP board of managers on March 14, 2025, and subsequently approved by the Limited Partner Advisory Committees ("LPACs") of each Legacy Offshore Vehicle on April 22, 2025, with an aggregate affirmative vote of 78% in interest. The Reorganization Plan has been described in detail in the separate Transaction Structure Memorandum; for purposes of this § 752 analysis, we provide the following summary of each step:
Step 1 — Formation of New Entities (Target Date: September 15, 2025). Solara will cause the formation of four new entities: (a) Solara Consolidated Master Fund GP LLC, a Delaware limited liability company to serve as the general partner of the Master Fund; (b) Solara Consolidated Master Fund LP, a Delaware limited partnership to serve as the consolidated master fund vehicle; (c) Solara International Feeder (Cayman) LP, a Cayman Islands exempted limited partnership to serve as the feeder vehicle for non-U.S. investors; and (d) Solara Tax-Exempt Feeder (Cayman) LP, a Cayman Islands exempted limited partnership to serve as the feeder vehicle for U.S. tax-exempt investors. Form 8832 check-the-box elections will be filed to confirm partnership classification for each entity for U.S. federal income tax purposes. This step does not involve any transfer of assets or liabilities and has no § 752 implications in isolation.
Step 2 — Fund IV-A (Cayman) LP Contribution (Target Date: October 1, 2025). Fund IV-A Cayman will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. The contributed assets have an aggregate fair market value of approximately $2.31 billion, an aggregate adjusted tax basis of approximately $1.62 billion, and aggregate built-in gain of approximately $690 million. In connection with this contribution, the Consolidated Master Fund will assume Fund IV-A Cayman's share of the portfolio-level liabilities associated with the contributed assets.
Step 3 — Fund IV-B (Luxembourg) SCSp Contribution (Target Date: October 15, 2025). Fund IV-B Luxembourg will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. The contributed assets have an aggregate fair market value of approximately €1.07 billion ($1.16 billion), an aggregate adjusted tax basis of approximately €782 million ($844.6 million), and aggregate built-in gain of approximately €288 million ($311 million). In connection with this contribution, the Consolidated Master Fund will assume Fund IV-B Luxembourg's share of the portfolio-level liabilities associated with the contributed assets.
Step 4 — Fund V-A (Cayman) LP and Fund V-B (Luxembourg) SCSp Contributions (Target Date: November 1, 2025). Fund V-A Cayman will contribute all of its portfolio assets to the Consolidated Master Fund LP in exchange for a limited partnership interest in the Master Fund. These assets have an aggregate fair market value of approximately $2.89 billion, an aggregate adjusted tax basis of approximately $2.34 billion, and aggregate built-in gain of approximately $550 million. Simultaneously, Fund V-B Luxembourg will contribute all of its portfolio assets to the Consolidated Master Fund in exchange for a limited partnership interest. These assets have an aggregate fair market value of approximately €1.29 billion ($1.39 billion), an aggregate adjusted tax basis of approximately €1.14 billion ($1.23 billion), and aggregate built-in gain of approximately €150 million ($162 million). In connection with these contributions, the Consolidated Master Fund will assume the respective portfolio-level liabilities associated with the contributed assets.
Step 5 — Dissolution of Legacy Offshore Vehicles and LP Rollover (Target Date: December 1, 2025). Following the completion of Steps 2 through 4, each of the four Legacy Offshore Vehicles will be dissolved. Upon dissolution, the limited partnership interests in the Consolidated Master Fund received by each Legacy Offshore Vehicle in Steps 2 through 4 will be distributed to the limited partners of each dissolving vehicle. Upon receipt of Master Fund interests, non-U.S. limited partners will contribute their Master Fund interests to the Solara International Feeder (Cayman) LP in exchange for limited partnership interests in the International Feeder. U.S. tax-exempt limited partners will contribute their Master Fund interests to the Solara Tax-Exempt Feeder (Cayman) LP in exchange for limited partnership interests in the Tax-Exempt Feeder. The target effective date for completion of Step 5 is December 1, 2025.
The five steps are intended to be treated as an integrated transaction for all relevant tax purposes, including for purposes of the netting rule under Treas. Reg. § 1.752-1(f). This characterization is discussed in detail in Section VIII.A below.
C. Aggregate Liabilities Subject to the § 752 Analysis
The total aggregate liabilities being assumed by the Consolidated Master Fund LP in connection with the asset contributions in Steps 2 through 4 amount to approximately $1.34 billion. These liabilities consist of portfolio-level debt incurred at the portfolio company level or fund-level leverage directly associated with portfolio acquisitions, in each case currently allocated to the limited partners of the four Legacy Offshore Vehicles under the respective partnership agreements.
