CALDERWOOD & HARKNESS LLP Attorneys at Law
125 Broad Street New York, NY 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
June 3, 2024
Matter No. 1043-00001
Crescent Harbor Bank, N.A. as Administrative Agent 1200 Harbor Point Drive Charlotte, NC 28202
Each of the Lenders party to the Credit Agreement (as defined below)
Re: Senior Secured Term Loan B Credit Agreement, dated as of May 15, 2024 — Ironhaven Data Centers LLC — US Federal Income Tax Opinion
Ladies and Gentlemen:
I. Introduction and Scope
Calderwood & Harkness LLP ("we," "us," the "Firm," or "Calderwood & Harkness") has acted as counsel to Ironhaven Data Centers LLC, a Delaware limited liability company ("IHDC" or the "Borrower"), Ironhaven Frankfurt GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung) registered with the Amtsgericht Frankfurt am Main under registration number HRB 129457 (the "Co-Borrower"), and Ironhaven Holdings Inc., a Delaware corporation (the "Parent Guarantor" and, together with the Borrower and the Co-Borrower, the "Loan Parties"), in connection with the transactions described below.
This opinion is rendered in connection with that certain Senior Secured Term Loan B Credit Agreement, dated as of May 15, 2024 (the "Credit Agreement"), entered into among the Borrower, the Co-Borrower, the Parent Guarantor, Crescent Harbor Bank, N.A., as Administrative Agent (in such capacity, the "Administrative Agent"), Pinnacle Trust Company, N.A., as Collateral Agent (in such capacity, the "Collateral Agent"), and the several financial institutions from time to time party thereto as Lenders (the "Lenders"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
The Credit Agreement provides for aggregate commitments of $950,000,000 (the "Term Loan"), consisting of:
(a) a US Dollar-denominated tranche in the aggregate principal amount of $675,000,000 (the "USD Tranche"); and
(b) a Euro-denominated sub-tranche in the aggregate principal amount of €253,571,429 (approximately $275,000,000 at the EUR/USD spot rate of 1.0846 on the Closing Date of June 3, 2024) (the "EUR Sub-Tranche").
The Term Loan bears interest at the following rates:
(i) with respect to the USD Tranche, at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus 425 basis points, subject to a Term SOFR floor of 0.50% per annum; and
(ii) with respect to the EUR Sub-Tranche, at a rate per annum equal to EURIBOR (as defined in the Credit Agreement) plus 425 basis points, subject to a EURIBOR floor of 0.00% per annum.
The Term Loan was issued at an original issue price of 99.50 (i.e., a discount of 50 basis points), yielding net proceeds to the Borrower and the Co-Borrower of $945,250,000 against an aggregate face amount of $950,000,000. The maturity date of the Term Loan is June 3, 2031, which is seven (7) years from the Closing Date.
The partner of the Firm responsible for this opinion is Sylvia Hartwell, Specialist Partner, Tax, who has supervised the preparation and issuance of this letter.
This opinion is delivered pursuant to Section 4.01(k)(iii) of the Credit Agreement as a condition precedent to the initial funding on the Closing Date (June 3, 2024). We understand that the Administrative Agent and the Lenders are relying on this opinion in connection with the initial borrowing under the Credit Agreement.
II. Documents Reviewed
In rendering the opinions set forth herein, we have examined originals or copies (certified or otherwise identified to our satisfaction) of the following documents:
1. The Credit Agreement, execution version dated May 15, 2024, together with all exhibits, schedules, and annexes thereto.
2. The Fee Letter between IHDC and Crescent Harbor Bank, N.A., dated February 28, 2024, which provides for (i) an arrangement fee of $14,250,000 payable to Crescent Harbor Bank, N.A. in its capacity as sole lead arranger and bookrunner, (ii) an upfront fee / original issue discount of 50 basis points on the aggregate principal amount of the Term Loan, and (iii) a ticking fee of 0.25% per annum on undrawn commitments during the period from the signing date through the Closing Date.
3. The Promissory Notes, in master form with a lender schedule annexed thereto, evidencing the obligations of the Borrower (and, with respect to the EUR Sub-Tranche, the Co-Borrower) under the Credit Agreement.
4. The Guarantee Agreement, dated as of the date hereof, executed by Ironhaven Holdings Inc. as Parent Guarantor in favor of the Administrative Agent (for the ratable benefit of the Lenders).
5. The US Pledge and Security Agreement, dated as of the date hereof, among the Loan Parties and the Collateral Agent, granting a first-priority security interest in substantially all personal property assets of the domestic Loan Parties.
6. The Equity Interest Pledge Agreement, dated as of the date hereof, pledging 100% of the limited liability company membership interests in IHDC and 65% of the equity interests in the Co-Borrower in favor of the Collateral Agent.
7. The German Parallel Debt and Security Trust Agreement (Sicherheitentreuhandvertrag), dated as of the date hereof, among the Co-Borrower, the Collateral Agent (acting through Pinnacle Trust Company GmbH as German security trustee), and the Administrative Agent.
8. The organizational documents of (i) IHDC, including its Certificate of Formation filed with the Secretary of State of the State of Delaware and its Amended and Restated Limited Liability Company Agreement, (ii) Ironhaven Holdings Inc., including its Certificate of Incorporation and Bylaws, and (iii) Ironhaven Frankfurt GmbH, including its Gesellschaftsvertrag (Articles of Association) and registration extracts from the commercial register (Handelsregister) maintained at the Amtsgericht Frankfurt am Main.
9. The IRS Form W-8BEN-E filed by NordBrücke AG, a German stock corporation (Aktiengesellschaft) with its principal offices at Neue Mainzer Straße 72, 60311 Frankfurt am Main, Germany, claiming eligibility for a reduced rate of withholding on US-source interest under the US-Germany Income Tax Treaty (the "US-Germany Treaty").
10. The IRS Form W-8BEN-E filed by Osprey Insurance Capital, Ltd., a Bermuda exempted company with its registered office at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, claiming eligibility for the portfolio interest exemption under Sections 871(h) and 881(c) of the Internal Revenue Code of 1986, as amended (the "Code").
11. A pro forma capitalization table of the Borrower and its consolidated subsidiaries as of the Closing Date, reflecting (i) Adjusted EBITDA for the last twelve months ended March 31, 2024 ("LTM Adjusted EBITDA") of $165.8 million, (ii) Term Loan B of $950.0 million, (iii) an existing undrawn Super-Senior Revolving Credit Facility of $100.0 million (not funded at closing), (iv) unrestricted cash of $62.5 million, (v) pro forma net total debt of $887.5 million (representing a net leverage ratio of 5.35x LTM Adjusted EBITDA), and (vi) an equity contribution by Thornfield Infrastructure Fund III, LP of $410.0 million.
