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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.

Go deeper

Updated 2 mins ago - World

In photos: Pope Francis spreads message of peace on first trip to Iraq

Iraqis dressed in traditional outfits greet Pope Francis upon his arrival at Erbil airport, in the capital of the northern Iraqi Kurdish autonomous region, on March 7. Photo: Safin Hamed/AFP via Getty Images

Pope Francis on Sunday on the third day of his historic trip to Iraq was visiting northern areas once held by Islamic State militants.

Why it matters: This is the first-ever papal trip to Iraq.

Cuomo faces fresh misconduct allegations from former aides

New York Gov. Andrew Cuomo during a February press conference in New York City. Photo: Seth Wenig/Pool/AFP via Getty Images

The office of New York Gov. Andrew Cuomo (D) was on Saturday facing fresh accusations of misconduct against his staff, including further allegations of inappropriate behavior against two more women. His office denies the claims.

Driving the news: The Washington Post reported Cuomo allegedly embraced an aide when he led the U.S. Department of Housing and Urban Development and that two male staffers who worked for him in the governor's office accused him of routinely berating them "with explicit language."

In photos: Protesters rally for George Floyd ahead of Derek Chauvin's trial

Chaz Neal, a Redwing community activist, outside the Minnesota Governor's residence during a protest in support of George Floyd in St.Paul, Minnesota, on March 6. Photo: Kerem Yucel/AFP via Getty Images

Dozens of protesters were rallying outside the Minnesota governor's mansion in St Paul Saturday, urging justice for George Floyd ahead of former Minneapolis police officer Derek Chauvin's trial over the 46-year-old's death.

The big picture: Chauvin faces charges for second-degree murder and manslaughter over Floyd's death last May, which ignited massive nationwide and global protests against racism and for police reform. His trial is due to start this Monday, with jury selection procedures.

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