The $1.34 billion aggregate is composed of the following contributions by each Legacy Offshore Vehicle:
Fund IV-A (Cayman) LP: $487.6 million. This amount includes: (a) Fund IV-A Cayman's 60% allocable share of the liabilities of NovaBright Data Systems Inc. (approximately $198.4 million, consisting of a senior secured term loan and a revolving credit facility used to finance data center construction and expansion); (b) 100% of the liabilities of Thorngate Fiber Networks LP (approximately $174.2 million, consisting of infrastructure revenue bonds and equipment financing obligations); and (c) other Fund IV-A portfolio company debt allocable to Fund IV-A Cayman (approximately $115.0 million across four additional portfolio company investments).
Fund IV-B (Luxembourg) SCSp: $213.8 million. This amount includes: (a) 100% of the liabilities of Crestline Cloud Solutions LLC (approximately $156.3 million, consisting of a unitranche credit facility and subordinated vendor financing), which is a disregarded entity wholly owned by Fund IV-B Luxembourg; and (b) other Fund IV-B portfolio company debt allocable to Fund IV-B Luxembourg (approximately $57.5 million across two additional portfolio company investments).
Fund V-A (Cayman) LP: $468.2 million. This amount includes: (a) Fund V-A Cayman's 55% allocable share of the liabilities of Veridian Edge Computing Corp. (approximately $214.7 million, consisting of a term loan A, term loan B, and a capital lease obligation for edge computing infrastructure); (b) 100% of the liabilities of Helix SaaS Holdings Ltd. (approximately $162.8 million, consisting of an acquisition financing facility and a mezzanine tranche); and (c) other Fund V-A portfolio company debt allocable to Fund V-A Cayman (approximately $90.7 million across four additional portfolio company investments).
Fund V-B (Luxembourg) SCSp: $170.4 million. This amount includes portfolio company debt allocable to Fund V-B Luxembourg across six portfolio company investments, consisting principally of term loan facilities and vendor take-back notes incurred in connection with European digital infrastructure acquisitions.
It is important to note that the subscription revolving credit facilities — the $1.1 billion Fund IV subscription credit facility with Ashford National Bank, N.A. (Thomas Greenleaf, Managing Director, Fund Finance), and the $1.5 billion Fund V subscription revolving credit facility with Ashford National Bank, N.A. and Sentinel Capital Markets LLC (Laura Pak, Vice President) as co-lender and administrative agent — are not included in this $1.34 billion aggregate. These subscription credit facilities are fund-level obligations of the Delaware main funds (Fund IV LP and Fund V LP, respectively), which are not being reorganized as part of the current transaction. The Delaware main funds remain in place post-reorganization and continue to hold their respective subscription credit facility obligations. While lender consent to the reorganization is required under certain negative covenant provisions of the credit agreements, the § 752 analysis of the subscription credit facilities is unaffected by the reorganization because the partners of Fund IV LP and Fund V LP do not experience any shift in their respective shares of these facility obligations. The credit facility consent implications are addressed in the separate Credit Facility Implications Memorandum.
In total, there are 23 portfolio companies across all fund vehicles: 11 held by Fund IV vehicles (with allocable interests split between Fund IV LP and Fund IV-A Cayman or Fund IV-B Luxembourg, as applicable) and 12 held by Fund V vehicles (with allocable interests split between Fund V LP and Fund V-A Cayman or Fund V-B Luxembourg, as applicable). Only the liabilities attributable to the Legacy Offshore Vehicle interests in these portfolio companies are relevant to the instant analysis, as those are the liabilities being assumed by the Consolidated Master Fund.
D. Key Portfolio Company Liabilities (Representative)
To illustrate the liability allocation analysis, we describe below the five portfolio companies with the most significant liability balances being transferred to the Consolidated Master Fund:
NovaBright Data Systems Inc. NovaBright is a privately held data center operator headquartered in Ashburn, Virginia, with facilities in Northern Virginia, Dallas-Fort Worth, and Amsterdam. NovaBright is held 60% by Fund IV-A Cayman and 40% by Fund IV LP. NovaBright's total outstanding indebtedness as of March 31, 2025, is approximately $330.7 million, consisting of a $245 million senior secured term loan (maturity 2028) and an $85.7 million revolving credit facility (maturity 2027). Fund IV-A Cayman's 60% allocable share of these liabilities ($198.4 million) is included in the liabilities being assumed by the Consolidated Master Fund. Fund IV LP's 40% allocable share ($132.3 million) remains with Fund IV LP and is not part of this reorganization analysis.
Crestline Cloud Solutions LLC. Crestline is a SaaS platform operator organized as a Delaware LLC and classified as a disregarded entity for U.S. federal income tax purposes. Crestline is 100% owned by Fund IV-B Luxembourg. Crestline's total outstanding indebtedness is approximately $156.3 million, consisting of a $118 million unitranche credit facility (maturity 2029) and $38.3 million in subordinated vendor financing. The entirety of these liabilities is allocable to Fund IV-B Luxembourg and will be assumed by the Consolidated Master Fund.
