(Yet another effort to try to redistribute your hard earned tax dollars to bailout bad speculative bets made by rich folks. What's next? - sloganeering that what is good for Blackstone is good for America? Cognitive helplessness leads to learned dissidence... where is the outrage? - AM)
By JESSICA HOLZER, DAMIAN PALETTA and JESSE DRUCKER
Wall Street Journal
January 10, 2009
An industry coalition is lobbying for a tax break that would allow companies to renegotiate troubled debt without incurring corporate income taxes, a potential windfall for many companies, including private-equity firms.
Under current law, any debt forgiven becomes taxable income. For example, if a company issues $1 billion in debt, but later runs into trouble and exchanges it for new debt worth $600 million, the remaining $400 million counts as taxable income.
Under Sen. Ensign's proposal, a company that buys back publicly traded debt at that discount would keep the remaining $400 million but owe no tax.
Private-equity firms have a particular interest in carving out this exception, because of the enormous debt accumulated in the just-ended leveraged-buyout wave. Many of the companies the buyout firms control are running into trouble, and some have been renegotiating their debt.
The bill includes a provision that extends the tax break to parties related to the original issuer of the debt. That is important to buyout firms, which could get a tax break by buying deeply discounted debt issued by troubled companies they control.