CLNs are modeled as fixed income securities in Eagle Accounting. An additional CDS can be set up and traded to represent the embedded portion of the security, but this is not required for accurate accounting treatment.

Entity Setup

Entities trading CLNs do not require any special setup. If a separate Credit Default Swap (CDS) will be maintained, refer to Swaps Entity Setup Processing Notes.

Reference Data

Storage & Configuration

Eagle models each CLN security master file (SMF) as a single row in Data Management.

If a separate CDS will be maintained, it will be an additional row. Refer to Credit Default Swaps (CDS) Best Practices for more information about CDS processing. Additionally, the CDS can be linked as underlying of the fixed income security for reporting purposes using Add Underlying Security.

Market Data

Pay close attention to whether your CLN is valued using a par-based price (around 100) or a par-zero price (around 0). If a separate CDS will be maintained, it should be priced such that the net price between the CLN and CDS should equal the expected valuation.

Security Data

CLNs can be set up and maintained in Issue Viewer or Reference Data Center (RDC). The security will accrue using the stated coupon rate or floating rate index, if applicable. Other than basic identifier and country information, the following fields define Eagle’s recommended setup for CLNs.

• Processing Security Type (3931) = DBIBFD (Interest Bearing Debt Instrument)

• Security Type (82) & Sub-Security Type (1464): use one or both of these fields to distinguish CLNs from other DBIBFD securities for reporting purposes

• Price Multiplier (18) = 0.01 for par-based pricing or 1.00 for par-zero pricing

• Quantity Scale (19) = 1.00

• Issue Country (1418)

• Asset Currency (85)

• Primary Exchange (17): typically OTC

• Coupon (70): if the CLN includes coupon payments, enter the stated fixed rate or zero for floating (or variable) rate to indicate that rates must be viewed from the VARIABLE_RATES table

  • If there are no coupon payments, set to 0.00

• Coupon Type (97): typically F (Variable Rate) or X (Floating Rate)

  • If there are no coupon payments, set to F (Variable Rate)

• Day Count Basis (471)

• Payment Frequency (472)

• Issue Price (69)

• Issue Date (68): first date security can be traded

• Dated Date (1183): accrual start date

• First Coupon Date (473)

• Last Coupon Date (474): penultimate payment date

• Maturity Date (38)

• Maturity Price (42) = 100

• Trading Flat (3949)

• OID Indicator (218)

Trade Processing

Trades can be entered using the Book Trade module once the reference data has been configured. Enter the appropriate entity, security identifier, and trade/settle dates and click Submit to query for the security. Right-click it and select Open > Buy/ShortShell or Close > Sell/BuytoCover.

• Select Values to be Calculated by STAR (7000) = Traded Interest

• Par Value/Current Face (40): units of the CLN

• Price (45)

• Broker (88)

Accounting

Once a CLN position has been established it will be picked up in Eagle’s global workflow. There is no special processing required.

Valuation

The value of a CLN is calculated using the formula below:

• Market Value = # of Units * Quantity Scale * Price * Price Multiplier

Ensure Price Multiplier reflects the correct value on the SMF based on the pricing methodology: 0.01 for par-based prices (around 100) or 1.00 for par-zero prices (around zero).

Credit Event

When a credit event occurs, the position should be fully closed with a price equal to the recovery rate to generate the recovery payment.

Mature

CLNs will be picked up by Eagle Accounting’s core maturity process if there are no credit events in the interim.