Client Alert
In these uncertain times, parties to bond documents (including documents such as continuing covenant agreements) may wish to waive, modify or renegotiate certain provisions, including the forbearance and deferral of debt service, the waiver of provisions or the exercise of certain options.

Although not all modifications create a tax concern, issuers and borrowers should be aware that certain modifications to bond documents could cause a reissuance of the bond for federal income tax purposes. Such a reissuance, if it occurs, would cause the modified bond to be treated as a newly reissued bond that currently refunds the unmodified bond. The newly reissued bond would need to qualify for tax-exemption.

Issuers and borrowers should timely consult bond counsel when considering such modifications to determine whether a bond will be reissued for federal income tax purposes. If the bond is considered to be reissued, bond counsel can assist the issuer and the borrower in preserving the tax-exempt status of the reissued bond and determining whether any gain or loss is recognized by the investor on the deemed exchange arising from the reissuance. Issuers and borrowers should also have counsel review modifications to the bond documents to determine whether the modifications involve other legal or regulatory issues.

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