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Overview

Contingent Convertible Bonds (CoCo Bonds) are hybrid securities similar to convertible bonds, with the exception that their conversion into equity is based on the occurrence of a specific event. The event, known as the contingency, can be triggered by the equity price reaching a predetermined threshold or the issuer’s capital falling below a specified minimum.

Eagle Accounting does not have a specific processing security type for CoCo Bonds, however, they can be modeled as convertible bonds with the Exchange Offer corporate action used should a contingency event occur. The principal conversion ratio is decided at the time of the contingency event, and the corporate action can be adjusted to reflect the applicable ratio.

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Reference Data

CoCo bonds are modeled using Eagle's core fixed income and equity functionality with two separate security master files (SMFs). Below are specific reference data configurations.

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• The equity should be entered as the underlying security for the bond

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Entity Setup

Any amortization method (including none) can be used for CoCo Bonds, although it will often be irrelevant because they are purchased at par. If a CoCo Bond is purchased at a price other than par, Eagle’s core fixed income processing will amortize the security to par at maturity based on the entity-level Primary Amortization/Accretion Rule.

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Trade Processing

Buy

Once all reference data has been configured, the Book Trade panel under the Trade tab can be used to process CoCo Bond transactions.

• Trades should be processed like standard bond trades
• A Principal value is calculated based on the Par Value/Current Face and trade Price
• Traded Interest is calculated, if applicable, and factored into the Net Amount
• Amortization Yield is also calculated at trade time, if applicable

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Corporate Action

In order to convert the bond to its underlying equity in Accounting, an Exchange Offer corporate action must be created and processed. The corporate action should be processed on conversion date, using the same underlying security identifiers that were entered on the SMF. Accounting calculates the new position based on the original position values.

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• Set Corporation Action Begin & End Sweep Date to a range that includes the Sweep Date entered on the announcement

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Accounting

Once a CoCo Bond position is established it will follow core Eagle Accounting processes.

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• Set Maturity Processing Date equal to Maturity Date of the CoCo Bond
• To settle the principal and interest cash from maturity, use Global Process Center > Settlements > Contract Cash

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Valuation

CoCo bonds Bonds can be valued daily using par-based prices. After conversion, the equity price will be used. Eagle Accounting calculates the security’s value by using the formula below:

• Market value = Par Value/Current Face * Price * Price Multiplier * Quantity Scale

Reporting

STAR to PACE

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(S2P)

Almost all reports in Eagle leverage data from Data Management, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each CoCo Bond in the position_detail table.

• The market_value_income column on the CoCo Bond row will capture the market value plus any accrued interest
• Cash activity will be appropriately signed
• Similar to other instruments, STAR to PACE creates data in position, position_detail, trade, and cash_activity tables

OPERATIONAL REPORTING

CoCo Bonds will appear on all core Eagle reports. The operational reports were specifically POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value, inclusive of price fluctuations and period-to-date accruals payable or receivable.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review CoCo Bond information. These are designed to support the daily operational workflow . They are used to quickly identify differences and provide the necessary detailed information in order to resolve any discrepancies that may exist. The reports are primarily driven off of Data Management with data updated by the STAR to PACE Direct events. Eagle recommends following current best practices of using these core queries and building custom result profiles that fit your business needs.

INVESTMENT REPORTING

The STAR to PACE process moves position, cash activity, and trade data to Data Management. This enables users to take advantage of all of the PACE OLAP reporting capabilities:

• Single/multi period lot, aggregate, and position reporting
• Trade activity reporting
• Cash activity reporting
• Exposure reporting with full analytics integration; some data must be augmented to achieve complete exposure reporting

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for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Data Management Reporting

Performance

The performance toolkit has full functionality to calculate market value-based performance for CoCo Bonds at the contract level. The toolkit process is pre-configured to read using data supplied by the STAR to PACE process and calculate performance.

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S2P process. Risk and performance attribution

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features are available to analyze CoCo Bond performance.

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Automation

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CoCo Bond SMFs and trades can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (trades

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do not

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spawn

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SMFs). Refer to

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the Supported Generic Interfaces guide for more information.