Chart 19: Sector EPS impact from ending Chart 20: Sector EPS impact from ending Chart 21: Sector EPS impact from ending interest deductibility (15% rate; ex- fin, utes) interest deductibility (20% rate; ex- fin, utes) interest deductibility (25% rate; ex- fin, utes) 8% 6% 4% -2% 0% -12%10%-8% -6% -4% -2% 0% -15% — -10% -5% 0% Energy -6.2% Energy -8.2% Energy -10.2% Telecom -5.9% Telecom -7.9% Telecom -9.6% Materials -3.5% Materials 47% Materials 5.1% Discretionary 3.1% Discretionary 41% Discretionary 5.1% Industrials 27% Industrials -3.5% Industrials 4.3% Real Estate -2 8% Real Estate 3.4% Real Estate -3.8% Staples -2.2% Staples -2.9% Staples -3.6% Health Care 1.7% Health Care -2.3% Health Care 27% Info Tech 0.9% Info Tech -1.1% Info Tech -13% m 15% tax rate m 20% tax rate @ 25% tax rate Source: BofAML US Equity & Quant Strategy, FactSet, S&P Source: BofAML US Equity & Quant Strategy, FactSet, S&P Source: BofAML US Equity & Quant Strategy, FactSet, S&P How will levered companies react? Companies will likely grow comfortable with a smaller amount of debt, retain more earnings, use less cash for dividends and share buybacks, and potentially draw down cash if they have it. If a tax holiday is also granted, that might offset the loss of benefit. Companies that regularly issue long-term debt may choose to reduce that burden to offset the tax change, and find those funds elsewhere. We find it unlikely that the change would result in a surge in equity issuance, unless the change applies to existing debt, which is unlikely in our view. While this change should be taken as a line item ina wholistic bill, there are victims and beneficiaries here. Corporations that have high leverage ratios, low retained earnings, high interest expense to earnings ratios, no cash overseas offset from repatriation, and those that have recurring long-term debt needs may be most at risk. Other implications While some argue that companies will try to raise outsized amounts of investment grade capi