CLIENT ALERT: Guaranties and Pledges by Foreign Subsidiaries: The Weakening of Section 956
March 25, 2019 – As a general rule, lenders are aggressive in searching through a debtor’s assets to find credit support for their loans. However, there is a long standing carve out for credit support from foreign subsidiaries with respect to U.S. loans. The carve out is based on Section 956 of the Internal Revenue Code and regulations thereunder. The most recent tax reform act has weakened this rule and the attached Client Alert details the increased ability of Lenders to rely upon foreign subsidiaries of a U.S. borrower for credit support.