Tax reforms could wipe out HY and LBO markets

Author: John Crabb | Published: 14 Sep 2017

House Republicans have discussed eliminating the interest deduction provisions on corporate debt that allows companies to reduce the amount of taxable income. If the provision was removed, it would be those who have based their capital structures on the fact that interest is tax deductible - the high yield (HY) and leveraged buy-out markets (LBO) – that would be hit the hardest.

"It is one of the big real issues that hasn't got much attention, and arguably it should," said a director in the debt capital markets (DCM) team at a major international bank. "If it actually took place, it would really devastate the LBO market, because they are largely funded by debt which is tax deductible."

The market has taken the proposal seriously, according to Jared Rusman, partner at Kirkland & Ellis.

"When the proposals came out, people who borrowed a lot, private equity sponsors in particular, were quite concerned,"...