April 6, 2026

Credit Agreement Implications of the Supreme Court’s Tariff Decision (Update)

Emin Guseynov, Scarlett Park, B.J. Rosen Orrick, Herrington & Sutcliffe LLP + Follow Contact LinkedIn Facebook X Send Embed

On February 20 th, 2026, the United States Supreme Court invalidated tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA), but did not resolve whether or how refunds would be made available to importers.

The matter was remanded to the Court of International Trade (CIT), which issued an order on March 6 th clarifying that importers previously subject to IEEPA tariffs may benefit from the Court’s decision and directing Customs and Border Protection (CBP) to issue refunds for certain unliquidated entries.  The matter continues to be adjudicated by the CIT, with regular developments in that court.

In the meantime, parties to existing secured credit facilities should consider the following implications for their transactions, which reflect the latest accounting guidance.

Financial Statements

Borrowers will need to evaluate the accounting ramifications of ongoing developments related to IEEPA tariff refunds with their accountants.  According to developing accounting guidance, there may be more than one acceptable approach to recognizing and measuring tariff refunds.

One way may be by analogy to the loss recovery principles of FASB ASC 410-30, under which refunds would constitute recoveries limited to the amount of tariff costs that were previously recognized.  Tariff recoveries would become measurable and recognizable when they are “probable,” or “likely to occur”. If a refund claim is under dispute or subject to litigation, a rebuttable presumption exists that recovery is not probable.

Another is through the gain contingency model of FASB ASC 450, under which a tariff refund is a contingent gain recognized when it is realized (i.e., when a company receives cash or claims to cash without expectation of repayment) or realizable (i.e., when assets are convertible to known amounts of cash or cash claims).

Both models may create a timing distortion, in which three quarters of tariff expense would be effectively reversed and recognized as gain in a single quarter.

Interest Margins

Many credit agreements contain variable interest rate margins based on leverage ratios or other financial metrics.  If EBITDA is permitted to increase by the one-time impact of tariff refunds, interest rate margins might decline for the current quarter and the immediately succeeding quarters.

Financial Covenants and Incurrence Tests

For borrowers close to a financial covenant default, a one-time surge in EBITDA from recognizing the tariff refund could buy them one or more fiscal quarters of further grace.  For borrowers who have already breached a financial covenant that would not have been breached but for the tariffs, recognition of the refund in the current quarter will likely not retroactively undo the prior quarter’s default.

For borrowers that have covenant baskets or exceptions that are subject to incurrence-based financial tests, a one-time surge in EBITDA could result in unexpected capacity to use such baskets or exceptions.  Borrowers and lenders should examine their credit agreements for any such ramifications.

Extraordinary Receipts

Many traditional credit agreements still require borrowers to use the proceeds of “extraordinary receipts” to pay down debt.  “Extraordinary receipts” is a term that is typically defined broadly and often expressly includes tax refunds.  Borrowers and lenders should check the “mandatory prepayment” section of their credit agreements to see whether the cash proceeds of the refunds will be required to prepay loans.

Asset Sales

Even before the Court’s decision, a market had developed for companies to sell their rights to future tax refunds to investors.  The price for those claims has been rising and borrowers may be tempted to sell.  Most credit agreements will permit the sale of the tax claims under various “baskets”, including for sales of assets made for fair market value and for a minimum percentage in cash (often 75%).  Credit agreements typically provide that borrowers must use the proceeds of large asset sales to pay down debt, but provide an exception if the borrower reinvests the proceeds in other assets (which borrowers almost invariably do).  The growing prospect of refunds may therefore provide borrowers (particularly distressed ones) with a potential infusion of liquidity through the discounted sale of their refund claims.

Final Thoughts

We encourage lenders to communicate with borrowers about the various considerations set forth in this alert to stay ahead of potential issues, and borrowers to evaluate the opportunities provided to them by the Court’s decision with their accountants and attorneys.

[View source.]

Send Print Report

Related Posts

• CBP Delivers Progress Report on IEEPA Tariff Refund System
• CBP Outlines IEEPA Tariff Refund Process that May Be Operational as Soon as in 45 Days
• Credit Agreement Implications of the Supreme Court’s Tariff Decision

Latest Posts

• House Financial Services subcommittee examines how financial regulators adapt to industry innovation
• FDIC publishes February enforcement actions See more »

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
Attorney Advertising.

©
Orrick, Herrington & Sutcliffe LLP

Written by:

Orrick, Herrington & Sutcliffe LLP Contact + Follow Emin Guseynov + Follow Scarlett Park + Follow B.J. Rosen + Follow more less

PUBLISH YOUR CONTENT ON JD SUPRA

• ✔ Increased readership
• ✔ Actionable analytics
• ✔ Ongoing writing guidance Join more than 70,000 authors publishing their insights on JD Supra

Start Publishing »

Published In:

Borrowers + Follow Court of International Trade + Follow Credit Agreements + Follow Customs and Border Protection + Follow Financial Statements + Follow Importers + Follow International Emergency Economic Powers Act (IEEPA) + Follow International Trade + Follow Lenders + Follow Loans + Follow Refunds + Follow SCOTUS + Follow Tariffs + Follow General Business + Follow Finance & Banking + Follow International Trade + Follow more less

Orrick, Herrington & Sutcliffe LLP on:

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra: Sign Up Log in ** By using the service, you signify your acceptance of JD Supra's Privacy Policy.* - hide - hide