12. The funds flow memorandum, dated June 3, 2024, prepared by the Administrative Agent, reflecting aggregate sources and uses of $1,355,250,000, including the net proceeds of the Term Loan, the Thornfield equity contribution, and rollover equity from existing management.
13. Such other documents, certificates, records, and instruments as we have deemed necessary or appropriate for the purpose of this opinion, including officer's certificates of the Loan Parties, good standing certificates, and tax classification elections.
We have not independently verified the accuracy or completeness of the factual statements contained in the foregoing documents and have relied upon the representations and warranties made by the parties therein.
III. Assumptions and Limitations
3.1 General Assumptions
In rendering the opinions set forth herein, we have assumed, without independent investigation or verification, the following:
(a) All documents submitted to us as originals are authentic and complete, and all documents submitted to us as copies conform to the authentic originals thereof. All signatures on documents are genuine, and all natural persons who executed such documents had legal capacity to do so.
(b) Each document reviewed by us accurately reflects the mutual intent and agreement of the parties thereto, and no oral or written agreements exist between or among the parties that modify, supplement, or contradict the terms of any such document.
(c) Each party to the Credit Agreement and the related transaction documents has duly authorized, executed, and delivered such documents and has performed, and will continue to perform, its respective obligations thereunder in accordance with the terms thereof.
(d) The transactions contemplated by the Credit Agreement and the related transaction documents have been consummated in all material respects in accordance with the terms thereof and the funds flow memorandum, without any waivers, amendments, or modifications that are not reflected in the documents reviewed by us.
(e) The factual representations and warranties set forth in the Credit Agreement (including, without limitation, those contained in Article V thereof) are, and will remain, true, correct, and complete in all material respects as of the date hereof and as of each date on which interest payments are made.
(f) IHDC is, and will continue to be, classified as a partnership (or, if it has a single owner for federal income tax purposes at any relevant time, as a disregarded entity) for US federal income tax purposes. We have confirmed that IHDC has not filed (and does not intend to file) an election on IRS Form 8832 to be classified as an association taxable as a corporation. Ironhaven Holdings Inc. is, and will continue to be, classified as a domestic corporation for US federal income tax purposes.
(g) No party to any of the transactions will take any action that is inconsistent with the treatment of such transactions as described in this opinion.
3.2 Scope Limitations
The opinions expressed herein are subject to the following scope limitations:
(a) This opinion is limited exclusively to the US federal income tax law as in effect on the date hereof, including the provisions of the Code, the Treasury Regulations promulgated thereunder (including proposed and temporary Treasury Regulations to the extent expressly referenced herein), published Revenue Rulings and Revenue Procedures of the Internal Revenue Service (the "IRS"), and relevant judicial decisions of the United States federal courts. We express no opinion as to the application of any other federal, state, local, or foreign tax laws, except to the extent expressly referenced herein.
(b) No opinion is expressed on any state or local tax matters, including without limitation the tax laws of the State of Delaware, the Commonwealth of Virginia, the State of North Carolina, or any other state or local jurisdiction in which the Loan Parties may be organized, domiciled, or conducting business. Issues relating to Delaware franchise taxes, Virginia corporate income taxes, Loudoun County property taxes, or other state and local levies are expressly excluded from the scope of this opinion.
(c) No opinion is expressed on any German tax matters, including without limitation German trade tax (Gewerbesteuer), German corporate income tax (Körperschaftsteuer), German solidarity surcharge (Solidaritätszuschlag), German value-added tax (Umsatzsteuer), or German withholding tax (Kapitalertragsteuer). German tax matters, including cross-border tax structuring considerations, are addressed in the separate Tax Structure Memorandum prepared by Sylvia Hartwell, dated June 3, 2024, which is delivered under separate cover.
(d) This opinion does not address the US federal income tax consequences to any individual Lender based on such Lender's particular facts and circumstances, including, without limitation, the Lender's accounting methods, tax classification, status as a real estate investment trust, regulated investment company, tax-exempt organization, or S corporation, its holding period in the Term Loan, or any other factors specific to such Lender. Each Lender is strongly advised to consult its own tax advisor regarding the US federal, state, local, and foreign tax consequences of its participation in the Term Loan.
3.3 Reliance Limitations
(a) This opinion is rendered solely for the benefit of the addressees hereof — namely, Crescent Harbor Bank, N.A., as Administrative Agent, and each of the Lenders party to the Credit Agreement as of the Closing Date — and their respective successors and permitted assigns under the Credit Agreement. This opinion may not be relied upon by any other person or entity, nor may it be quoted, disclosed, or furnished to any other person or entity, without the prior written consent of Calderwood & Harkness LLP, except as required by applicable law, regulation, or legal process, or in connection with regulatory examinations of the addressees.
(b) We assume no obligation to advise the addressees or any other person of any changes in applicable law, regulation, or fact that may come to our attention after the date of this letter and that may affect the opinions expressed herein. This opinion speaks only as of the date hereof.
IV. Opinions
Based upon and subject to the foregoing, and subject to the qualifications set forth in Section V below, we are of the opinion that the following US federal income tax consequences will apply to the transactions described herein:
4.1 Characterization of the Term Loan as Indebtedness
Opinion. The Term Loan, including the USD Tranche and the EUR Sub-Tranche, will be treated as indebtedness of the Borrower (and, with respect to the EUR Sub-Tranche, of the Co-Borrower) for US federal income tax purposes, and will not be recharacterized as equity or as a partnership interest in the Borrower or the Co-Borrower.
Analysis. The distinction between debt and equity for US federal income tax purposes is a question of federal tax law, determined based on the economic substance of the arrangement and not merely its form. The characterization of an instrument as debt or equity is a factual determination that depends on a consideration of all relevant facts and circumstances. Courts have developed a multi-factor test to guide this inquiry, and no single factor is dispositive. See, e.g., Dixie Dairies Corp. v. Commissioner, 74 T.C. 476 (1980); Estate of Mixon v. United States, 464 F.2d 394 (5th Cir. 1972); Fin Hay Realty Co. v. United States, 398 F.2d 694 (3d Cir. 1968); Gilbert v. Commissioner, 248 F.2d 399 (2d Cir. 1957). Although the IRS has not promulgated comprehensive regulations defining debt versus equity for all purposes, the factors commonly examined include the presence of a fixed maturity date, an unconditional obligation to repay principal, a commercially reasonable interest rate, the debt-to-equity ratio, subordination, the identity of interest between creditors and equity holders, the source of repayment, the adequacy of capitalization, and the intent of the parties.
