June 11, 2015 Articles

Can Warrants Be Deemed "Original Issue Discount" and Disallowed as Unmatured Interest?

Each case must be decided on its unique facts.

By Stuart Komrower and David W. Giattino

Borrowing is not free. Instead, a borrower must pay the cost of borrowing. Typically, this cost is paid with cash, although it could be paid with property—for example, a warrant. In a recent case, In re Baxano Surgical, Inc., No. 14-12545 (CSS) (Bankr. D. Del.), the creditors’ committee asserted that paying part of the cost of borrowing up front with a warrant created “original issue discount”—or OID—and that such should be treated as unmatured interest.

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