International Tax

Collateralized Loan Obligations (Portfolio 6585)

  • This Portfolio describes the taxation of collateralized loan obligation issuers (CLOs) and their investors.

Description

The Bloomberg Tax Management Portfolio, Collateralized Loan Obligations, No. 6585, describes the taxation of collateralized loan obligation issuers (CLOs) and their investors. This Portfolio is intended to be a comprehensive reference guide for a tax advisor representing an underwriter, a collateral manager, or a prospective investor in a CLO notes issuance. We begin with a broad overview of how CLOs work, how they are structured, and the transaction documents that are relevant to a tax advisor. We then discuss in detail the different ways that CLOs can be structured for tax purposes, the tax characterization (as debt or equity) of the different classes of notes issued by a CLO, the tax consequences to investors of investing in CLO notes (which differ depending on how the CLO is structured), the tax guidelines that many CLOs follow to avoid being engaged in a U.S. trade or business for U.S. tax purposes, the consequences to a CLO of being engaged in a U.S. trade or business, how CLOs avoid U.S. withholding tax, and various other considerations relevant to CLOs, collateral managers, and investors.

Table of Contents

I. Introduction
II. Treatment of Secured Noteholders
III. Treatment of Subordinated Notes as Equity
IV. Treatment of Subordinated Noteholders in a Corporate CLO
V. Treatment of Subordinated Noteholders in a Partnership CLO
VI. Partnership CLOs with Income Note Issuers
VII. Disregarded Entity CLOs
VIII. Reporting Requirements for U.S. Noteholders
IX. Consequences If Secured Notes Are Treated as Equity
X. Trade or Business Considerations
XI. Withholding Tax on Collateral Obligations and Eligible Investments
XII. Section 457A and the Incentive Management Fee
XIII. Special Transactions and Features

schwartz-jason-2015
Jason Schwartz
Partner
Cadwalader, Wickersham & Taft LLP
miller-david-2015
David Miller
Partner
Proskauer Rose LLP
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