We have analyzed the Term Loan under these factors and conclude as follows:
(i) Fixed Maturity Date. The Term Loan has a fixed maturity date of June 3, 2031, which is seven (7) years from the Closing Date. The existence of a fixed and definite maturity date is a hallmark of bona fide indebtedness and distinguishes debt from equity, which has no stated maturity or obligation of redemption. See Dixie Dairies, 74 T.C. at 493.
(ii) Unconditional Obligation to Repay Principal. The Borrower (and, with respect to the EUR Sub-Tranche, the Co-Borrower) has an unconditional legal obligation to repay the full principal amount of the Term Loan — $950,000,000 in the aggregate ($675,000,000 for the USD Tranche and €253,571,429 for the EUR Sub-Tranche). This obligation is evidenced by the Promissory Notes and is absolute and unconditional, not contingent upon the profitability or financial performance of the Borrower. The repayment obligation runs to the Lenders as creditors, not as equity participants. See Litton Bus. Sys., Inc. v. Commissioner, 61 T.C. 367 (1973).
(iii) Commercially Reasonable Interest Rate. The Term Loan bears interest at SOFR + 425 bps (USD Tranche, with a SOFR floor of 0.50%) and EURIBOR + 425 bps (EUR Sub-Tranche, with a EURIBOR floor of 0.00%). These interest rates are consistent with market rates for senior secured Term Loan B financings of comparable credit quality and leverage profile, as reflected in the leveraged loan indices for data center and infrastructure financings. The interest rates are fixed-spread, floating-rate coupons that are typical of arm's-length credit arrangements and do not vary based on the Borrower's profits or revenues. See Fin Hay Realty, 398 F.2d at 697 (interest rate that is reasonable in light of all circumstances supports debt characterization).
(iv) Mandatory Amortization. The Credit Agreement requires mandatory quarterly amortization of 1.00% per annum of the original aggregate principal amount, payable in equal quarterly installments of $2,375,000 (aggregate), allocated $1,687,500 per quarter to the USD Tranche and €633,928.57 per quarter to the EUR Sub-Tranche. Such scheduled repayment of principal is a feature that strongly supports debt characterization.
(v) Excess Cash Flow Sweep. The Credit Agreement contains a mandatory prepayment provision tied to the Borrower's excess cash flow, requiring prepayment of 75% of Excess Cash Flow (stepping down to 50% at a Net Leverage Ratio equal to or below 4.5x and to 25% at a Net Leverage Ratio equal to or below 3.5x). While the excess cash flow sweep introduces a degree of variable repayment, it is triggered by a defined financial metric and operates as an acceleration of principal repayment, not as a profit-sharing or equity-participation feature. Such provisions are customary in leveraged credit facilities and do not undermine debt characterization. See Rev. Rul. 83-98, 1983-2 C.B. 40.
(vi) No Voting Rights or Equity Participation. The Lenders hold no voting rights, equity interests, or profit-sharing entitlements with respect to the Borrower, the Co-Borrower, or the Parent Guarantor. The Lenders' returns are limited to the contractual interest rate, OID accretion, and fees. The Lenders do not participate in the residual profits, growth, or appreciation of the Borrower's business, which is a fundamental distinction between creditor and equity-holder status.
(vii) Arm's-Length Syndication. The Lenders are unrelated third parties who participated in the syndication on arm's-length commercial terms. The lender group consists of institutional lenders, insurance companies, and credit funds, none of which holds equity interests in the Borrower or the Parent Guarantor. The absence of identity of interest between the creditors and the equity holders of the Borrower strongly supports debt characterization. See Estate of Mixon, 464 F.2d at 402.
(viii) Debt-to-Equity Ratio. The pro forma capitalization of the Borrower and its consolidated subsidiaries as of the Closing Date reflects net total debt of $887.5 million against equity of $410.0 million (contributed by Thornfield Infrastructure Fund III, LP), resulting in a debt-to-equity ratio of approximately 2.16:1.00 and a net leverage ratio of 5.35x LTM Adjusted EBITDA. While this leverage level is elevated, it is within commercially reasonable bounds for leveraged data-center infrastructure financings, where capital-intensive assets generate stable, recurring contractual revenues. Courts have recognized that higher leverage ratios may be acceptable in industries where asset values and cash flows support the debt service. See Bauer v. Commissioner, 748 F.2d 1365 (9th Cir. 1984). Moreover, the Thornfield equity contribution of $410.0 million represents approximately 30.2% of total capitalization of $1,360,000,000, providing a meaningful equity cushion.
(ix) Security Interest in Assets. The Term Loan is secured by a first-priority lien on substantially all assets of the domestic Loan Parties, including real property located at the Virginia campus (approximately 142 acres in Loudoun County, Virginia, identified as Loudoun County Tax Parcel Nos. 087-27-1234 and 087-27-1235), as well as German-law collateral in the form of a Grundschuld (land charge) over the Frankfurt campus real property (recorded in the Grundbuch von Frankfurt am Main-Ost, Blatt 54321). The existence of a first-priority security interest in substantial assets of the Borrower is strongly indicative of bona fide indebtedness, as it reflects the creditor's right to recourse against the Borrower's assets in the event of default — a right that equity holders do not possess.
(x) Promissory Notes. The Term Loan is evidenced by executed Promissory Notes, which are instruments reflecting an unconditional promise to pay a sum certain in money. The issuance of promissory notes is a traditional indicia of indebtedness. See Gilbert, 248 F.2d at 402.
Conclusion. Based upon a consideration of the totality of the foregoing factors, we are of the opinion that the economic substance and legal form of the Term Loan are consistent with bona fide indebtedness for US federal income tax purposes. The Term Loan possesses all of the traditional hallmarks of debt — a fixed maturity, an unconditional repayment obligation, a commercially reasonable interest rate, scheduled amortization, security in real and personal property, and arm's-length terms — and lacks the characteristic features of equity, such as profit-sharing, voting rights, or contingent repayment. Accordingly, it is our opinion that the Term Loan will be treated as indebtedness for US federal income tax purposes and will not be recharacterized as equity or a partnership interest.
