Tax Receivable Agreement Obligation
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. Each individual tra investment should be considered taking into account the specific provisions of the TRA and the facts applicable to the pubco concerned. These concrete facts may raise specific questions of diligence. However, there are a number of issues to consider for most TRA payment rights purchases, including: For more information on investments in ARTs, please contact one of the following members of the Ropes-Gray team.