Exchange Offer Coupon on Ex Date Examples

The following example for a mandatory exchange offer corporate action illustrates the use of two options you can select for the Treatment of Interest Indicator that allow you to generate the coupon based on ex date rather than on coupon date. These options include Receive Income Accrued to Ex Date and Receive Income Accrued to Pay Date. It also shows how you can define a Payment Override Factor for an exchange offer. For more information about these options, see About Earnings for Exchange Offers and Conversions.

An account holds a position in Bond EOINTFROM3, with the following security attributes.

On 10/4/15, there is a Mandatory Corporate Action to Receive Income Accrued to Ex Date. This generates a coupon on the From security on ex date for all income accrued to ex date -1 of the exchange offer. 

The security has the following values as of the close of business on 10/3/16:

• Par = 1,000,000.00

• Amortized Cost = 1,009,395.19

• Accrual PTD = 11,944.45

• Accrued Int Purchased = 833.33

OR

On 10/4/15, there is a Mandatory Corporate Action to Receive Income Accrued to Pay Date. This generates a coupon on the From security on ex date for all income accrued to pay date -1 of the exchange offer. 

The security has the following values as of the close of business on 10/6/16:

• Par = 1,000,000.00

• Amortized Cost = 1,009,374.57

• Accrual PTD = 12,361.12

• Accrued Int Purchased = 833.33

Setup of the Exchange Offer corporate action is identical for both the Receive Income Accrued to Ex Date and the Receive Income Accrued to Pay Date options, with the possible exception of the pay date field if you elect a different pay date for the Receive Income Accrued to Pay Date option.

The following table describes your entries based on your Treatment of Interest Indicator option selected for the exchange offer corporate announcement.

If you set the Treatment of Interest Indicator to Receive Income Accrued to Ex Date: 

• The system creates a receivable/payable record (coupon) on the From security based on the ex-date minus one Local and Base PTD accrued values. In this case Accrued PTD is 11,944.45 and Accrued Interest Purchased is 833.33, resulting in a coupon on ex date (10/4) for 12,777.78. Additionally, Eagle Accounting creates a close of the From security and an open of the To security with a cost of 1,009,395.19. 

• No accruals or amortization occur on or after the ex date as part of processing the corporate action.

If you set the Treatment of Interest Indicator to Receive Income Accrued to Ex Date and additionally define a Payment Override Factor value of 1.5:

• The system creates a receivable/payable record on the From security on the ex date based upon the Payment Override Factor. 

• Assuming the same values used above in as the Receive Income Accrued to Ex Date example and a Payment Override Factor of 1.5, the new coupon on the ex date (10/4) is for 15,000 ((1,000,000 * 1.5)/100).

• The new adjusted Accrued PTD after payment override is 14,166.67 (15,000 – 833.33) (Accrued Interest Purchased.)

If you set the Treatment of Interest Indicator to Receive Income Accrued to Pay Date: 

• The system creates a receivable/payable record (coupon) on the From security) based on the pay date minus one Local and Base PTD accrued values. In this case the projected Accrued PTD (3 additional days of interest to 10/6) is 12,361.12 and Accrued Interest Purchased is 833.33, resulting in a coupon on the ex date (10/4) for 13,194.12. Additionally, Eagle Accounting creates a close of the From security and an open of the To security with a cost of 1,009,374.57. 

• Earnings should continue to accrue on the close lots until payment date minus one of the action.

• The system should create the full cash receivable record as part of the corporate action process, but the system records any difference in the final cash payment and what has been accrued as a contra asset (unearned ptd interest and so on, similar to the processing of ex interest bond processing). It then reduces the unearned ptd income balance daily during the income process until payment date minus one, at which point it is fully accrued.