Allen Robertson Comments on Tax-Exempt Interest Rate Changes

Allen Robertson was quoted in an article in The Bond Buyer about the potential increases in tax-exempt bank loan interest rates that could come as a result of congressional changes to the maximum corporate income tax rate. Robertson weighed in on gross-up provisions included in many loan documents that would increase the interest rate if the corporate income tax rate goes down.

“’Where the tax gross-up provision is mandatory, I do not expect the banks to waive it, because that would adversely affect the banks’ profitability,’ said Allen Robertson, an attorney at Robinson Bradshaw in Charlotte. ‘Moreover, waiving it may result in a reissuance of the bonds, which is a deemed current refunding. While this could be workable for governmental bonds, in the case of private activity bonds, if the authority to issue them is repealed [by the final tax bill] a reissuance would result in the bonds being taxable and bearing interest at a fully taxable rate. This would be a worse result than the grossed-up tax-exempt rate.’”

To read “Spike in issuer bank loan rates feared as drop in corporate tax rate looms,” please visit The Bond Buyer.