27 Feb Vistra Energy Tax Receivable Agreement
Vistra Energy Tax Receivable Agreement: A Breakdown
Vistra Energy has been in the news recently for its acquisition of Dynegy, another energy company. While this merger may seem like old news, there`s still a lot to be said about the Vistra Energy Tax Receivable Agreement (TRA).
What is a Tax Receivable Agreement?
Essentially, a TRA is an agreement between two companies that allows the acquiring company to use the tax assets of the acquired company. In the case of Vistra Energy, this means that Dynegy`s tax assets will be used to offset Vistra Energy`s taxable income. This can lead to a significant reduction in taxes owed by Vistra Energy.
How does the TRA work?
The TRA works by allowing Vistra Energy to receive a portion of the tax savings generated by Dynegy`s tax assets. This portion is usually around 85-90% of the savings, depending on the terms of the agreement. The remaining portion goes to Dynegy`s former shareholders.
Why did Vistra Energy enter into a TRA?
The main reason for entering into a TRA is to reduce taxes owed by the acquiring company. In the case of Vistra Energy, the company expects to save around $350 million in taxes over the next 15 years thanks to the TRA.
What are the potential risks of a TRA?
While a TRA can be beneficial for the acquiring company, there are also risks involved. For example, if the acquired company has underestimated the value of its tax assets, the acquiring company may end up owing more taxes than expected. Additionally, there`s always the risk of tax laws changing, which could affect the value of the tax assets.
Overall, the Vistra Energy Tax Receivable Agreement is a strategic move by the company to reduce its tax burden and increase profitability. However, as with any financial agreement, there are risks involved that need to be carefully considered.