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Impact of Tax Reform on Commercial Loan Documents: Adjustments to Financial and Other Covenants

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Thursday, July 18, 2019

Recorded event now available

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This CLE course will examine the impact of tax reform on financial and other covenants in commercial loan documents. The Mayer Brown panel will discuss document revisions a borrower might request to address lower corporate tax rates and other tax law changes, and the lender's perspective on those revisions.


Tax reform has varying effects on commercial borrowers. The lower corporate tax rate will improve the after-tax return of many businesses, but they will likely also see a reduction in deductible items, including interest. Business interest deductions are capped at 30% of “adjusted taxable income,” which is based on EBITDA from 2018 to 2021 and on EBIT after that. The new pass-through business deduction will benefit certain partnerships, but may impact the calculation of tax distributions for pass-through entities.

Tax reform also fundamentally altered the U.S. international tax regime for U.S. taxpayers. The repatriation of cash currently held abroad will increase the domestic cash flow of many companies. Importantly, recent regulations under Section 956 would substantially eliminate the impact of Section 956 on financings to corporate borrowers, which traditionally has limited the ability of foreign subsidiaries of U.S. borrowers to guarantee, or pledge assets to secure, those borrowers’ loans.

Commercial finance counsel must review and revise documents to address these changes. The parties may desire specific "fixes" for these and other issues relating to tax reform, including provisions relating to the pledge of stock in and assets of foreign subsidiaries. Carefully structured financial and other covenants will provide lenders with their intended protection and remedies and borrowers with continued flexibility to operate their businesses.

Listen as our authoritative Mayer Brown panel discusses the impact of tax reform on commercial loan documents and how financial and other covenants might be revised to the satisfaction of borrowers and lenders.



  1. Introduction. The Tax Cuts and Jobs Act (“TCJA”).
  2. Changes to tax rates under the TCJA. Impact on “permitted tax distributions” provisions in loans to “pass-through” borrowers.
  3. Pledges and guarantees by foreign subsidiaries.
    1. The pre-TCJA taxation of offshore earnings and Section 956.
      1. Market practice.
      2. The multiple inclusion issue.
    2. Taxation of offshore earnings under the TCJA.
    3. The May 2019 Section 956 regulations:
      1. Expected impact on market practice.
      2. Non-tax costs of guarantees/pledges by foreign subsidiaries.
      3. Scenarios where Section 956 is still relevant.
  4. The new 30% of EBITDA/EBIT limitation on interest deductions. Impact on borrowers’ decisions.


The panel will review these and other crucial issues:

  • How might the new tax rates affect the calculation of a borrower's EBITDA and how might that change various financial covenants?
  • What kind of revisions to financial covenants should a borrower request to mitigate the effects of tax reform? How should a lender respond?
  • How should finance documents be revised to address new rules regarding repatriation of foreign earnings?


Chubb, Christopher
Christopher M. Chubb

Mayer Brown

Mr. Chubb is a Banking & Finance partner in Mayer Brown’s Chicago office. Chris focuses his practice on the...  |  Read More

Fisher, Frederick
Frederick C. Fisher

Mayer Brown

Mr. Fisher is a partner in Mayer Brown's Chicago office and is co-leader of the global Lending group. He focuses...  |  Read More

Giardelli, Lucas
Lucas Giardelli

Mayer Brown

Mr. Giardelli's practice is focused on international tax planning (including controlled foreign...  |  Read More

Wolk, Adam
Adam C. Wolk

Mayer Brown

Mr. Wolk is a partner in the New York office of Mayer Brown's Banking & Finance practice who focuses on...  |  Read More

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