The Tax Debt Agreement (TRA) is a contract between former shareholders who sold their partners and the new public company C Corp, which acquired the shares in order to share the value of the tax benefits resulting from the gradual implementation of the sale of the shares. Typically, senior partners receive 85% of the tax savings from the sale and C Corp retains 15% of the value. A TRA liability is covered by C Corp for the 85% tax savings to be paid to former partners. The passage of tax reform last December gave investors greater security when it comes to corporate tax rates in the near future. One consequence is the increased interest of some investors in acquiring payment rights under existing tax receivable agreements (TRAs). In short, ACCORDS are agreements made by a company (a “pubco”) as part of an IPO to monetize Pubco`s tax attributes after the IPO for the benefit of owners prior to the IPO and investors who acquire payment rights under TRAs to such pre-IPO owners. Our previous article on ARTs focused on some ways in which tax reform could affect the value of TRA payment rights. Since the introduction of tax reform, we have seen a marked increase in investor interest in the acquisition of TRA payment rights, including through hedge funds, family offices and private trust funds. This article describes some of the functions of an AED that an investor should analyze before acquiring rights under an AER. This publication contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control.
These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the amended Securities Exchange Act of 1934 (the “Exchange Act”) can be identified by the use of forward-looking terminology, including “may,” “should,” “probably,” “believe,” “believe,” “wait,” “anticipate,” “estimate,” “continue,” “plan,” “plan,” “project” or similar words. Forward-looking statements appear in this press release and contain statements about the TRA and the publication agreement. Forward-looking statements contained in this press release are subject to risks and uncertainties. In our most recent Management Report on Form 10-K for the year ended December 31, 2018, our quarterly reports on Form 10-Q and other public notifications and press releases are not limited to “risk factors” in our quarterly reports. Precautions regarding Forward-Looking Statements For more information on investments in ARTs, please contact one of the following members of the Ropes-Gray team: We use our website as a means of disclosing non-public information and fulfilling our disclosure obligations in accordance with FD Regulations.
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