Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
Private equity executives are largely pleased with the tax bill, but there are growing grumbles about how the change to interest deductibility isn't grandfathered in for existing loans.
- Primer: Under current tax law, corporations can deduct 100% of interest on their debt. The new bill limits that deduction, and further strengthens the limit after four years.
Bottom line: This could be a particularly acute problem for highly-leveraged companies that are either unprofitable or barely profitable. In those cases, private equity sponsors may have to choose between pumping in new cash and crossing their fingers.
Additional notes:
- Going forward, expect leverage levels to decrease. Per one buyout big: "We use leverage as a tax shield, which is about to become much less relevant."
- There is likely to be a decline in dividend recaps, at least in the short-term.
- To be clear, private equity firms are still cheering these changes (at least from a portfolio perspective).
- The longer-term hold period to qualify for carried interest is unlikely to prevent firms from selling before three years, in the rare cases when applicable. Just expect the funds to essentially defer the carry.
- Go deeper: What you'll see under the new tax code.