Account DEMOEXCH holds a 1,000,000.00 Position in Convertible Bond XYZ, and wishes to participate fully in a voluntary corporate action. The convertible security has the following attributes.
Long Term Debt Coupon Periods
Coupon | 5.000000 |
Coupon Type Code | Fixed Rate |
Day Count Basis | 30/360 |
Payment Frequency | Semiannual |
Issue Price | 100.00000000 |
Issue Date | 19990115 |
Dated Date | 19990115 |
First Coupon Date | 19990715 |
Last Coupon Date | 20120115 |
Maturity Date | 20120115 |
Maturity Price | 100.00 |
Convertible Indicator | Yes |
Underlying Asset ID | XYZ CORP EQUITY |
Index Offset | 42.1052 |
The security has the following values as of the close of business on 2/1/04:
- Par = 1,000,000.00
- Amortized Cost = 1,633,193.83
- Accrual PTD = 2,361.11
- On 2/2/04, the holder of the debt partakes in a voluntary corporate action to convert the bond into the underlying common stock shares.
You have three options when setting up the corporate action record. You can:
- Allocate the accrued interest to the cost of the underlying security
- Reverse the interest earned
- Transfer the interest receivable to the resulting debt security and continue to accrue interest. This option can apply to a fixed income to fixed income exchange offer, but cannot apply to a fixed income to equity exchange offer.
The setup of the Exchange Offer corporate action is similar to those above except for the information contained in the Treatment of Interest Indicator field. To Allocate the interest to the cost of the underlying security, select Allocate for this field; otherwise, select Reverse.
The following table shows the resulting record for each available value in the Treatment of Interest Indicator field.
Field | Record if Allocating Interest | Record if Reversing Interest |
|---|---|---|
Sweep Date | 20040202 | 20040202 |
Ex Date | 20040202 | 20040202 |
Record Date | 20040202 | 20040202 |
Announcement Date | 20040202 | 20040202 |
Pay Date | 20040202 | 20040202 |
Treatment of Fractional Shares | Post Fractional Shares | Post Fractional Shares |
Treatment of Interest Indicator | Allocate | Reverse |
Corporate Action Status | Released | Released |
Corporate Action Sub Priority | 1 | 1 |
Share Taxability | No | No |
Mandatory/Voluntary Indicator | Voluntary | Voluntary |
Cost/Proceed Flag | Proceed | Proceed |
To Asset ID | XYZ CORP EQUITY (EQ) (USD) | XYZ CORP EQUITY (EQ) (USD) |
To Issue Currency | USD | USD |
To Post Action Price | 0.04210520 | 0.04210520 |
Rate Of Action | 0.042105200000 | 0.042105200000 |
Corporate Action Type | EXCHANGE OFFER | EXCHANGE OFFER |
Proration Percent | 1 | 1 |
When selecting a voluntary corporate Exchange Offer, you must enter Proration Percent (tag 8081). This field is used as an addendum in the creation of a corporate action, when certain voluntary corporate actions are oversubscribed. Eagle Accounting uses this field in conjunction with the shares elected (to participate in the voluntary corporate action), to determine the amount of shares/percentage of shares that are applied.
The calculation follows:
# of Shares Subscribed * Proration Percent = # Shares Participating in Voluntary CA
If you select Allocate for the Treatment of Interest Indicator, assume the following applies for this example:
Entity ID | DEMOEXCH |
Entity Name | DEMOEXCH |
Asset ID Type | INTERNAL |
Asset ID | Convertible Bond XYZ |
Issue Name | Convertible Bond XYZ |
Corporate Action Type | EXCHANGE |
CA Election Type | |
Position Quantity | 1,000,000.00 |
Sweep Date | 20040202 |
Ex Date | 20040202 |
Trade Date | 20040202 |
Pay Date | 20040202 |
Elected Shares | 1,000,000.00 |
Elected Shares Percent | |
Entity Election Status | Released |
Entity Election Notes | |
Consent Information | |
Eligible for Consent | No |
Elected Shares For Consent | |
Effective Date On Consent | |
Rate Of Action (Consent) |
If you select Allocate for the Treatment of Interest Indicator:
When the global corporate action is invoked, Eagle Accounting sells off the convertible bond at cost and interest accrued (Cost is 1,633,193.83 and Interest is 2,361.11), thus bringing the convertible bond down to zero par and zero cost.
The common stock is created with 42,105.200000 Shares vs. a Cost of 1,635,554.94 (Amortized Cost + Interest).
The Trade Date of both transactions is the Ex-Date of the corporate action, and
The Settlement Date is the Pay Date of the corporate action.
If you select Reverse for the Treatment of Interest Indicator, Eagle Accounting:
Sells off the convertible bond at cost and interest accrued (Cost is 1,633,193.83 and Interest is 2,361.11), thus bringing the convertible bond down to zero par and zero cost.
The common stock is created with 42,105.200000 Shares vs. a Cost of 1,633,193.83 (Amortized Cost).
The Trade Date of both transactions is Ex-Date of the corporate action, and
The Settlement Date is the Pay Date of the corporate action.
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