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Abstract
White & Case lawyers explain everything you need to know about reviewing a tax structure memo in a leveraged acquisition - for both sponsors and lenders In an era where documentary terms and security and guarantee packages in leveraged finance deals are under increasing pressure, it is important for both sponsors and lenders to focus on the robustness of the acquisition structure, as well as the quality and clarity of advice, contained in the tax structure memorandum (or structure memo). The structure memo should include (but is not necessarily limited to) details on: the sources of debt and equity financing for the transaction and the proposed uses of such financing (often referred to as the sources and uses table); the group's ability to service and repay the debt to be incurred; any applicable tax on dividends or withholding tax payable on recurring payments relating to external third party or intragroup debt; and the extent to which the group can deduct interest from its operating profits to maximise tax efficiencies. Withholding tax may be payable on dividends or other distribution payments made by group companies, loan and interest payments to significant internal lenders (e.g. key intragroup loans, such as a loan which will be used to service the acquisition debt) and interest payments to third-party lenders. Using external debt to refinance debt directly at the operating company level; Using external debt to be on-lent to the operating companies (which can often strengthen the effectiveness guarantees and security granted by the target group); Bidco merging with one or more of the targets; Providing a daylight facility after the acquisition to fund a target operating company making a dividend to repay some of the acquisition debt; Novating the debt from the bidco to the operating companies (note that novation can give rise to de-grouping liabilities).