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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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