Bank Loan Processing Notes

Irregular Coupons / Income / Amortization

• Bank loan contracts belonging to the same facility can pay on different dates. Eagle’s fixed income code (like most financial accounting software) wants some degree of predictability.

• Eagle/Data & Analytics Solutions recommendation is to set up bank loans as unscheduled variable rate securities.  This allows users to drop coupons at any point in time.  This also requires a process to update the variable rate table when a coupon is paid. (Cash Payment Flag = Y)

• If a rate changes or is updated, the earnings must be rolled back two days prior to the rate change and replayed forward in order to pick up the rate and calculate the associated coupon payment (if one exists)

• If amortizing, unscheduled variable rate setup can present issues with calculating yields (i.e. hard discount future cash flows for amortization yield calculation). If amortization is a requirement, straight line amortization is recommended, note amortization is not supported for Average Cost Bank loans

• When restructures occur on non-common coupon dates, the income code will try and true up the contract lots that did not pay on the day of the restructure which can result in a one – day ‘blip’ in the income lot and income sub lot rows, and possible impacts to amortization

  • As a possible workaround to mitigate the income blip test the following steps to see if it would be a feasible workflow that meets requirements:

    • Add an unscheduled variable rate of zero on effective date of the new contracts. Doing so will ensure that it is set to accrue at a rate of zero and will not ‘true up’ when the restructure occurs

    • Drop a coupon on existing contracts – add unscheduled variable rate with cash payment flag = Y on the restructure date minus 1

    • On restructure date minus 1 end the old contract relationships. On restructure date, process the principal repayment and begin the new contract relationships. Also on this date add a new unscheduled variable rate for any new contracts so they can start accruing properly (prior to this date the rate should be zero

    • Any coupons on existing lots due can be left in unsettled cash until actual payment dates

    • Facility/Contract relationship maintenance

    • The ratio is critical.  It does need to be updated (old ratios end, new ratios begin) when any type of principal repayment or change in facility amount and contract relationship takes place.

Principal Repayments

• Principal payments are applied at the facility level, even when the payment relates to only one of the contracts when multiple contracts exist. Therefore, the ratios must be updated on all contracts to account for the new ratio post – principal repayment

• Principal repayments can’t be processed with a pro-rated coupon

• Canadian Accrual Method

  1. Doesn’t work with Canadian accrual method (SD+1), resulting in separate entity required to manage loans

Usability

• There is not currently a method to update a trade as settled to cash. When trades are booked if settlement date is not known a dummy future date must be entered and the trade must be canceled and rebooked once settlement date is known

• Any restructure of contracts with or without principal repayment can generate unexpected income rows unless a payment is generated for every contract before the restructure takes place

• There is no automated way to generate payments associated with the funding when a contract goes from unfunded to funded

• When a principal repayment occurs if there are multiple open lots – both unsettled and settled – it is currently not possible to target certain lots for the principal repayment transaction or to exclude unfunded portions

• Cannot book sales on multiple lots pro rata – some clients are using sales to represent principal repayments and this can cause challenges

• There is no way to flag a principal repayment to include associated interest

• It is possible to process bank loans with inaccurate contract to facility relationship percentages and accrue / amortize incorrect amounts without any warnings in the system