About Default Processing Calculations

Eagle Accounting calculates a bond that is in default the same way that it calculates a non-defaulted bond. Eagle Accounting uses the theoretically accrued interest purchased in the calculation of amortization yields.

If a security comes out of default, there is no recalculation of amortization or OID yield. Eagle Accounting continues amortizing the security, based on the previously established amortization yields. Eagle Accounting provides a catch-up amortization entry on the day before Maturity Date (Maturity Date minus 1), to bring amortization cost equal to that of redemption price.

If a bond is in default and you are still recognizing amortization, the security amortizes to the redemption date and redemption price. 

If a bond is bought in a default period, Eagle Accounting does not recalculate the amortization yield and true up period-to-date accrued interest, and does not recalculate the yield. Also, Eagle Accounting creates a coupon for the accrued interest purchased if a bond goes into default. You need to make a decision about how to account for the interest purchased. 

If a bond goes into default, and has a Default Type that includes OID from default periods, the system backs out or reverses period-to-date OID. Otherwise, if a bond goes into default, and has a Default Type that excludes OID from default periods, the system does not back out or reverse the period-to-date OID during a default period. The system still accrues OID after the security's default date.

During trade processing, an entity and security-level debt default rule overrides a security-level or security type-level debt default rule. If a debt default rule shuts off amortization and accrual, Eagle Accounting still calculates an amortization yield, but not accrued interest bought or sold on the Trade panels. If a debt default rule shuts off only amortization, Eagle Accounting still calculates accrued interest bought and sold on the Trade panels.