Non-Fungible Fungibilities: Maximizing Liquidity of Loans Through Tax Fungibility

In order to maximize the ability to sell (that is, to maximize the liquidity of), and to reduce the all-in effective yield at issuance for, add-on or incremental syndicated bank loans, the add-on or incremental loans should be “tax fungible” with the original loans.

For agents and lenders, lack of “tax fungibility” may result in different trading prices (and potential losses on the sale of a less liquid debt tranche) of loans that otherwise have the same terms, as well as the following increased risks:

• lack of liquidity may constrain an exit from troubled credits due to thin trading conditions; ...