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Tax Considerations for Financing and Refinancing Transactions in Turbulent Times  

Author:  Jiyeon Lee-Lim.; Joseph M. Kronsnoble.; Cheryl M. Coe.; Jocelyn F. Noll.

Source: Volume 37, Number 04, Summer 2020 , pp.3-21(19)

Journal of Taxation of Investments

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Cash management, preservation of liquidity, and execution of committed financings are of paramount importance during periods of market uncertainty, but volatile market conditions also present a unique opportunity for borrowers or private equity funds with available cash to purchase debt at a discount. This article discusses key U.S. federal income tax considerations that arise in connection with the modification, purchase, and repurchase of debt, and offers practical takeaways.

Keywords: cancellation of indebtedness income (CODI), debt modification, deemed reissuance, original issue discount (OID), applicable high-yield discount obligation (AHYDO), controlled foreign corporation debt, fund guarantees, debt repurchase, CARES Act, tax

Affiliations:  1: Latham & Watkins LLP; 2: Latham & Watkins LLP; 3: Latham & Watkins LLP; 4: Latham & Watkins LLP.

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