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Legislative bills

The One Big Beautiful Bill Act: Implications for CLOs and Credit Products

Strategic Insights

— 1 min read

The One Big Beautiful Bill Act, a budget reconciliation bill, passed the United States House of Representatives vote on May 22, 2025, and is currently under Senate consideration. If enacted, the bill would make sweeping changes to the tax law, including the addition of a new section 899 to the Internal Revenue Code. Section 899 would increase the U.S. tax rates applicable to any foreign country deemed to have unfair or discriminatory tax regimes. The provision could have a material impact on CLOs and other credit products, including middle market loan CLOs and asset-based lending facilities. The bill's passage has raised concerns among lenders, borrowers, and investors, as it may result in tax redemptions or replacement of lenders, or tax indemnifications and gross-ups.

Key Takeaways:

  • Section 899 would increase the U.S. tax rates for persons resident in foreign countries with tax regimes deemed unfair or discriminatory, including many EU countries.
  • The provision would apply to "passive" and "active" income, increasing the applicable tax rate by 5% increments for each year the unfair foreign tax continues to be imposed, subject to a cap equal to a 20% increase from the statutory rate.
  • CLOs and credit agreements may be affected by the new provision, potentially resulting in tax redemptions, replacement of lenders, or tax indemnifications and gross-ups.
  • The bill's passage has raised concerns about the impact on middle market loan CLOs and asset-based lending facilities.
  • Clarifications on interpretive uncertainty regarding the application of Section 899 to credit agreements entered into after the enactment of the bill may be necessary.

Statistics:

  • 30%: the flat rate of U.S. withholding tax on gross basis for "passive" income.
  • 5%: the increment increase in applied tax rate for each year the unfair foreign tax continues to be imposed under Section 899.
  • 20%: the cap on the increase from the statutory rate for Section 899.
  • 50%: the maximum U.S. tax rate that could apply to interest income from discriminatory foreign countries under Section 899, unless the foreign country repeals the unfair foreign tax.
  • 212-698-3500: the phone number of Dechert, the law firm providing this article.

Sources:

  • "The One Big Beautiful Bill Act." Overview and Uncertainty. Mondaq, 2025, http://www.mondaq.com.
  • "CLOs and Credit Products." Implications for Section 899, Mondaq, 2025, http://www.mondaq.com.
  • Dechert, Craig Cohen. "The One Big Beautiful Bill Act: Implications for CLOs and Credit Products." Mondaq, 2025, http://www.mondaq.com.

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