Introduced on November 9, 2017, the Senate Tax Bill would maintain private activity bonds ("PABs"). With this positive development, advocates will press Senate committee members to reverse their decision to terminate advanced refundings as of December 31, 2017. Advanced refundings represent almost 27% of the bond market according to Thompson Reuters. The end of advanced refundings would have a major impact on issuers and the market. Advanced refundings provide flexibility to issuers, and their termination would prevent issuers from taking advantage of declining interest rate environments prior to the initial call dates on outstanding bonds. The Senate Finance Committee will take up deliberations this week shaping the final draft legislation through their debate. Meanwhile, the House Ways and Means Committee advanced to the full House its version of the Tax Cuts and Jobs Act and is currently expected to vote on it on Thursday, November 16. After both houses of Congress work through their versions of tax reform, all differences must then be reconciled in conference committee.

In addition to the legislation's potential effect on private activity bonds and advance refundings, it is important to note that a reduction in the corporate income tax rate may trigger an increase in the interest rate applicable to certain existing tax-exempt bond issues. Bondholders and borrowers alike should review their existing indentures or financing agreements to determine what impact a change in the corporate tax rate may have on the interest rate applicable to their bonds and contact bond counsel for advice relating thereto.

Please refer to both of our prior alerts on tax reform as currently proposed and how one might prepare for the possible elimination of private activity bonds, advanced refundings, and a reduction in the corporate income tax rate.

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