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Payment In-Kind (PIK) securities are financial instruments (for example, bonds, notes, preferred stocks) that pay all or part of the periodic interest or dividends in cash or securities. Payment in Kind securities are known as "Bunny Bonds" in the European market.
If issuers mandate the distribution of the income as cash, the system posts a Coupon as it does for other bonds. No Corporate Action setup is required for this option.
Through a Corporate Action Announcement, the issuers can mandate the distribution of the income as securities, or a combination of cash and securities. If the company decides to pay in kind, the issuer gives the entitled holders an additional Baby Bond to facilitate separate trading on the portion of the bond that is attributable to accrued interest. The Parent Bond and the baby bonds are considered fungible for trading purposes.
Standard cancel rollback and replay processing applies to transactions generated by this corporate action.
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Eagle's Accounting solution provides both a payment-in-kind preferred type of corporation action (PIK) and a payment-in-kind bond type of corporation action (PIK Bond). This section describes how to manage corporate actions for PIK bonds. |
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