Veridian Edge Computing Corp. Veridian is an edge computing infrastructure provider incorporated in Delaware, with operations in the United States, the United Kingdom, and Singapore. Veridian is held 55% by Fund V-A Cayman and 45% by Fund V LP. Veridian's total outstanding indebtedness is approximately $390.3 million, consisting of a $180 million term loan A (maturity 2030), a $145 million term loan B (maturity 2031), and $65.3 million in capital lease obligations for edge computing equipment. Fund V-A Cayman's 55% allocable share ($214.7 million) is included in the liabilities being assumed by the Consolidated Master Fund. Fund V LP's 45% allocable share ($175.6 million) remains with Fund V LP.
Thorngate Fiber Networks LP. Thorngate is a fiber-optic network operator organized as a Delaware limited partnership, with fiber routes across the Mid-Atlantic and Southeast regions. Thorngate is held 100% by Fund IV-A Cayman. Thorngate's total outstanding indebtedness is approximately $174.2 million, consisting of $112 million in infrastructure revenue bonds (maturity 2032) and $62.2 million in equipment financing obligations. The entirety of these liabilities is allocable to Fund IV-A Cayman and will be assumed by the Consolidated Master Fund.
Helix SaaS Holdings Ltd. Helix is a SaaS holding company organized under the laws of the Cayman Islands, with operating subsidiaries in the United States and Europe. Helix is held 100% by Fund V-A Cayman. Helix's total outstanding indebtedness is approximately $162.8 million, consisting of a $120 million acquisition financing facility (maturity 2031) and a $42.8 million mezzanine tranche (maturity 2032). The entirety of these liabilities is allocable to Fund V-A Cayman and will be assumed by the Consolidated Master Fund.
Together, these five portfolio companies account for approximately $906.4 million, or approximately 67.6%, of the $1.34 billion in aggregate liabilities subject to this analysis.
IV. Applicable Legal Framework
A. IRC § 752 — Treatment of Certain Liabilities
Section 752 of the Internal Revenue Code governs the treatment of partnership liabilities and their effect on the adjusted basis of partners' interests in the partnership. The foundational premise of § 752 is that a partner's share of the liabilities of a partnership is treated as part of the partner's investment in the partnership — increases in a partner's share of liabilities are treated as contributions to the partnership, while decreases are treated as distributions from the partnership. This construct ensures that a partner's outside basis reflects the partner's economic exposure to the partnership's obligations and prevents the creation of artificial losses through the leverage of partnership debt.
1. IRC § 752(a) — Increase in Partner's Share of Liabilities
Section 752(a) provides that any increase in a partner's share of the liabilities of a partnership, or any increase in a partner's individual liabilities by reason of the assumption by the partner of partnership liabilities, "shall be considered as a contribution of money by such partner to the partnership." This deemed contribution of money increases the partner's outside basis in its partnership interest under IRC § 722, which provides that the basis of a contributing partner's interest in the partnership is increased by the amount of money contributed.
In the context of the proposed reorganization, certain partners may experience increases in their shares of partnership liabilities. For example, a partner that was allocated a relatively smaller share of liabilities in a Legacy Offshore Vehicle but receives a proportionately larger share through the Consolidated Master Fund (due to changes in profits interests, guarantee structures, or the aggregation of liability pools) would be treated as making a deemed contribution under § 752(a). Such deemed contributions are favorable from the partner's perspective, as they increase outside basis without requiring any actual cash outlay, and do not trigger any adverse tax consequences.
2. IRC § 752(b) — Decrease in Partner's Share of Liabilities
Section 752(b) provides that any decrease in a partner's share of the liabilities of a partnership, or any decrease in a partner's individual liabilities by reason of the assumption by the partnership of such individual liabilities, "shall be considered as a distribution of money by the partnership to such partner." This deemed distribution of money reduces the partner's outside basis in its partnership interest under IRC § 733, which provides that basis is reduced (but not below zero) by the amount of money distributed to the partner.
The critical interaction occurs between § 752(b) and IRC § 731(a)(1). Under § 731(a)(1), gain is recognized by a partner to the extent that any money distributed to the partner exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. Because a deemed distribution of money under § 752(b) is treated as a distribution of money for purposes of § 731, any deemed distribution that exceeds the partner's outside basis would trigger taxable gain — typically characterized as gain from the sale or exchange of the partnership interest, which is generally capital gain under § 741.
This interaction between §§ 752(b) and 731(a)(1) is the central concern of this memorandum. If the reorganization causes any partner to experience a decrease in its share of partnership liabilities that, treated as a deemed distribution of money, exceeds the partner's adjusted outside basis, taxable gain would result. As developed in the analysis below, the netting rule under Treas. Reg. § 1.752-1(f) plays a critical role in mitigating this risk.
3. IRC § 752(c) — Definition of Liability
Section 752(c) provides that, for purposes of § 752, a liability to which property is subject shall, to the extent of the fair market value of such property, be treated as a liability of the owner of the property. This provision is relevant to the reorganization insofar as the portfolio assets being contributed to the Consolidated Master Fund may be subject to liabilities (e.g., nonrecourse debt secured by portfolio company assets). Upon contribution of the encumbered property to the Consolidated Master Fund, the Master Fund will be treated as the owner of such property, and the liabilities to which the property is subject will become liabilities of the Master Fund.
