IRS Issues Regulations That May Affect Borrowing Costs And Financing Terms Of US Multinationals

Recently proposed IRS regulations materially change the way stock and assets of foreign corporations that are "controlled foreign corporations" (CFCs) can be used to support debt of U.S. affiliates. In the commercial lending market, this has the potential to impact long-standing approaches to obtaining guarantees and collateral from CFCs.  In some cases, this may lower a company's cost of borrowing or provide additional collateral support, particularly in asset-backed/borrowing base loan structures.

Lenders have generally accepted that to minimize adverse tax consequences for U.S. borrowers, they would often avoid requiring direct guaranties or collateral from foreign affiliates of U.S. borrowers. Instead, lenders have often required a pledge of up to 65 percent of the capital stock of CFCs to secure loans.