By Timothy Aeppel and Laura Matthews
Feb 20 (Reuters) – Companies that hedged their bets by selling potential tariff refund claims to investors celebrated on Friday after the U.S. Supreme Court struck down President Donald Trump’s sweeping emergency tariffs.
Now comes the hard part.
“It’s a tiny win in what seems to be an ongoing, changing environment,” said Mark Mintman, CFO of Atlanta-based toymaker Kids2, which received a total of $2 million from a Boston hedge fund in exchange for the claim against $15 million in tariffs the company paid to U.S. customs through September of last year.
Mintman said the company, which imports 95% of its toys and infant products from China, is now working with its legal counsel to assess what steps to take to preserve its right to a refund. The Supreme Court decision left the question of how and if a refund will be given to lower courts. The process could be complicated and costly to pursue.
Trump meanwhile said on Friday that he would pursue other ways to collect the taxes, so what this means to the bottom line of importers like Kids2 remains blurry.
Under the deals, companies receive a fraction of the potential refund as an upfront payment. They keep that money now that the tariffs are overturned. If the government refunds those taxes, they give that to the outside investors. The deals are attractive to companies, because they would keep the money even if tariffs had been upheld while investors get nothing. Mintman called it a “cost-recovery action.”
This is just the latest twist on Wall Street’s keen ability to capitalize on cash flow. Similar markets exist for selling future payments from structured lawsuit settlements and lottery-winning annuities. David Bowie famously sold his royalty cash flow in what became known as “Bowie Bonds.”
Amy Pasacreta, a lawyer on Orrick’s restructuring team, said there is significant uncertainty regarding refunds. “Are there going to be refunds? And if so, how importers can claim the refunds? And this, as alluded to by President Trump this afternoon, could go on for months or years,” she said.
Pasacreta said they expect new sellers and buyers to enter the market now, given that there is “a greater likelihood that importers may eventually receive refunds.” They also expect claim pricing to rise after Friday’s decision.
“We’ve had inbounds on people looking to find claims to buy, and we’ve also discussed with some sellers (importers) who were in the process of speaking to people before today’s decision, and sort of what it means for them,” Pasacreta said.
Indeed, Jay Foreman, CEO of another toymaker, Basic Fun, which sells Tonka trucks, Care Bears and K’Nex construction toys, said in an email that he is now thinking about selling his claim to a refund if the “discount fee was reasonable.”
Foreman said he “could take that money and reinvest in our business at once, and also if tariff stay off toys, work with retailers to lower prices ASAP.”
(Reporting by Timothy Aeppel; Editing by Dan Burns and Lisa Shumaker)