Section 752(c) also establishes the scope of the term "liability" for § 752 purposes. While the Code does not provide an exhaustive definition, the regulations and case law have interpreted the term broadly to encompass recourse liabilities, nonrecourse liabilities, and certain contingent and assumed liabilities, subject to the special rules of Treas. Reg. § 1.752-7 for contingent liabilities (discussed in Section XI.C below).
B. Treasury Regulation § 1.752-1 — General Rules
1. Treas. Reg. § 1.752-1(a) — Classification of Liabilities
Treasury Regulation § 1.752-1(a) establishes the fundamental classification of partnership liabilities into two categories: recourse liabilities and nonrecourse liabilities. This classification drives the methodology for determining each partner's share of such liabilities.
Under Treas. Reg. § 1.752-1(a)(1), a partnership liability is a recourse liability to the extent that any partner or related person bears the economic risk of loss for that liability under Treas. Reg. § 1.752-2. The economic risk of loss analysis requires a determination of which partners (or related persons) would bear the ultimate economic burden if the partnership were unable to satisfy its obligations. This determination is made under a constructive liquidation scenario prescribed by Treas. Reg. § 1.752-2(b), in which all of the partnership's assets are assumed to become worthless, all liabilities are assumed to become due, the partnership is assumed to dispose of its assets for nothing, and partners are assumed to satisfy their obligations (including guarantees, indemnities, and deficit restoration obligations) in accordance with the partnership agreement and applicable law.
Under Treas. Reg. § 1.752-1(a)(2), a partnership liability is a nonrecourse liability to the extent that no partner or related person bears the economic risk of loss for that liability. In the private equity fund context, many portfolio-level liabilities are nonrecourse in nature, as they are secured only by the assets of the portfolio companies and no fund-level partner has guaranteed or otherwise assumed economic risk of loss for such liabilities.
The determination of each partner's share of recourse liabilities is governed by Treas. Reg. § 1.752-2 (economic risk of loss analysis), while the determination of each partner's share of nonrecourse liabilities is governed by Treas. Reg. § 1.752-3, which employs a three-tier allocation methodology based on partnership minimum gain, § 704(c) minimum gain, and profits interests.
2. Treas. Reg. § 1.752-1(f) — Netting Rule
Treasury Regulation § 1.752-1(f) is the critical provision for this analysis and merits detailed discussion.
Treas. Reg. § 1.752-1(f) provides as follows:
"If, as the result of a single transaction, a partner incurs both an increase and a decrease in the partner's share of the liabilities of a partnership (or patnerships [sic]), only the net increase or decrease shall be taken into account in applying section 752."
The netting rule recognizes that, in the context of complex transactions involving partnerships — particularly reorganizations, mergers, divisions, and tiered partnership restructurings — a partner may simultaneously experience both increases and decreases in its share of partnership liabilities. Without the netting rule, a partner could be treated as receiving a deemed distribution under § 752(b) and making a separate deemed contribution under § 752(a) in the same transaction, potentially triggering gain under § 731(a)(1) on the deemed distribution even though the partner's net economic position has not meaningfully changed (or has actually improved due to a simultaneous deemed contribution).
The netting rule prevents this potentially anomalous result by requiring that only the net increase or decrease in a partner's share of liabilities be treated as a contribution or distribution of money. If the partner's net change is an increase, only the net increase is treated as a deemed contribution under § 752(a). If the partner's net change is a decrease, only the net decrease is treated as a deemed distribution under § 752(b). The net decrease is then compared to the partner's outside basis to determine whether gain is recognized under § 731(a)(1).
Application to multi-step reorganizations. The netting rule is particularly significant in multi-step transactions such as the proposed reorganization. Here, the contributions in Steps 2 through 4 and the dissolution and roll-over in Step 5 are executed as sequential steps of a single integrated transaction. As a result of the contributions, each partner of a contributing Legacy Offshore Vehicle will experience a change in its share of liabilities: the partner will cease to bear liabilities of the Legacy Offshore Vehicle (as that vehicle contributes its assets and associated liabilities to the Master Fund) and will begin to bear liabilities of the Consolidated Master Fund (through its direct or indirect interest in the Master Fund). These changes — the decrease in Legacy Offshore Vehicle liabilities and the corresponding increase in Master Fund liabilities — occur as part of the same integrated transaction and are subject to netting under § 1.752-1(f).
What constitutes the "same transaction." The regulation does not define "single transaction" with precision. However, the legislative history and IRS guidance support a facts-and-circumstances approach in which steps that are undertaken pursuant to a single plan, are mutually interdependent, and are not meaningfully independent of one another may be treated as a single transaction for netting purposes. In the present case, the five reorganization steps were authorized under a single Reorganization Plan, approved by the GP board on March 14, 2025, and by the LPAC on April 22, 2025. Each step is expressly conditioned on the completion of the preceding steps, and no step has independent economic significance apart from the integrated reorganization. The compressed timeline (September 15 through December 1, 2025) further supports treatment of the steps as a single transaction. We discuss this issue in greater detail in Section VIII.A below.