4.2 Original Issue discount Treatment
Opinion. The 50 basis point original issue discount (i.e., an issue price of 99.50% of par, yielding net proceeds of $945,250,000 against a face amount of $950,000,000) constitutes original issue discount ("OID") within the meaning of Sections 1271 through 1275 of the Code.
Analysis. Under Section 1273(a)(1) of the Code, OID is defined as the excess of the "stated redemption price at maturity" of a debt instrument over its "issue price." The stated redemption price at maturity of the Term Loan is $950,000,000 (the full face amount). The issue price of the Term Loan, determined under Section 1274 of the Code and Treasury Regulation § 1.1273-2, is $945,250,000 (99.50% of face amount). Accordingly, the aggregate OID on the Term Loan is:
$950,000,000 − $945,250,000 = $4,750,000
We have considered whether the de minimis OID exception under Section 1273(a)(3) of the Code applies. Under that provision, if the amount of OID is less than a de minimis amount (generally defined as one-quarter of one percent (0.25%) of the stated redemption price at maturity multiplied by the number of complete years to maturity), the OID is treated as zero. For the Term Loan:
De minimis threshold = 0.25% × 7 years × $950,000,000 = 0.0025 × 7 × $950,000,000 = $16,625,000
Because the actual OID of $4,750,000 is less than the de minimis threshold of $16,625,000, one might conclude that the de minimis exception applies. However, the de minimis calculation must be measured using the "weighted average maturity" of the debt instrument, not simply the stated maturity. For purposes of the weighted average maturity calculation under Treasury Regulation § 1.1273-1(d), each payment of principal is weighted by the number of complete years from the issue date to the date such payment is due. Given the mandatory quarterly amortization of 1.00% per annum and the Excess Cash Flow sweep, the weighted average maturity of the Term Loan is less than the stated maturity of seven years.
Notwithstanding the foregoing, even if the de minimis OID exception were to apply, the tax treatment would differ only in the manner of income recognition (i.e., the OID would be recognized upon retirement or disposition of the debt instrument rather than on a constant-yield basis). As the OID amount is relatively modest ($4,750,000 on a $950 million facility), this distinction is unlikely to have a material impact on the tax position of the Lenders.
OID Accrual by the Lenders. To the extent the de minimis exception does not apply, OID will be includible in the gross income of each Lender on a constant-yield basis over the term of the Term Loan, in accordance with Section 1272 of the Code, regardless of the Lender's method of accounting. Each Lender will include in income each year a portion of the OID equal to the product of the adjusted issue price of the Term Loan at the beginning of the accrual period and the yield to maturity of the Term Loan, less the amount of any qualified stated interest allocable to such period. See Treas. Reg. § 1.1272-1(b).
OID Deduction by the Borrower. The Borrower will be entitled to deduct OID as it accrues under Section 163(e)(1) of the Code, subject to the limitations on interest deductibility described in Section 4.5 below. The OID deduction accrues on the same constant-yield basis as the income inclusion by the Lenders, creating a symmetrical treatment between the issuer and holders of the debt instrument.
4.3 Deductibility of Interest
Opinion. Interest payments on the Term Loan — including the SOFR + 425 basis point margin on the USD Tranche and the EURIBOR + 425 basis point margin on the EUR Sub-Tranche — should be deductible by the Borrower (and, with respect to the EUR Sub-Tranche, by the Co-Borrower, to the extent of its respective obligations) as ordinary and necessary business expenses under Section 163(a) of the Code, subject to the limitations described in Section 4.5 below.
Analysis. Section 163(a) of the Code provides a general rule that allows a deduction for "all interest paid or accrued within the taxable year on indebtedness." As discussed in Section 4.1 above, the Term Loan constitutes indebtedness for US federal income tax purposes. The interest payable thereon — at commercially reasonable, arm's-length rates — constitutes "interest" within the meaning of Section 163(a), as it represents compensation for the use or forbearance of money. See Deputy v. du Pont, 308 U.S. 488, 498 (1940).
The interest on the Term Loan is deductible in the taxable year in which it is paid or accrued, depending on the Borrower's method of accounting. For an accrual-method taxpayer, interest accrues ratably over each interest period. To the extent the Borrower utilizes a fiscal taxable year, the interest deduction will be allocated to the appropriate taxable year in accordance with the Borrower's regular method of accounting and the applicable provisions of Sections 446 and 461 of the Code.
Arrangement Fee. The arrangement fee of $14,250,000 paid by IHDC to Crescent Harbor Bank, N.A. in its capacity as sole lead arranger and bookrunner constitutes a cost of obtaining financing. Under applicable Treasury Regulations and established IRS guidance, loan origination fees paid to a lender (or its affiliate acting as arranger) in connection with the issuance of a debt instrument are treated as additional interest or as a reduction in the issue price of the debt instrument, depending on the specific characterization of the fee. Where the fee is paid to facilitate the borrowing, it is properly characterized as a cost of borrowing and is amortizable by the Borrower over the seven-year term of the facility under Section 461 of the Code and the regulations thereunder. See Rev. Rul. 70-360, 1970-2 C.B. 103 (loan commitment fees constitute interest or additional cost of borrowing). Accordingly, the Borrower should amortize the $14,250,000 arrangement fee ratably over the term of the Term Loan, deducting approximately $2,035,714 per year.
Ticking Fee. The ticking fee of $527,778 — calculated as $950,000,000 × 0.25% × 80/360, representing the ticking fee accrued for the period from the commitment date (March 15, 2024) through the Closing Date (June 3, 2024) — constitutes a cost of securing the commitment of the Lenders during the pre-closing period. The ticking fee is properly deductible as a borrowing cost in the taxable year of the closing. See Rev. Rul. 81-160, 1981-1 C.B. 312.
4.4 Withholding Tax Analysis — Non-US Lenders
4.4.1 General Rule. Under Sections 871(a) and 881(a) of the Code, interest paid (or credited) to a nonresident alien individual or a foreign corporation, respectively, that constitutes fixed or determinable annual or periodical ("FDAP") income from US sources is subject to US federal withholding tax at a statutory rate of 30%, unless a reduced rate or exemption applies under an applicable income tax treaty or statutory provision.
Interest on the Term Loan constitutes US-source income to the extent it is paid by a domestic obligor or otherwise constitutes income from sources within the United States under Section 861(a)(1) of the Code. Interest paid by the Borrower (a domestic entity for this purpose) on the USD Tranche is US-source income. The sourcing of interest on the EUR Sub-Tranche (paid by the Co-Borrower, a German GmbH) involves more complex source-of-income rules, which we address in the context of the specific Lender analyses below.
