April 13, 2021 by MMinspect
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. LONDON and PHILADELPHIA, 22.08.2019 /PRNewswire/ — Clarivate Analytics plc (NYSE: CCC; CCC.WS), a world leader in trusted knowledge and analysis to accelerate the pace of innovation, announced today that it has entered into an agreement (the Release Agreement) to pay $200 million to terminate the tax receivable agreement (TRA) with the company`s shareholders on May 10, 2019, including Clarivate`s first listing to NYSE, including Onex and BPEA. As of June 30, 2019, Clarivate had a TRA liability of $264.6 million. “We are pleased to have entered into an agreement to honour our TRA commitments, which will allow us to make full use of the tax base reached at the time of Clarivate`s initial carve-out and create incremental cash flow and shareholder value,” said Jerre Steaderre, Executive Chairman and CEO of Clarivate Analytics. “Since I joined Clarivate in May, we have fought hard for the rationalization and concentration of our business.
Billing TRA under acceptable conditions eliminates the complexity of reporting and simplifies our structure while improving our ability to create shareholder value. The end of the TRA is conditional on financing on or before December 31, 2019, which Clarivate is considering for debt financing. The S-1, which was filed before the IPO, imposes many advertising obligations. Forma instructions are needed to identify the impact of the transaction as if this structure were present in the S-1 since the beginning of the reference period.
