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April 13, 2020
COVID-19: Protecting Net Operating Losses in an Uncertain World

On April 10, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Protecting NOLS in an Uncertain World,” which examines how a company’s use of Net Operating Losses (“NOLs”) to offset future income and tax liabilities could be affected by COVID‑19’s impact on the market. NOLs are limited if a company undergoes a greater than 50% “ownership change,” and the limitation is calculated based on applicable interest rates and the equity value of the company at the time of the ownership change, which means that a limitation could be severe under current conditions due to low interest rates and steep declines in many companies’ stock prices. The resource discusses two available strategies to preserve company value by avoiding limitations on NOL usage: an “NOL pill,” which deters acquisitions of stock above a specific threshold, and a “charter restriction,” which prevents acquisitions and dispositions of stock that could trigger an ownership change.

Please click here to read the resource.