The portfolio interest exemption under Sections 871(h) and 881(c) of the Code may exempt qualifying interest payments from the 30% statutory withholding tax, provided the following conditions are met:
(a) the interest is paid on an obligation that is in "registered form" within the meaning of Section 163(f) and the regulations thereunder;
(b) the beneficial owner of the obligation is not a "United States person" as defined in Section 7701(a)(30) of the Code;
(c) the beneficial owner provides the withholding agent with a statement (generally, an IRS Form W-8BEN-E) certifying, under penalties of perjury, that it is not a United States person;
(d) the interest is not received by a "bank" on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business (Section 881(c)(3)(A));
(e) the recipient does not own (directly, indirectly, or constructively) 10% or more of the total combined voting power of all classes of stock entitled to vote, or 10% or more of the capital or profits interests, of the obligor (Section 881(c)(3)(B)); and
(f) the recipient is not a controlled foreign corporation ("CFC") receiving interest from a "related person" within the meaning of Section 881(c)(3)(C) and Section 864(d)(4) of the Code.
We apply the foregoing framework to each of the two non-US Lenders participating in the Term Loan syndicate.
4.4.2 NordBrücke AG (German *Aktiengesellschaft*). Entity. NordBrücke AG is a German stock corporation (Aktiengesellschaft) with its principal offices at Neue Mainzer Straße 72, 60311 Frankfurt am Main, Germany. NordBrücke AG is licensed as a credit institution (Kreditinstitut) under the German Banking Act (Kreditwesengesetz, "KWG") and is regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin").
Commitment. NordBrücke AG holds a commitment of $150,000,000, allocated entirely to the EUR Sub-Tranche.
Portfolio Interest Exemption Analysis. We have examined whether NordBrücke AG is eligible for the portfolio interest exemption under Sections 871(h) and 881(c) of the Code.
The Term Loan is in registered form, as required by Section 5.03 of the Credit Agreement, which provides that the Administrative Agent shall maintain a register of the names and addresses of the Lenders, the commitments, and the principal and interest owing to each Lender. Accordingly, the registered-form requirement is satisfied. See Treas. Reg. § 5f.103-1(c).
However, NordBrücke AG is a credit institution — i.e., a bank — within the meaning of Section 881(c)(3)(A) of the Code. Under Section 881(c)(3)(A), the portfolio interest exemption does not apply to interest received by a bank on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business. NordBrücke AG's participation in the Term Loan constitutes an extension of credit pursuant to a loan agreement entered into in the ordinary course of NordBrücke AG's banking business. Accordingly, the bank-loan exception under Section 881(c)(3)(A) applies, and the portfolio interest exemption is not available to NordBrücke AG with respect to interest on the Term Loan.
Treaty Analysis — US-Germany Income Tax Treaty. In the absence of the portfolio interest exemption, we turn to the Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed on August 29, 1989, as amended by the Protocol signed on June 1, 2006 (as so amended, the "US-Germany Treaty").
Article 11 (Interest). Article 11(1) of the US-Germany Treaty provides that interest arising in one Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in the Contracting State of which the beneficial owner is a resident. In other words, interest arising in the United States and paid to a resident of Germany who is the beneficial owner of such interest shall be exempt from US withholding tax — the treaty provides for a 0% rate of withholding on interest, subject to certain conditions.
Specifically, for purposes of Article 11, the interest must not be "effectively connected with a permanent establishment" that the German resident maintains in the United States within the meaning of Article 7 (Business Profits). NordBrücke AG has represented that it does not maintain a permanent establishment in the United States, and we are not aware of facts inconsistent with such representation.
Article 28 (Limitation on Benefits). The US-Germany Treaty contains a comprehensive Limitation on Benefits ("LOB") provision in Article 28, which is designed to prevent "treaty shopping" by residents of third countries. A German resident is entitled to treaty benefits only if it qualifies as a "qualified resident" under one or more of the tests set forth in Article 28.
Based on the certifications made by NordBrücke AG on its IRS Form W-8BEN-E (filed with the Administrative Agent), NordBrücke AG has represented that it is a resident of Germany for purposes of the US-Germany Treaty and that it satisfies the LOB requirements of Article 28. Specifically, NordBrücke AG has certified that it qualifies as a "qualified person" under Article 28(2) because it is a company the principal class of whose shares is listed on a recognized stock exchange in Germany (specifically, the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange)) and is regularly traded thereon. We have relied on these certifications without independent verification.
Procedural Requirements. Under Sections 1441 and 1442 of the Code and Treasury Regulation § 1.1441-6, the withholding agent (here, the Administrative Agent) must have received a valid IRS Form W-8BEN-E from NordBrücke AG in order to apply the reduced treaty rate. We have reviewed the IRS Form W-8BEN-E submitted by NordBrücke AG and confirm that, on its face, it appears to be properly completed and to claim a 0% rate of withholding under Article 11 of the US-Germany Treaty.
Conclusion. Based on the foregoing analysis, it is our opinion that interest paid to NordBrücke AG on its $150,000,000 commitment under the EUR Sub-Tranche should be exempt from US federal withholding tax under Article 11 of the US-Germany Treaty, subject to (i) the continued validity of NordBrücke AG's IRS Form W-8BEN-E, (ii) NordBrücke AG's continued satisfaction of the LOB requirements of Article 28 of the US-Germany Treaty, (iii) NordBrücke AG's continued status as a resident of Germany that does not maintain a permanent establishment in the United States to which the interest income is attributable, and (iv) compliance by the Administrative Agent with its withholding and reporting obligations under Sections 1441, 1442, and 1461 of the Code and the Treasury Regulations thereunder.
4.4.3 Osprey Insurance Capital, Ltd. (Bermuda Exempted Company). Entity. Osprey Insurance Capital, Ltd. is a Bermuda exempted company with its registered office at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
Commitment. Osprey Insurance Capital, Ltd. holds a commitment of $75,000,000, allocated to the USD Tranche.
Portfolio Interest Exemption Analysis. We have examined whether Osprey Insurance Capital, Ltd. is eligible for the portfolio interest exemption under Sections 871(h) and 881(c) of the Code.
(a) Registered Form. As noted above, the Term Loan is in registered form within the meaning of Section 163(f) and the regulations thereunder.
(b) Not a US Person. Osprey Insurance Capital, Ltd. is organized under the laws of Bermuda and is not a "United States person" within the meaning of Section 7701(a)(30) of the Code. Osprey has certified on its IRS Form W-8BEN-E that it is not a United States person.
