The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (82793)	6/19/2007 9:24:12 AM
From: Perspective	Read Replies (1) of 110194

Re LBOs & debt: I read yesterday that one of the reasons LBOs are going through in such high numbers is as a tax dodge. The corporation pays corporate income taxes, and if you lever up and pay everything out in cash flow, viola, no more income to tax. Basically transfers the flow that went to taxes over to bondholders instead. Now, my immediate response was that it should be a NEGATIVE from a tax efficiency standpoint, since it shifts flow from buybacks to bond income. That means a shift from creating tax-deferred capital gains that get favorable tax treatment, over to ordinary income from bonds. I don't see how this works out to increase the enterprise value in any way, but then again I'm not one of the con-men running OPM on Wall Street, so perhaps I'm missing something. Anybody see what I'm missing here? BC

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