The possibility of sweeping changes to the tax code was a major driver of economic optimism in 2017. But the final Tax Cuts and Jobs Act may not improve things much for credit investors
After a frantic end-of-year rush by congressional Republicans, the US has passed the single biggest overhaul of its tax code in more than 30 years – handing a big win to Donald Trump.
Readers will no doubt be aware of the headline-grabbing reduction in the corporate tax rate – which fell from 35% to 21%– while most households will also pay less tax, as personal tax rates were cut across the board.
The possibility of tax reform – particularly on the corporate side – was a major driver of economic optimism in 2017, contributing to the so-called “Trump Bump” that drove the S&P 500 and Dow Jones Industrial Average to all-time highs…
…Alt Credit Intelligence spoke to market participants to explore how the bill could change the way direct lenders and loan investors do business in 2018…
Loans at a crossroads
Compounding matters for investors is the fact that the loans are currently being issued at all-time tight spreads, following last year’s repricing wave and a surge of Asian investment in CLOs, driving up competition for loans.
“Loan pricing is very tight at the moment, and several new issue deals are coming to market that probably shouldn’t get done at the price levels at which they will be marketed. But, there is demand, and everything is relative,” says Hunter Covitz, CLO portfolio manager at Highland Capital Management in Dallas…
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