An account holds a position in Convertible Bond XYZ, with the following security 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, there is a Mandatory Corporate Action to convert the bond into the underlying 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.

Setup of the Exchange Offer corporate action is identical for both the Allocate and Reverse options 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 in this field; otherwise, select Reverse.

The following table describes your entries to allocate or reverse the interest.

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

Mandatory

Mandatory

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

If you set the Treatment of Interest Indicator to:

  • Allocate. 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 (Amortize Cost + Interest).
    • The Trade Date for both transactions is the Ex-Date of the corporate action, and
    • The Settlement Date is the Pay Date of the corporate action.
  • Reverse. 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 for both transactions is Ex-Date of the corporate action, and
    • The Settlement Date is the Pay Date of the corporate action.
  • Transfer. The system transfers the interest receivable to the resulting debt security and continues to accrue interest.