(c) Bank Exclusion — Not Applicable. Osprey Insurance Capital, Ltd. is an insurance capital vehicle and is not a "bank" receiving interest on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its business within the meaning of Section 881(c)(3)(A). Accordingly, the bank-loan exception does not apply.
(d) 10% Shareholder Exclusion — Not Applicable. Based upon our review of the pro forma capitalization table and the organizational documents of the Borrower and the Parent Guarantor, Osprey Insurance Capital, Ltd. does not own, directly or indirectly (within the meaning of Section 871(h)(3)(B) and Section 318 of the Code), 10% or more of the total combined voting power of all classes of stock of, or 10% or more of the capital or profits interests in, the Borrower, the Parent Guarantor, or any other Loan Party. Accordingly, the 10% shareholder exclusion under Section 881(c)(3)(B) does not apply.
(e) Controlled Foreign Corporation Exclusion — Not Applicable. Osprey Insurance Capital, Ltd. is not, to our knowledge, a controlled foreign corporation ("CFC") within the meaning of Section 957(a) of the Code that is receiving interest from a "related person" within the meaning of Section 864(d)(4) of the Code. Accordingly, the CFC-related-person exclusion under Section 881(c)(3)(C) does not apply.
Conclusion. Subject to the delivery and continued validity of a qualifying IRS Form W-8BEN-E containing a certification that Osprey Insurance Capital, Ltd. is not a United States person and is eligible for the portfolio interest exemption (including the certifications required by Treasury Regulation § 1.871-14(c)), it is our opinion that interest paid to Osprey Insurance Capital, Ltd. on its $75,000,000 commitment under the USD Tranche should qualify for the portfolio interest exemption under Sections 871(h) and 881(c) of the Code and, accordingly, should be exempt from the 30% US federal withholding tax.
Treaty Analysis — US-Bermuda. There is no income tax treaty currently in force between the United States and Bermuda. Accordingly, treaty-based relief from US withholding tax is not available to Osprey Insurance Capital, Ltd., and reliance must be placed solely on the portfolio interest exemption analyzed above.
Note on UK-Person Nexus. We note that certain key personnel of Osprey Insurance Capital, Ltd., including without limitation Fiona Abernathy (a UK national and resident who serves as a director and portfolio manager), may have a nexus to the United Kingdom. This opinion does not address whether Osprey Insurance Capital, Ltd. has any UK tax obligations arising from such UK-person nexus, including but not limited to whether Osprey is deemed to be centrally managed and controlled in the United Kingdom or has a UK permanent establishment. Such analysis is beyond the scope of this US federal income tax opinion. We understand that a separate analysis of applicable UK Office of Financial Sanctions Implementation ("OFSI") sanctions compliance matters has been conducted under separate cover by other advisors to the Administrative Agent.
4.4.4 Domestic Lenders. The five domestic Lenders participating in the Term Loan syndicate are US persons within the meaning of Section 7701(a)(30) of the Code and are therefore not subject to US federal withholding tax on interest received under the Term Loan. The domestic Lenders and their respective commitments are as follows:
Interest paid to each domestic Lender will be includible in such Lender's gross income and subject to US federal income tax in accordance with such Lender's regular method of accounting. Each domestic Lender is expected to provide the Administrative Agent with a properly completed IRS Form W-9, certifying its US taxpayer identification number and status as a US person not subject to backup withholding.
4.5 Limitations on Interest Deductibility
4.5.1 Section 163(j) — Business Interest Limitation. Under Section 163(j)(1) of the Code, as amended by the Tax Cuts and Jobs Act of 2017 (P.L. 115-97), the deduction for "business interest expense" for any taxable year is limited to the sum of:
(a) the taxpayer's "business interest income" for such taxable year;
(b) 30% of the taxpayer's "adjusted taxable income" ("ATI") for such taxable year; and
(c) the taxpayer's "floor plan financing interest" for such taxable year (which is not applicable to the Borrower).
For taxable years beginning before January 1, 2026, ATI is computed without regard to deductions allowable for depreciation, amortization, or depletion (i.e., ATI approximates EBITDA). For taxable years beginning after December 31, 2025, ATI is computed after deducting depreciation, amortization, and depletion (i.e., ATI approximates EBIT). This transition from an EBITDA-based to an EBIT-based measure of ATI will have the effect of reducing ATI — and, correspondingly, the Section 163(j) limitation — for capital-intensive businesses such as data center operators.
We have performed a preliminary analysis of the application of Section 163(j) to IHDC's projected interest deductions on the Term Loan, based on the following assumptions:
(i) Estimated annual interest expense on the USD Tranche at current SOFR levels (approximately 5.33% as of the Closing Date, yielding an all-in rate of approximately 9.58%, or 9.83% including the SOFR floor adjustment): approximately $64.7 million per year.
(ii) Estimated annual interest expense on the EUR Sub-Tranche at current EURIBOR levels (approximately 3.75% as of the Closing Date, yielding an all-in rate of approximately 8.00%): approximately $22.0 million per year (€20.3 million converted at the closing spot rate).
(iii) Total estimated annual interest expense (including OID accretion of approximately $678,571 per year): approximately $87.4 million per year.
(iv) IHDC's LTM Adjusted EBITDA as of March 31, 2024: $165.8 million.
(v) 30% of ATI (using EBITDA as a proxy for ATI under the pre-2026 rules): approximately $49.7 million.
Under this analysis, IHDC's estimated annual business interest expense of approximately $87.4 million would exceed the Section 163(j) limitation of approximately $49.7 million (assuming no business interest income) by approximately $37.7 million in the first full taxable year. The disallowed business interest expense would carry forward indefinitely under Section 163(j)(2) and would be available to offset ATI capacity in future taxable years.
We note that this analysis is based on current-period estimates and numerous simplifying assumptions. Actual results will depend on, among other things, IHDC's actual taxable income and ATI for each taxable year, future movements in SOFR and EURIBOR rates, the amount and timing of principal prepayments (including Excess Cash Flow sweeps), and the transition from EBITDA-based to EBIT-based ATI calculation for taxable years beginning after December 31, 2025.
We further note that the Credit Agreement's Minimum Interest Coverage Ratio covenant (requiring a ratio of Adjusted EBITDA to Cash Interest Expense of not less than 2.00:1.00) provides a structural floor that limits the extent to which interest expense can erode IHDC's earnings coverage. This covenant, while not directly relevant to the Section 163(j) calculation, provides the Lenders with comfort that IHDC's cash flow generation will remain sufficient to service its debt obligations, even if the full interest deduction is deferred under Section 163(j).
