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In the unlikely event that a security has both mandatory put and pre-refunding dates on the same bond, the yield calculation takes the earlier of these two dates as the maximum amortize to date. |
Example 1- Pre-Refunding Date Announced after Holding Period Date
In this scenario, you set the amortization's Recognize Prerefunded (tag 3860) option to a value of Recognize Pre-refunded Date using Announcement Date and the pre-refunding date is announced after the holding period date.
A security is purchased on 1/1/2009 and has a maturity date of 1/1/2020. This lot should amortize to maturity or worst yield/best yield date based on the entity amortization rule.
A pre-refunding date is announced on 6/1/2009 with a pre-refunding date of 1/1/2015. You purchase an additional lot on 7/1/2009. The lot purchased on 7/1/2009 considers the pre-refunding date of 1/1/2015 in the calculation of amortization yield because the lot was purchased after the pre-refunding announcement date. The original lot purchased on 1/1/2009 continues to amortize to maturity date or worst yield/best yield date (that is, based on original amortization yield) if you elected to recognize the pre-refunding date with the pre-refunding announcement date in the entity amortization rule election.
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Example 2 - Pre-Refunding Date Announced before Holding Period Date
In this scenario, you set the amortization's Recognize Pre-refunded (tag 3860) option to a value of Recognize Pre-refunded Date using Announcement Date. The pre-refunding date is announced before the holding period date for some trades and after the holding period date for others.
SMF for a fully pre-refunded security follows.
Security Attribute | Value |
|---|---|
CUSIP | 882722UL3 |
Issue Name | TX WTR DEV REV SER C PREREF |
Coupon Rate | 5.00% |
Coupon Frequency | Semi-annual on 2/1 and 8/1 |
Issue Date | 6/15/2003 |
1st Coupon Date | 2/1/2004 |
3855 | 30/360 E |
Maturity Date | 8/1/2015 |
Par Call Date | 8/1/2013 |
Pre-Refund Date | 8/1/2013 |
Pre-Refund Announcement Date (Schedule's Announcement Date) | 8/1/2011 |
Trades/open lots for the fully pre-refunded security follow. For Trades 1 and 2, the open lot holding period date (for a new buy holding period date = trade date) is less than the pre-refunding announcement date. For Trade 3, the open lot holding period date is greater than or equal to the pre-refunding announcement date.
Trade Date | Settle Date | Type | Holding Period Date | CUSIP | Par | Pre-refunding Date Considered for Amortization? |
|---|---|---|---|---|---|---|
1/4/2011 (conversion to Eagle date) | 1/4/2011 (conversion to Eagle date) | Conversion to Eagle | 8/15/2003 (original trade date) | 882722UL3 | 1,000,000.00 | No. Continue to amortize to original call or put date and price or maturity date and price (that is, continue to amortize based on original amortization yield). |
6/1/2011 | 6/4/2011 | Buy | 6/1/2011 | 882711UL3 | 3,000,000.00 | No. Continue to amortize to original call or put date and price or maturity date and price (that is, continue to amortize based on original amortization yield). |
9/1/2011 | 9/4/2011 | Buy | 9/1/2011 | 882722UL3 | 2,000,000.00 | Yes. |
Use the Pre-Refunding Announcement Date for Partial Pre-Refunding
If you recognize the pre-refunding date in the calculation of amortization yield based on the pre-refunding announcement date, the system uses the pre-refunding announcement date for partial pre-refunding as follows.
In a partial pre-refunding, each position of the partially pre-refunding security is spawned into two separate positions. One represents the security holdings that are eligible for full pre-refunding (that is, the pre-refunded portion) and the other represents holdings that are not eligible for pre-refunding (that is, the un-refunded portion).
When a partial pre-refunding is announced, you can process a non-taxable exchange offer corporate action to spawn off the two separate positions representing the pre-refunded portion and the un-refunded portion. Because the partial pre-refunding entitlement is decided based on a lottery, you can process the corporate action with voluntary elections where you manually input the quantity for resulting positions. Under these conditions:
For the un-refunded portion, newly created positions of the holdings that are not eligible for pre-refunding have the same SMF data as the original open lot. When processing a non-taxable exchange offer, the system carries over the holding period of the original open lots to the new open lots and the amortization stream from the old lots continues in the new lots as the SMF data remains the same.
For the full pre-refunded portion, the system carries over the holding period of the original open lots to the new open lots. The newly created positions eligible for full pre-refunding have a pre-refunding date. The system captures the pre-refunding date and the pre-refunding announcement date. The system then uses the holding period carried over from the original open lots to the new open lots and applies the same logic as defined in the prior Full Pre-Refunding Date section for the calculation of amortization yield.
Example - Partial Pre-Refunding
In this scenario, you set the amortization's Recognize Pre-refunded (tag 3860) option to a value of Recognize Pre-refunded Date using Announcement Date. The pre-refunding date is announced before the holding period date for some trades and after the holding period date for others.
SMF information for a partially pre-refunded security follows.