3. Treas. Reg. § 1.752-1(e) — Assumption of Partner's Liability
Treasury Regulation § 1.752-1(e) provides that if a partnership assumes a liability of a partner (other than a § 1.752-7 liability), the partnership is treated as having satisfied the liability, resulting in a deemed distribution of money to the contributing partner under § 752(b). This provision is relevant in the reorganization because each Legacy Offshore Vehicle's portfolio-level liabilities are being assumed by the Consolidated Master Fund in connection with the asset contributions. From the perspective of the Legacy Offshore Vehicles' partners, the relief from their proportionate shares of the Legacy Offshore Vehicle's liabilities is treated as a deemed distribution under § 752(b).
However, simultaneously, those same partners (through their direct or indirect interests in the Consolidated Master Fund post-contribution) will be allocated shares of the Master Fund's liabilities, resulting in a deemed contribution under § 752(a). It is the interaction of these two effects — and their netting under § 1.752-1(f) — that drives the analysis in this memorandum.
C. Tiered Partnership Rules
1. Treas. Reg. § 1.752-4 — Special Rules for Tiered Partnerships
Following the completion of the reorganization, the Solara fund platform will operate through a tiered partnership structure. The Consolidated Master Fund LP will serve as the lower-tier partnership, holding all portfolio assets and their associated liabilities. The International Feeder (Cayman) LP and the Tax-Exempt Feeder (Cayman) LP will serve as upper-tier partnerships, holding limited partnership interests in the Master Fund.
Treasury Regulation § 1.752-4 governs the allocation of liabilities in tiered partnership structures. Under these rules, an upper-tier partnership's share of the liabilities of a lower-tier partnership is determined under the general principles of §§ 1.752-2 and 1.752-3, treating the upper-tier partnership as a partner of the lower-tier partnership. Each upper-tier partnership's share of lower-tier liabilities is then treated as a liability of the upper-tier partnership for purposes of applying § 752 at the upper-tier level — that is, each upper-tier partnership allocates its share of lower-tier liabilities to its own partners under the general § 752 allocation principles.
The look-through analysis creates a multi-tier allocation chain: portfolio company liabilities are first attributed to the Consolidated Master Fund LP under § 752 principles; the Master Fund's liabilities are then allocated among its partners (including the feeder LPs) under §§ 1.752-2 and 1.752-3; each feeder LP's share of Master Fund liabilities becomes a liability of the feeder LP; and the feeder LP's liabilities are then allocated to the feeder LP's individual limited partners. The end result is that each individual limited partner bears an allocable share of the $1.34 billion in aggregate liabilities, determined through the tiered look-through analysis.
This multi-tier allocation is critical to the § 752 analysis because the post-reorganization liability shares of individual limited partners will depend not only on the Master Fund's liability allocation provisions but also on the feeder LP's allocation provisions and the relative interests of the individual limited partners within each feeder. The tiered analysis is developed in Section IX below.
2. Anti-Abuse Rule under Treas. Reg. § 1.752-2(j)
Treasury Regulation § 1.752-2(j) provides an anti-abuse rule for recourse liabilities, under which an obligation of a partner or related person to make a payment may be disregarded if the facts and circumstances indicate that a principal purpose of the arrangement is to eliminate the partner's economic risk of loss or to create the appearance of economic risk of loss where none exists. This rule is designed to prevent partners from manipulating the § 752 allocation through sham guarantees, circular indemnification arrangements, or other devices intended to shift liabilities artificially among partners.
We have reviewed the guarantee and indemnification arrangements of the Consolidated Master Fund GP LLC and the feeder LP general partners and have determined that all such arrangements reflect bona fide commercial obligations undertaken in the ordinary course of the fund's operations. The recourse liability allocations in the Consolidated Master Fund are based on genuine guarantee obligations of Solara Consolidated Master Fund GP LLC, consistent with market-standard private equity fund structures. There is no indication of any arrangement designed to create the appearance of economic risk of loss where none exists, and the anti-abuse rule under § 1.752-2(j) does not apply to disregard any partner's obligations.
D. IRC § 731 — Gain Recognition on Distributions
Section 731(a)(1) provides that, in the case of a distribution by a partnership to a partner, gain shall not be recognized to the partner except to the extent that any money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. As noted above, deemed distributions under § 752(b) are treated as distributions of money for § 731 purposes. Accordingly, the threshold question in this analysis is whether, after application of the netting rule under Treas. Reg. § 1.752-1(f), any partner has a net deemed distribution (representing a net decrease in its share of partnership liabilities) that exceeds the partner's adjusted outside basis in its partnership interest.
