Definition of Debt Pushdown

“Debt pushdown” is a financial term, referring to an accepted accounting method which shifts debt from a parent company’s accounts to those of a subsidiary company. It is normally used when one company acquires another.

Definition

A debt pushdown is the accounting practice of taking the debt incurred by a parent company during the acquisition of a subsidiary, and placing that debt on the books of the subsidiary, or "pushing it down." This practice of dealing with debt from an accounting standpoint can provide tax benefits to the taxpaying company. Assets can also be pushed down, for similar reasons.

Acceptance

The rationale behind debt pushdowns (in addition to the tax benefits) is that the assets and income of the newly acquired company are what will largely be paying for the debt costs which were taken on by the parent company in order to acquire the subsidiary. The concept of a debt pushdown is affirmed by the guidelines of accounting known as Generally Accepted Accounting Principals (GAAP), and the Securities and Exchange Commission has issued rules as to why and when debt should be pushed from a parent to a subsidiary. However, International Financial Reporting Standards (IFRS) have substantial differences with GAAP in some areas, including debt pushdown, which has led to alternative accounting methods being used, especially by global companies.

Variants and Alternatives

Alternative methods of dealing with debt from an accounting perspective include: mirror debt, where the subsidiary pays interest expenses to the parent which more or less equal (or “mirror”) the debt payments that the parent is making caused by the acquisition; combined reporting, where it is beneficial in certain jurisdictions to file a combined return of the two companies; and the option of the acquired company incurring the actual debt and costs of acquisition, rather than the parent company (a variant of this is when the subsidiary incurs debt to pay off and replace the original debt of the parent).

References

• Money Watch: Pushdown Accounting and Alternatives
• Accounting Principles Blog
• Tax Implications of an IFRS Conversion on Debt Arrangements
• Comptroller of the Currency: Bank Accounting Advisory Series