Proposed Changes
Any tax-law overhaul could make a big difference in how companies choose to finance their businesses. House Republicans last year proposed eliminating companies’ ability to deduct interest payments, which would make it more expensive for companies to borrow. That change was meant to help pay for the lower federal revenue that would result from their plan to reduce corporate tax rates to 20 percent from the current 35 percent.
President Donald Trump has called for corporate tax rates to be cut to 15 percent, and to allow companies to elect to stop deducting their interest payments.
“While there is considerable uncertainty around the final shape of tax reform, there are a number of tactical actions that companies should evaluate,” Citigroup’s Khorana said. “Of particular focus are transactions that can bring tax-deductible expenses forward to benefit from the current higher corporate tax rate.”
‘Big Cut’
The timing of potential changes to the tax code also remains unclear. Trump said this week that his administration wants a “very big tax cut,” but must first repeal and replace the Affordable Care Act, a message Republican leaders have echoed. The Citi strategists said changes may come in late 2017 or early 2018 at the earliest.
Richard Farley, chairman of the leveraged finance group at law firm Kramer Levin Naftalis & Frankel LLP, said he’s advising clients with current refinancing needs to take advantage of the strong market, but doesn’t think others need to accelerate their plans.
“It’s a hot market and you can push out some maturities so that if anything happens on the tax side you’re fine,” Farley said.
This article was provided by Bloomberg News.