4.5.2 Section 163(l) — Disqualified Debt Instrument. Under Section 163(l) of the Code, no deduction is allowed for interest paid or accrued on a "disqualified debt instrument." A disqualified debt instrument is any indebtedness of a corporation that is payable in equity of the issuer or a related party. We have reviewed the terms of the Credit Agreement and the Promissory Notes and have determined that the Term Loan does not provide for payment of interest in the form of equity of the Borrower, the Parent Guarantor, or any related party, and is not payable in or convertible into equity of any such entity. Accordingly, the Term Loan should not constitute a disqualified debt instrument under Section 163(l), and Section 163(l) should not limit the deductibility of interest on the Term Loan.
4.5.3 AHYDO Rules (Section 163(e)(5)). Under Section 163(e)(5) of the Code, special rules apply to an "applicable high-yield discount obligation" ("AHYDO"), which is a debt instrument that (i) has a maturity of more than five years, (ii) has a yield to maturity that equals or exceeds the applicable federal rate ("AFR") plus five percentage points, and (iii) has "significant" OID (as defined in Section 163(e)(5)(C)).
We have examined the Term Loan under these criteria:
(a) Maturity. The Term Loan has a stated maturity of seven (7) years, which exceeds the five-year threshold.
(b) Yield to Maturity. The yield to maturity of the Term Loan must be compared to the AFR plus five percentage points. As of the Closing Date, the long-term AFR (for instruments with maturities in excess of nine years) published by the IRS for June 2024 is approximately 4.55% (annual compounding). The AFR plus five percentage points is approximately 9.55%. The yield to maturity of the USD Tranche (including SOFR at 5.33% plus the 425 bps margin plus OID accretion) is approximately 9.66%, which slightly exceeds the AFR + 5% threshold. However, for floating-rate instruments, the yield to maturity for AHYDO purposes is generally tested using a projected payment schedule based on the applicable rate as of the issue date, and fluctuations in SOFR may cause the yield to fall below or further exceed the threshold over the life of the instrument.
(c) Significant OID. Even if the yield-to-maturity test is satisfied, the AHYDO rules apply only if the instrument has "significant" OID. Under Section 163(e)(5)(C), OID is "significant" if, at the end of any accrual period ending after the date five years after the date of issue, the aggregate amount that would be includible in gross income with respect to such obligation under Section 1272 for all accrual periods ending after such date exceeds the "product amount" (generally, the product of the issue price and the aggregate amount of interest to be paid). Given that the OID on the Term Loan is only 50 basis points ($4,750,000), and the Term Loan requires quarterly cash interest payments at commercially reasonable rates, the OID does not reach the "significant" threshold because substantially all of the yield on the Term Loan consists of current-pay interest, not deferred OID.
Conclusion. Based on the foregoing, we are of the opinion that the AHYDO rules under Section 163(e)(5) should not apply to the Term Loan, principally because the OID on the Term Loan is not "significant" within the meaning of Section 163(e)(5)(C). Even if future fluctuations in SOFR were to cause the yield to maturity to exceed the AFR + 5% threshold, the de minimis level of OID should prevent the instrument from being classified as an AHYDO.
4.6 FATCA (Sections 1471–1474)
Under the Foreign Account Tax Compliance Act ("FATCA"), as codified in Sections 1471 through 1474 of the Code, payments of US-source interest to "foreign financial institutions" ("FFIs") and certain other foreign entities are subject to a 30% withholding tax unless the payee complies with certain reporting and withholding obligations with respect to US accounts. FATCA operates independently of, and in addition to, the withholding provisions of Sections 1441 and 1442 of the Code.
NordBrücke AG. Germany has entered into a Model 1 intergovernmental agreement ("IGA") with the United States (the "US-Germany IGA"), pursuant to which German financial institutions report information about US accounts to the German tax authorities (Bundeszentralamt für Steuern), which in turn exchange such information with the IRS. NordBrücke AG, as a BaFin-regulated credit institution, is expected to be classified as a "Reporting German Financial Institution" under the US-Germany IGA and is therefore deemed to be FATCA-compliant. Accordingly, no FATCA withholding should apply to interest payments made to NordBrücke AG, provided NordBrücke AG maintains its status as a Reporting German Financial Institution and complies with its reporting obligations under the US-Germany IGA and applicable German implementing legislation (Finanzkonten-Informationsaustauschgesetz, "FKAustG").
Osprey Insurance Capital, Ltd. Bermuda has entered into a Model 2 IGA with the United States (the "US-Bermuda IGA"), pursuant to which Bermudian financial institutions register directly with the IRS and comply with certain due diligence and reporting requirements. Osprey Insurance Capital, Ltd. should be registered with the IRS and should have obtained a Global Intermediary Identification Number ("GIIN"). Provided that Osprey complies with its FATCA obligations — including the maintenance of a valid GIIN, the performance of account-holder due diligence, and the filing of required information returns — no FATCA withholding should apply to interest payments made to Osprey.
Interaction with Credit Agreement Provisions. We note that the Credit Agreement contains tax gross-up and indemnity provisions (Section 2.17 thereof). However, the definition of "Indemnified Taxes" in the Credit Agreement expressly excludes FATCA withholding. That is, FATCA withholding is an "Excluded Tax" for purposes of the Credit Agreement, and the Borrower has no obligation to make additional payments (i.e., "gross-up" payments) to any Lender on account of FATCA withholding that arises from such Lender's failure to comply with FATCA. Each Lender bears the risk of its own FATCA compliance.
4.7 Characterization of Fees
The following sets forth our opinion regarding the US federal income tax treatment of the various fees payable under or in connection with the Credit Agreement:
(a) Arrangement Fee ($14,250,000 to Crescent Harbor Bank, N.A.). The arrangement fee paid to Crescent Harbor Bank, N.A. in its capacity as sole lead arranger and bookrunner constitutes a cost of obtaining the financing. For US federal income tax purposes, this fee is treated as a borrowing cost that is amortizable by the Borrower ratably over the seven-year term of the facility in accordance with Section 461 of the Code and applicable Treasury Regulations. The annual amortization deduction is approximately $2,035,714. For the recipient (Crescent Harbor Bank, N.A.), the arrangement fee constitutes ordinary fee income includible in gross income in the taxable year of receipt.
(b) Administrative Agent Fee ($175,000 per annum to Crescent Harbor Bank, N.A.). The annual administrative agent fee paid to Crescent Harbor Bank, N.A. for its services as Administrative Agent under the Credit Agreement is deductible by the Borrower as an ordinary and necessary business expense under Section 162(a) of the Code in the taxable year in which it is paid or accrued.
