Use of blocker subsidiaries to blunt tax impact increases in CLOs

Tax FIG Adobe 230x150
By Paola Aurisicchio
24 Sep 2020

Market stress and a jump in loan defaults as a result of the pandemic is causing a resurgence of a deal feature meant to protect CLO vehicles from shouldering an additional tax burden during the workout process of a soured loan.

More CLO managers are setting up US "blocker" subsidiaries that effectively protect against potential adverse taxation when managers take on new securities resulting from a loan workout.

"Tax blockers” have been a regular part of CLO documents since 2009. Following the Covid crisis, the creation of new ...

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