If the answer is no — as we conclude below — then no gain is recognized under § 731(a)(1), and the liability shifts resulting from the reorganization are fully nonrecognition events.
It bears emphasis that § 731(a)(1) applies on a partner-by-partner basis. Even if the aggregate liability pool remains constant at $1.34 billion, individual partners may experience increases or decreases in their respective shares. The analysis must be conducted at the individual partner level to confirm that no partner is adversely affected.
E. Interaction with Other Provisions
The § 752 analysis interacts with several other Code provisions that are addressed in separate memoranda prepared in connection with this engagement:
IRC § 721(a) — Nonrecognition on Contributions. Section 721(a) provides the general rule of nonrecognition on the contribution of property to a partnership in exchange for a partnership interest. The asset contributions in Steps 2 through 4 are intended to qualify for nonrecognition under § 721(a). However, § 721(a) nonrecognition can be overridden if the liability assumptions in connection with the contribution trigger gain under §§ 752(b) and 731(a)(1). The analysis in this memorandum is therefore directly relevant to preserving § 721(a) nonrecognition for the contribution transactions. The § 721(a) analysis is addressed in the separate § 721 Contribution Nonrecognition Memorandum.
IRC § 704(c) — Built-In Gain Accounts. The aggregate built-in gain of approximately $1.72 billion ($7.75 billion fair market value minus $6.03 billion aggregate adjusted tax basis) across all contributed assets carries over to the Consolidated Master Fund under § 704(c). The § 704(c) minimum gain allocations affect the allocation of nonrecourse liabilities under the second tier of the three-tier allocation methodology prescribed by Treas. Reg. § 1.752-3. The § 704(c) analysis, including the selection of the remedial allocation method under Treas. Reg. § 1.704-3(d), is addressed in the separate § 704(c) Built-In Gain Memorandum and is cross-referenced in Section X below.
IRC § 731(c) — Marketable Securities. To the extent that any distributed partnership interests may be treated as marketable securities under § 731(c), the distribution of Master Fund interests to limited partners in Step 5 could potentially be subject to gain recognition. This issue is analyzed in the separate § 731(c) Memorandum and does not directly affect the § 752 liability shifting analysis.
V. Pre-Reorganization Liability Allocation Analysis
A. Overview of Pre-Reorganization Liability Shares
Prior to the reorganization, the $1.34 billion in aggregate portfolio-level liabilities is held across four separate partnerships — Fund IV-A Cayman, Fund IV-B Luxembourg, Fund V-A Cayman, and Fund V-B Luxembourg — each of which is a separate partnership for U.S. federal income tax purposes with its own partnership agreement and its own liability allocation methodology. Each Legacy Offshore Vehicle allocates its liabilities to its own partners under the general principles of IRC § 752 and the applicable treasury regulations.
Because each Legacy Offshore Vehicle is a separate partnership, each partner's pre-reorganization share of liabilities is determined independently within each vehicle. A limited partner that holds interests in more than one Legacy Offshore Vehicle (e.g., Nordhaven Sovereign Wealth Fund, which holds interests in both Fund IV-A Cayman and Fund V-A Cayman) will have separate liability shares in each vehicle, which must be aggregated for purposes of the pre-reorganization baseline.
B. Fund IV-A (Cayman) LP — Pre-Reorganization
Fund IV-A Cayman holds total portfolio-level liabilities of $487.6 million, as described in Section III.C above. These liabilities are classified as follows:
Recourse Liabilities: $42.3 million. A portion of the Fund IV-A Cayman portfolio-level debt is classified as recourse liabilities under Treas. Reg. § 1.752-1(a)(1), based on the guarantee obligations of Solara Offshore GP Ltd. (the general partner of Fund IV-A Cayman) under the applicable credit agreements. Solara Offshore GP Ltd. has provided limited guarantees with respect to certain senior secured facilities, creating economic risk of loss under the constructive liquidation analysis of Treas. Reg. § 1.752-2(b). Under Treas. Reg. § 1.752-2, these recourse liabilities are allocated entirely to Solara Offshore GP Ltd. as the partner bearing the economic risk of loss. No limited partner of Fund IV-A Cayman bears economic risk of loss for these recourse liabilities.
Nonrecourse Liabilities: $445.3 million. The remaining portfolio-level debt is classified as nonrecourse liabilities under Treas. Reg. § 1.752-1(a)(2), as no partner or related person bears economic risk of loss. These nonrecourse liabilities are allocated to the partners of Fund IV-A Cayman under the three-tier allocation methodology of Treas. Reg. § 1.752-3:
First Tier — Partnership Minimum Gain: $87.6 million of nonrecourse liabilities is allocated based on partners' shares of partnership minimum gain under § 704(b). This amount is allocated proportionately to all partners based on their shares of partnership minimum gain as reflected in the capital account maintenance provisions of the Fund IV-A Cayman partnership agreement.
