ESOP Refinancing

[Guest efrueh]

We have a large corporate client who is considering an ESOP refinancing. In light of the no-ruling stance taken by the IRS on ESOP refinancings and the lack of guidance from both the IRS and the DOL, what are other companies doing in terms of handling such refinancings? Specifically, are companies offering a benefit in exchange for the "right" that is given up in the refinancing (the right to the contributions to repay the loan under its old terms)? If so, how is this benefit determined? For example, are companies determining the benefit by calculating the present value of the difference in dividend payments that would result from the share allocations under the terms of the old loan versus the share allocations under the terms of the refinanced loan? Additionally, are there other constraints companies have faced in structuring recent refinancings? Are any companies being audited by the DOL or the IRS as the result of an ESOP refinancing? Any other thoughts or issues of which we should be aware?

[RLL]

Hi efrueh ---

A truly independent fiduciary (experienced in ESOP financing transactions) should be retained to negotiate the terms of the refinancing on behalf of the ESOP.

[E as in ERISA]

Leveraged ESOPs are being targeted for audit by the DOL (not just those refinancing). They are finding problems with loan documents....

[Kirk Maldonado]

DOL and IRS audits should not necessarily deter corporations from entering into ESOP transactions. However, it does emphasize the need to obtain the assistance of competent legal counsel and other advisers who are familiar with the nuances of ESOPs.

[RLL]

efrueh ---

Are you a "competent legal counsel and /or other adviser familiar with the nuances of ESOPs" ?

[Kirk Maldonado]

efrueh:

Or have you retained the services of such individuals?