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Abstract: 

Debt re-pricings recently have become more prevalent. Amendments to the terms of existing debt instruments, including in particular through a re-pricing, can have tax consequences that are an important consideration for a consenting investor. This article first addresses the historical development of the tests for determining whether an alteration to the terms of an existing debt instrument results in a taxable event, i.e., a deemed exchange, for U.S. federal income tax purposes. It then considers collateral tax considerations that can impact both an issuer’s and an investor’s desire to participate in such an alteration.

Keywords: modification; taxable event; deemed exchange; re-pricing; original issue discount

Affiliations:  1: Milbank, Tweed, Hadley and McCloy LLP.