Second Tier — § 704(c) Minimum Gain: $63.4 million of nonrecourse liabilities is allocated based on § 704(c) minimum gain attributable to the contributed assets. This amount is allocated to the contributing partners whose assets gave rise to the § 704(c) built-in gain accounts.
Third Tier — Profit Interests: The remaining $294.3 million of nonrecourse liabilities (excess nonrecourse liabilities) is allocated based on partners' shares of partnership profits as determined under the Fund IV-A Cayman partnership agreement.
The following table summarizes the pre-reorganization liability allocation for the most significant limited partners of Fund IV-A Cayman:
C. Fund IV-B (Luxembourg) SCSp — Pre-Reorganization
Fund IV-B Luxembourg holds total portfolio-level liabilities of $213.8 million. Under the Luxembourg SCSp structure, Solara Luxembourg Management S.à r.l. serves as the general partner (gérant commandité). For U.S. federal income tax purposes, Fund IV-B Luxembourg is classified as a partnership under the check-the-box election analysis in the Entity Classification Memorandum, and § 752 allocation principles apply.
The liability classification is as follows:
Recourse Liabilities: $18.7 million. These recourse liabilities are allocable to Solara Luxembourg Management S.à r.l. as the partner bearing economic risk of loss through guarantee obligations under Luxembourg law and the applicable credit documentation.
Nonrecourse Liabilities: $195.1 million. These nonrecourse liabilities are allocated under the three-tier methodology of Treas. Reg. § 1.752-3, with the third-tier excess nonrecourse liabilities allocated based on profit shares under the Fund IV-B Luxembourg partnership agreement.
The following table summarizes the pre-reorganization liability allocation for the most significant limited partners of Fund IV-B Luxembourg:
D. Fund V-A (Cayman) LP — Pre-Reorganization
Fund V-A Cayman holds total portfolio-level liabilities of $468.2 million. The liability classification is as follows:
Recourse Liabilities: $38.9 million. Allocated to Solara Offshore GP Ltd. based on guarantee obligations.
Nonrecourse Liabilities: $429.3 million. Allocated under the three-tier methodology of Treas. Reg. § 1.752-3, based on partnership minimum gain, § 704(c) minimum gain, and profit interests.
E. Fund V-B (Luxembourg) SCSp — Pre-Reorganization
Fund V-B Luxembourg holds total portfolio-level liabilities of $170.4 million. The liability classification is as follows:
Recourse Liabilities: $14.8 million. Allocated to Solara Luxembourg Management S.à r.l. based on guarantee obligations.
Nonrecourse Liabilities: $155.6 million. Allocated under the three-tier methodology of Treas. Reg. § 1.752-3.
F. Summary Table — Pre-Reorganization Liability Shares
The following table consolidates each identified limited partner's aggregate share of liabilities across all four Legacy Offshore Vehicles in which it participates, prior to the reorganization:
VI. Post-Reorganization Liability Allocation Analysis
A. Overview of Post-Reorganization Structure
Upon completion of Steps 2 through 5 of the reorganization, all $1.34 billion in aggregate portfolio-level liabilities will be liabilities of a single partnership — the Consolidated Master Fund LP. The aggregate amount of liabilities does not change as a result of the reorganization; only the partnership in which those liabilities are held, and the allocation of those liabilities among partners, will change.
The partner composition of the Consolidated Master Fund LP will evolve during the reorganization. During the interim period between the contributions (Steps 2–4) and the dissolution of the Legacy Offshore Vehicles (Step 5), the partners of the Master Fund will include Solara Consolidated Master Fund GP LLC (as general partner) and the four Legacy Offshore Vehicles (as limited partners, having received limited partnership interests in the Master Fund in exchange for their contributed assets). Upon completion of Step 5 — the dissolution of the Legacy Offshore Vehicles and the rollover of interests — the partners of the Master Fund will be:
(a) Solara Consolidated Master Fund GP LLC — the general partner, holding a 1.0% interest.
(b) Solara International Feeder (Cayman) LP — the feeder vehicle for non-U.S. investors, including Nordhaven Sovereign Wealth Fund, Kestrel Pacific Insurance Group, and other non-U.S. limited partners. This feeder will hold an approximately 52.3% interest in the Master Fund, based on the aggregate capital commitments of non-U.S. investors across all Legacy Offshore Vehicles.
(c) Solara Tax-Exempt Feeder (Cayman) LP — the feeder vehicle for U.S. tax-exempt investors, including Pinnacle State Employees' Retirement System, Grandview University Endowment, and other tax-exempt limited partners. This feeder will hold an approximately 22.1% interest in the Master Fund, based on the aggregate capital commitments of U.S. tax-exempt investors.
(d) Direct LP interests — Certain limited partners that do not participate through either feeder may hold direct interests in the Master Fund. For purposes of this analysis, we assume that all limited partners of the Legacy Offshore Vehicles will participate through one of the two feeders based on their investor category, and that no Legacy Offshore Vehicle limited partner will hold a direct interest in the Master Fund post-reorganization (other than through a feeder).