(c) Collateral Agent Fee ($200,000 per annum total to Pinnacle Trust Company, N.A.). The annual collateral agent fee — consisting of $125,000 for domestic collateral agent services and $75,000 for German security trustee services — paid to Pinnacle Trust Company, N.A. (or its German affiliate) is deductible by the Borrower as an ordinary and necessary business expense under Section 162(a) of the Code in the taxable year in which it is paid or accrued.
(d) Ticking Fee ($527,778). The ticking fee accrued during the pre-closing period (March 15, 2024 through June 3, 2024) at a rate of 0.25% per annum on the aggregate commitments of $950,000,000 is deductible by the Borrower as a borrowing cost in the taxable year of the closing (i.e., the taxable year that includes June 3, 2024). The ticking fee represents compensation paid to the Lenders for maintaining their commitments during the period between the signing of the Credit Agreement and the Closing Date and is properly characterized as a cost of obtaining the financing.
(e) Soft Call Premium (101% for 6 months post-closing, through December 3, 2024). The Credit Agreement provides that, during the six-month period following the Closing Date (i.e., through December 3, 2024), any voluntary prepayment of the Term Loan is subject to a call premium equal to 1% of the aggregate principal amount prepaid (the "Soft Call Premium"). If the Soft Call Premium is triggered, the 1% premium payable by the Borrower should be deductible as a penalty or premium paid in connection with the repayment of indebtedness, in accordance with Treasury Regulation § 1.163-7(c). For the receiving Lender(s), the Soft Call Premium should be includible in gross income as ordinary income in the taxable year of receipt. The Soft Call Premium does not, in our opinion, affect the characterization of the Term Loan as indebtedness, as prepayment premiums are a standard feature of leveraged credit facilities.
4.8 Change of Control Mandatory Prepayment
The Credit Agreement requires, upon the occurrence of a "Change of Control" (as defined therein), mandatory prepayment of the Term Loan at a price equal to 101% of the outstanding principal amount, plus accrued and unpaid interest to the date of prepayment. A Change of Control is defined to include, among other things, any event in which Thornfield Capital Partners, LP, or its affiliates (including Thornfield Infrastructure Fund III, LP) ceases to hold, directly or indirectly, more than 50% of the outstanding voting equity interests of Ironhaven Holdings Inc.
The 1% premium payable upon a Change of Control mandatory prepayment should be treated, for US federal income tax purposes, as a deductible expense of the Borrower and as ordinary income to the receiving Lenders. See Treasury Regulation § 1.163-7(c) (providing that a premium paid by the issuer upon the repurchase of a debt instrument is deductible as interest). For the Lenders, the premium constitutes additional compensation received in connection with the retirement of the debt instrument and is includible in gross income as ordinary income.
The Change of Control mandatory prepayment provision does not, in our opinion, affect the characterization of the Term Loan as indebtedness for US federal income tax purposes. Change of control provisions requiring mandatory prepayment at a modest premium are ubiquitous in leveraged credit facilities and do not create equity-like features. The 1% premium is a fixed amount that does not vary based on the Borrower's profitability, revenue, or asset appreciation and is properly viewed as compensation to the Lenders for the reinvestment risk and loss of contractual position arising from the accelerated repayment of the Term Loan. See Rev. Rul. 89-122, 1989-2 C.B. 200 (make-whole premiums and similar provisions do not convert debt into equity).
V. Qualifications
The opinions expressed in this letter are subject to the following qualifications:
1. The opinions expressed herein are based solely on existing US federal income tax law as of the date hereof, including the Code, the Treasury Regulations (including final, temporary, and proposed regulations), published rulings and procedures of the IRS, and judicial decisions of the United States federal courts. Tax law is subject to change, whether by legislative action, regulatory promulgation, or judicial decision, and any such change — whether prospective or retroactive in effect — could alter the conclusions expressed herein. We express no opinion as to the effect of any such change.
2. No ruling has been requested from, or issued by, the IRS with respect to any of the matters addressed in this opinion. There can be no assurance that the IRS will not challenge any of the positions taken herein or that, if challenged, such positions will be sustained by a court of competent jurisdiction. The opinions expressed herein represent our best professional judgment as to the most likely outcome under current law, but they are not guarantees of any particular tax result.
3. The treaty benefit conclusions expressed in Section 4.4.2 with respect to NordBrücke AG are subject to (a) the continued satisfaction by NordBrücke AG of the Limitation on Benefits provision of Article 28 of the US-Germany Treaty, (b) the maintenance of a valid and current IRS Form W-8BEN-E by NordBrücke AG, and (c) the continued absence of a permanent establishment of NordBrücke AG in the United States to which the interest income is attributable. Any change in these facts could alter the conclusions expressed herein.
4. The portfolio interest exemption conclusions expressed in Section 4.4.3 with respect to Osprey Insurance Capital, Ltd. are subject to the continued satisfaction of the statutory requirements of Sections 871(h) and 881(c) of the Code, including the maintenance of a valid IRS Form W-8BEN-E and the continued inapplicability of the exclusions set forth in Section 881(c)(3). Any change in Osprey's ownership structure, bank status, CFC status, or relationship to the Borrower could affect the availability of the portfolio interest exemption.
5. The Section 163(j) analysis set forth in Section 4.5.1 is based on current-year estimates derived from IHDC's LTM Adjusted EBITDA and current reference rates. Actual limitations on the deductibility of business interest expense will depend on IHDC's taxable income and adjusted taxable income for each future taxable year, which in turn will be affected by, among other things, revenue growth, operating expenses, depreciation and amortization (particularly after the transition to EBIT-based ATI computation for taxable years beginning after December 31, 2025), capital expenditures, prepayments of the Term Loan, and changes in SOFR and EURIBOR rates.
6. No opinion is expressed as to the US federal income tax consequences of any amendment, waiver, modification, extension, restructuring, or refinancing of the Term Loan, the Credit Agreement, or any related document after the date hereof. Any such change could affect the characterization of the Term Loan as indebtedness, the treatment of OID, the deductibility of interest, the availability of treaty benefits or the portfolio interest exemption, or any other matter addressed in this opinion.
7. This opinion does not address any tax consequences arising under the laws of any state, local, or foreign jurisdiction, except to the extent expressly referenced herein. In particular, this opinion does not address any tax consequences arising under the laws of the State of Delaware, the Commonwea