Contingent Payment Debt Instrument. In addition to the general discussion of the OID rules set forth above, as well as the rules regarding the sale, redemption, or repurchase of consideration received in exchange for the Allowed Second Lien Notes claims, it is possible that the New Second Lien PIK Notes will constitute “contingent payment debt instruments” (“CPDI”) subject to the “noncontingent bond method” for accruing OID. In the event the New Second Lien PIK Notes constitute CPDIs, the following rules would apply. Assuming the CPDI rules apply, under the noncontingent bond method, each U.S. Holder should be required to take into account interest based on the “comparable yield” of any debt instrument determined to be a CPDI, which generally is the rate at which the Debtors could issue a fixed rate debt instrument with terms and conditions similar to the applicable debt. U.S. Holders should accrue interest based on the comparable yield on a constant yield to maturity basis. U.S. Holders should not be required to separately include in income any additional amount for the interest payments actually received, except to the extent of positive or negative adjustments, as discussed below. If during any taxable year, the actual payments with respect to any CPDIs exceed the projected payments for that taxable year, the U.S. Holders should incur a “net positive adjustment” under the contingent debt regulations equal to the amount of such excess. U.S. Holders should treat a net positive adjustment as additional interest income in that taxable year. If, during any taxable year, the actual payments with respect to any CPDIs are less than the amount of projected payment for that taxable year, U.S. Holders may incur a “net negative adjustment” under the contingent debt regulations equal to the amount of such deficit. This net negative adjustment should (a) reduce a U.S. Holder’s interest income on the New Second Lien PIK Notes for that taxable year, and (b) to the extent of any excess after application of (a), give rise to an ordinary loss to the extent of such U.S. Holder’s interest income on the CPDIs during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments. Any net negative adjustment in excess of the amounts described in (a) and (b) should be carried forward as a negative adjustment to offset future interest income with respect to the New Second Lien PIK Notes or to reduce the amount realized on a sale, exchange or repurchase of the CPDIs. As a resu...
Contingent Payment Debt Instrument. THE MAIN BORROWER HAS DETERMINED THAT THE TERM LOANS ARE A “CONTINGENT PAYMENT DEBT INSTRUMENT” FOR PURPOSES OF SECTION 1271 – 1275 OF THE CODE. THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE, YIELD TO MATURITY, COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE OF THE TERM LOANS MAY BE OBTAINED BY WRITING TO THE MAIN BORROWER AT ITS ADDRESS SPECIFIED HEREIN.