(e) Residual interests — approximately 24.6% of the Master Fund will be allocated to interests held, directly or indirectly, by or on behalf of the U.S. taxable investors who invest through the Delaware main funds (Fund IV LP and Fund V LP). However, as noted above, the Delaware main funds are not participating in this reorganization, and their interests in the Master Fund arise only to the extent that the Delaware main funds' co-investments with the Legacy Offshore Vehicles in the same portfolio companies result in the Delaware main funds holding separate interests in the Consolidated Master Fund or through side-by-side arrangements. For purposes of this memorandum, this 24.6% represents interests held by or on behalf of the non-reorganizing vehicles and is not further analyzed.
The key structural change from the perspective of § 752 is the consolidation of four separate liability pools (each with its own allocation methodology) into a single liability pool (allocated under the Master Fund's partnership agreement) accessed through a tiered structure (with the feeder LPs as intermediaries). This consolidation creates the potential for liability shifts among individual limited partners.
B. Classification of Liabilities in the Consolidated Master Fund
The $1.34 billion in aggregate liabilities assumed by the Consolidated Master Fund must be reclassified as either recourse or nonrecourse liabilities of the Master Fund, based on the Master Fund's own partnership terms and the economic risk of loss borne by its partners.
Recourse Liabilities. Solara Consolidated Master Fund GP LLC, as the general partner of the Master Fund, will provide certain limited guarantees with respect to portfolio-level obligations, consistent with market-standard private equity fund structures. Based on the representations of counsel to Solara GP, the aggregate amount of recourse liabilities of the Master Fund (i.e., liabilities for which Solara Consolidated Master Fund GP LLC bears economic risk of loss under Treas. Reg. § 1.752-2) is estimated at approximately $97.4 million. This amount represents approximately 7.3% of total Master Fund liabilities and is allocated entirely to Solara Consolidated Master Fund GP LLC under Treas. Reg. § 1.752-2.
We note that the pre-reorganization aggregate recourse liabilities across all four Legacy Offshore Vehicles totaled $114.7 million (allocated between Solara Offshore GP Ltd. and Solara Luxembourg Management S.à r.l.). The reduction in aggregate recourse liabilities from $114.7 million to $97.4 million reflects the consolidation of certain overlapping guarantee obligations and the restructuring of credit documentation in connection with the reorganization. The net effect is that recourse liabilities previously allocated to two separate general partners (Solara Offshore GP Ltd. and Solara Luxembourg Management S.à r.l.) will now be allocated to a single general partner (Solara Consolidated Master Fund GP LLC).
Nonrecourse Liabilities. The remaining $1,242.6 million in Master Fund liabilities (approximately 92.7% of total) is classified as nonrecourse liabilities. These liabilities are allocated to the Master Fund's partners under the three-tier allocation methodology of Treas. Reg. § 1.752-3:
First Tier — Partnership Minimum Gain (§ 704(b)): Approximately $218.4 million of nonrecourse liabilities is allocated based on partners' shares of partnership minimum gain as determined under § 704(b). This amount is allocated proportionately to all partners based on their respective shares of minimum gain, as determined under the capital account maintenance and minimum gain provisions of the Master Fund partnership agreement.
Second Tier — § 704(c) Minimum Gain: Approximately $187.5 million of nonrecourse liabilities is allocated based on § 704(c) minimum gain attributable to contributed assets. Under Treas. Reg. § 1.752-3(a)(2), each partner's share of the Master Fund's nonrecourse liabilities includes the partner's share of "§ 704(c) minimum gain" — that is, the amount of gain that would be allocated to the partner under § 704(c) if the Master Fund disposed of the property subject to the nonrecourse liability in a taxable transaction in full satisfaction of the liability and for no other consideration. This tier is particularly significant in the present case, given the $1.72 billion in aggregate built-in gain carried over to the Master Fund under § 704(c). The § 704(c) minimum gain allocation causes a disproportionate share of nonrecourse liabilities to be allocated to the partners (or their successors) that contributed the appreciated assets, reflecting their built-in gain exposure.
Third Tier — Profit Interests (Excess Nonrecourse Liabilities): The remaining approximately $836.7 million in nonrecourse liabilities (excess nonrecourse liabilities) is allocated based on partners' shares of Master Fund profits. Under the Master Fund partnership agreement, profit shares are determined based on each partner's proportionate capital commitment, subject to adjustments for carried interest allocations to the general partner.
C. Allocation to Feeder Partnerships (Tiered Partnership Rules)
Under Treas. Reg. § 1.752-4, each feeder LP's share of the Consolidated Master Fund's liabilities is determined by treating the feeder LP as a partner of the Master Fund and applying the general § 752 allocation principles. Each feeder LP's share of Master Fund liabilities then becomes a liability of the feeder LP, which must in turn be allocated to the feeder LP's own partners.
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MEMORANDUM

ENGAGEMENT NUMBER: 20250527-SDILP-PLR

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