That makes the situation better, but there’s still some issue. The refund is not earning interest, but you liabilities are.
Take the situation with owing $25 million. Say that there’s a one year time between the tax being assessed and your asset going to $0 (at which time you claim the refund). In this time the $25 million loan you took is accruing interest. Let’s say it does so at a 4% rate per year, when you get your $25 million refund you therefore have $26 million in loans.
So you still end up $1 million in debt due to “gains” that you were never able to realize.
That’d be a problem indeed, but only because the contract you’re proposing is suboptimal. Given that the principal is fully guaranteed, it shouldn’t be terribly difficult for you to borrow at >4% yearly with a contingency clause that you don’t pay interest if the asset goes to ~0.
Somehow I missed that bit.
That makes the situation better, but there’s still some issue. The refund is not earning interest, but you liabilities are.
Take the situation with owing $25 million. Say that there’s a one year time between the tax being assessed and your asset going to $0 (at which time you claim the refund). In this time the $25 million loan you took is accruing interest. Let’s say it does so at a 4% rate per year, when you get your $25 million refund you therefore have $26 million in loans.
So you still end up $1 million in debt due to “gains” that you were never able to realize.
That’d be a problem indeed, but only because the contract you’re proposing is suboptimal. Given that the principal is fully guaranteed, it shouldn’t be terribly difficult for you to borrow at >4% yearly with a contingency clause that you don’t pay interest if the asset goes to ~0.