Manage Partial Prerefund Corporate Actions

You can use a partial prefund corporate action when you are floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs. The proceeds from the sale of the second bond are safely invested, usually in Treasury securities, that will mature at the first call date of the first bond issue. A refunded bond is a bond that originally may have been issued as a general obligation or revenue bond. It is now secured by an escrow fund consisting entirely of direct government obligations that are sufficient for paying bondholders.

• Once the bond is prerefunded, it is automatically entered into a prerefund call lottery.

• If the bond is partially prerefunded, the original cusip changes and the unrefunded portion has a new cusip. The percentage of the debt being prerefunded must be segregated into a new cusip.

• The adjusted cost and accrued interest is allocated proportionately between the prerefunded and the unrefunded securities.

Eagle Accounting sweeps the Schedule table for Pre-refund information, to calculate future cash flows as part of the calculation of amortization yield. Eagle Accounting creates the actual transaction based upon information in the Corporate Action table. The partial prerefund corporate action involves three securities. There is one From security, and there are two To securities. In the From security, you replace a certain quantity with a prerefunded security and you allocate the remaining unrefunded quantity to another new security. During processing, the system closes the From side position, and established positions for the Unrefunded security and the Refunded securities. The partial prefund corporate action is mandatory, so that all entities that hold the From security are processed at the same rates to create the two corresponding To side positions.

The partial prefund corporate action is similar to the nontaxmerger/exchange offer corporate action. It closes the From security and opens two new securities.

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