6 minute read | February.21.2026
On February 20th, the United States Supreme Court struck down the sweeping tariffs imposed by President Trump. The Court’s opinion did not address the availability or timing of refunds, which the Court of International Trade will now determine as an initial matter. If the executive branch opposes or fails to facilitate refunds, further litigation is certain to follow, and remedial questions could return to appellate courts, including the Supreme Court, months or even years from now.
In the meantime, parties to existing secured credit facilities should consider the following implications for their transactions.
Borrowers will determine the accounting ramifications of the Court’s decision with their own accountants, but there is a possibility that the tariff refunds will be treated as a one-time gain or reduction of cost of goods sold in the period in which the refund becomes “realizable.” If so, the financial definitions in the credit agreement would need to be analyzed carefully to determine whether such an unusual, one-time gain would be permitted to increase EBITDA. Credit agreement language can vary widely in this regard, but if permitted, a large one-time increase to EBITDA in a single quarter could result in unexpected ramifications throughout credit agreements, discussed in part below.
There is also a possibility that FASB ASC 250 could require prior period adjustments for historical financial statements where tariffs were both expensed and material, because the Court’s ruling determined that the tariffs were never legal. This treatment would undermine the accuracy of previous borrower representations that those financial statements were free from material misstatement. Although lenders are unlikely to call a default for good news, if restatements were required, borrowers would likely want to seek waivers of any such breached representations for good housekeeping or in anticipation of any future “bring-down” of those representations.
Orrick will update our analysis as the accounting treatment mandated by the Court’s decision becomes clearer over the coming days and weeks.
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 succeeding three, but would not be retroactively adjusted. However, if historical financial statements are restated, borrowers and lenders should check their credit agreements to see whether historical interest rates would have differed had the tariff expense not been included in financial metrics and, if so, whether their credit agreements contain rebate or credit mechanics to remedy the amount overpaid.
For borrowers close to a financial covenant default, a one-time surge in EBITDA from recognizing the tariff refund when it becomes realizable 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, a restatement of the financial statements (if permitted by GAAP) may “cure” the event of default, depending on the precise language of the document. However, if lenders have already accelerated the debt, the analysis becomes more complicated.
Similarly, for borrowers that have baskets or exceptions subject to incurrence-based financial tests that include EBITDA, 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.
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. Once there is more visibility into the timing and availability of tariff 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.
Even before the Court’s decision, a market had developed for companies to sell their rights to future tariff refunds to investors. The price for those claims will likely now rise 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 prospect of refunds may therefore provide borrowers (particularly distressed ones) with a potential infusion of liquidity through the discounted sale of their refund claims.
Instead of selling their claims, borrowers may instead seek debt financing collateralized by their claims, either with their existing lender groups or through liability management transactions such as “drop down” financings. The ability of borrowers to obtain such financing will depend on the “basket” capacity for debt, liens and investments under their credit facilities, and, in the absence of such capacity, their lenders’ amenableness.
For both financings and asset sales, potential counterparties will need to understand the risks presented by the Federal Assignment of Claims Act (FACA) (31 U.S.C. § 3727), which limits the Federal government’s obligation to honor assignments and security interests covering claims against it unless certain conditions are met. Without dwelling on specifics in this overview, the conditions set forth in the FACA are sufficiently difficult that lenders and investors seldom try to satisfy them.
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.