Security Attribute | Partial Pre-refunded Security | Full Pre-refunded Security | Un-Refunded Security |
|---|---|---|---|
CUSIP | 882720Y90 | 882722UL3 | 882722UM1 |
Issue Name | TX WTR DEV REV SER C | TX WTR DEV REV SER C PREREF | TX WTR DEV REV SER C UNREF |
Coupon Rate | 5.00% | 5.00% | 5.00% |
Coupon Frequency | Semi-annual on 2/1 and 8/1 | Semi-annual on 2/1 and 8/1 | Semi-annual on 2/1 and 8/1 |
Issue Date | 6/15/2003 | 6/15/2003 | 6/15/2003 |
1st Coupon Date | 2/1/2004 | 2/1/2004 | 2/1/2004 |
Day Count Basis | 30/360 E | 30/360 E | 30/360 E |
Maturity Date | 8/1/2015 | 8/1/2015 | 8/1/2015 |
Par Call Date | 8/1/2013 | 8/1/2013 | 8/1/2013 |
Pre-Refund Date | 8/1/2013 | 8/1/2013 | |
Pre-Refund Announcement Date (Schedule's Announcement Date) | 10/1/2011 | 8/1/2011 |
Trades/open lots for the partially pre-refunded security as of 10/1/2011 follow.
Trade Date | Settle Date | Type | Holding Period Date | CUSIP | Par | Original Cost | Amortized Cost |
|---|---|---|---|---|---|---|---|
1/4/2011 (conversion to Eagle date) | 1/4/2011 | Conversion to Eagle | 6/12/2003 | 882720Y90 | 1,500,000.00 | 1,700,865.00 | 1,562,172.94 |
9/1/2011 | 9/4/2011 | Buy | 9/1/2011 | 882720Y90 | 1,200,000.00 | 1,224,000.00 | 1,212,600.00 |
On 10/1/2011 a partial pre-refunding is announced on asset 882720Y90. A non-taxable exchange corporate action is processed to exchange the open lots above. The corporate action closes the existing open lots and creates two new open lots each as shown below.
In the following example, the 6/12/2003 open lot of the partially pre-refunded asset is spawned off into two new assets. One represents the fully pre-refunded portion (CUSIP 882722UL3) and one represents the un-refunded portion (CUSIP 882722UM1), as follows:
The pre-refunding announcement date of the fully pre-refunded asset is 8/1/2011. Because the open lot holding period of 6/12/2003 occurs prior to 8/1/2011 (the announcement date), the system does not utilize the pre-refunding date in the yield calculation. For this lot, the existing amortization stream from the original lot continues.
The new un-refunded open lot is not eligible for pre-refunding and the system continues existing amortization steams from the original lots.
The system processes the following corporate action transactions.
C/A Ex-Date | C/A Settle Date | Type | Holding Period Date | CUSIP | Par | Original Cost | Amortized Cost | Amortization Treatment |
|---|---|---|---|---|---|---|---|---|
10/1/2011 | 10/1/2011 | Non-Taxable Exchange Close | 6/12/2003 | 882720Y90 | 1,500,000.00 | 1,700,865.00 | 1,562,172.94 | Not Applicable |
10/1/2011 | 10/1/2011 | Non-Taxable Exchange Open | 6/12/2003 | 882722UL3 (fully pre-refunded asset) | 95,000.00 | 107,721.45 | 98,937.62 | Continue existing amortization stream (pre-refunding date not considered) |
10/1/2011 | 10/1/2011 | Non-Taxable Exchange Open | 6/12/2003 | 882722UM1 (un-refunded asset) | 1,405,000.00 | 1,593,143.55 | 1,463,235.32 | Continue existing amortization stream |
In the next example, the second open lot of the partially pre-refunded asset that was purchased on 9/1/2011 is spawned off into two new assets. One represents the fully pre-refunded portion (CUSIP 882722UL3) and one represents the un-refunded portion (CUSIP 882722UM1).
The pre-refunding announcement date of the fully pre-refunded asset is 8/1/2011. Because the open lot holding period of 9/1/2011 occurs after the 8/1/2011 announcement date, the system considers the pre-refunding date in the yield calculation. For this lot, the system treats the pre-refund date as the last possible amortization to date.
The new un-refunded open lot is not eligible for pre-refunding and the system continues existing amortization steams from the original lots.
The system processes the following corporate action transactions.
C/A Ex-Date | C/A Settle Date | Type | Holding Period Date | CUSIP | Par | Original Cost | Amortized Cost | Amortization Treatment |
|---|---|---|---|---|---|---|---|---|
10/1/2011 | 10/1/2011 | Non-Taxable Exch. Close | 9/1/2011 | 882720Y90 | 1,200,000.00 | 1,224,000.00 | 1,212,600.00 | Not Applicable |
10/1/2011 | 10/1/2011 | Non-Taxable Exchange Open | 9/1/2011 | 882722UL3 (fully pre-refunded asset) | 76,000.00 | 77,520.00 | 76,798.00 | Considers the pre-refunding date |
10/1/2011 | 10/1/2011 | Non-Taxable Exchange Open | 9/1/2011 | 882722UM1 (un-refunded asset) | 1,124,000.00 | 1,146,480.00 | 1,135,802.00 | Continue existing amortization stream |