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.