Attestation of interest rates
Aurys regularly intervenes with market participants to assess the tax deductible market interest rate, in particular in the context of LBO (Leveraged Buy Out) or refinancing operations, whether at the level of the holding company or the various subsidiaries.
This assessment is crucial to ensure compliance with tax and financial standards and to optimise the financial structure of companies involved in these strategic transactions.
Our analyses are based on several robust methodological approaches:
The approach used by rating agencies such as Moody’s and S&P is fundamental to determining a debt’s rating, assessing its associated risk and estimating its return. This method involves assessing the probability of default of a debt based on its intrinsic characteristics and market conditions.
The peer to peer approach is also a pillar of our methodology. We establish a panel of comparable debts taking into account their characteristics similar to those of the debt analysed. This comparison allows to establish benchmarks relevant for the analysis.
We also use the Weighted Average Cost of Capital (WACC) approach to determine the rate applicable to debts. This method incorporates the company’s financing costs and allows you to evaluate the cost of the funds used to finance operations.
Our advisors:
The expert commissioned
The expert commissioned by the issuing company will have to produce a report detailing his conclusions on the rate applicable to the bonds issued by the company.
The expert’s approach must include a comparative approach and a mathematical approach.
The comparative approach is based on the identification and analysis of a panel of debt instruments comparable to bonds issued in terms of rating and maturity. The analysis of this panel will enable the expert to determine a range of rates considered to be ‘market’.
The mathematical approach is based on an analysis of the financing structure of the issuing company and the debt subordination structure. The analysis of this data will enable the expert to determine the default risk of the bonds issued and then to determine the range of rates applicable to
the bonds.
The use of an independent expert is necessary because:
The deductibility of interest on bonds is possible when the interest rate attached to the bonds is a so called “market” rate and this rate represents an economic reality.
When such instruments are introduced by a majority shareholder, the tax authorities may consider that the interest rate attached to the bond debt may not be market based and may call into question the deductibility of interest by applying the statutory int erest rate. The Decree of 26 December 2021 fixed the statutory interest rates applicable for the first half of 2022. This rate is 0.76% for professionals.
The issuing company must therefore ensure that the rate applied to the bonds issued can indeed be qualified as a “market” by having recourse to an expert.