• Amortization: no need to amortize

• Interest Accruals: no known accrual rates, interest is to be recorded on a cash basis

• Maturity Risk: clients do not want ILNs to mature automatically and instead terminate the positions by processing a close event, often some time after the stated maturity date (automated maturity processing can create pricing errors)

This document covers the details of Data Management, Accounting, and Performance measurement for ILNs.

Entity Setup

There are no specific settings for entities trading ILNs modeled as Bank Loan Facilities. Since Bank Loan Facilities do not natively amortize, accrue, or mature without linked underlying contracts, there is no risk that Eagle Accounting’s core fixed income processing will apply any of these events automatically.

Reference Data

Storage & Configuration

ILNs are modeled as single rows in Data Management using the DBAMTL (Facility Term Loans) Processing Security Type (3931).

Market Data

Par-based prices (around 100) are expected for ILNs unless Price Multiplier (18) is adjusted for a different pricing methodology. Set Price Multiplier = 1.00 if you expect par-zero prices (around zero).

Security Data

ILN security master files (SMFs) can be set up using Issue Viewer, Reference Data Center (RDC), or Security Reference Manager (SRM).

The list below contains all fields required to set up a ILNs.

• Issue Name (961)

• Primary Asset ID (14) & Primary Asset ID Type (1432)

• Processing Security Type (3931) = DBAMTL (Facility Term Loans)

• Price Multiplier (18): leave default of 0.01 for par-based prices

• Issue Country (1418)

• Asset Currency (85)

• Primary Exchange (17)

• Issue Price (69) = 100

• Issue Date (68): start date of the deal

• Maturity Date (38): anticipated maturity date

• Maturity Price (42) = 100

Trade Processing

Open

Trades are entered using the Book Trade module once the entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade (35)/settle (37) dates and click Submit to query for the security. Right-click it and select Open > Buy or ShortSell.

• Trades should be processed like standard bond trades

• Principal (165) is calculated based on the Par Value/Current Face (40) and Price (45)

• Event Type (55) = BUY will result in a long position with the fund receiving income payments in return for assuming the risk

• In rare situations like secondary market trades, the fund might "short" the risk

  • Event Type = SHORTSELL will result in a short position with the fund paying income payments in return for offloading the risk

  • Booking short trades requires minor local configuration changes; contact Instrument Engineering for details

    • These changes will allow true Bank Loans to be processed short too, but this should not be done as core Bank Loan functionality does not support short trades

Close

The Book Trade module should also be used to process both full and partial terminations. Enter the same information as the open to query for the security. Right-click it and select Close > Sell or BuytoCover.

• Trades should be processed like standard bond trades

Conversion

Conversion of ILNs from a different Processing Security Type, such as DBIBFD (Interest Bearing Debt Instrument), should be processed via the Redenomination of Bonds corporate action event. This moves the existing position (DBIBFD) to the new security (DBAMTL). After creating the corporate action announcement, it can be triggered using Accounting Center > Processing and Exceptions > Global Processes > Corporate Actions > Redenomination of Bonds.

A sample Redenomination corporate action announcement with all appropriate fields is attached. See tab Redenomination Corp Action: 

Accounting

Once an ILN trade is booked it will be picked up in Eagle’s global workflow. Accounting valuation is calculated when posting unrealized gain/loss and Data Management valuation is calculated in the STAR to PACE push. These can be scheduled or triggered manually.

• Global Processes (V17)

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: Eagle STAR to Eagle PACE Direct Processing > Transfer Data - Batch

• Global Process Center (prior to V17)

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: STAR to PACE Direct Processing > Transfer Data - Batch

Valuation

The value of an ILN is calculated using the formulae below:

• Market Value = Par Value * Quantity Scale * Price * Price Multiplier

• Market Value Income = Market Value +/- Accrued Interest

Principal Loss

In the case of a qualified insurance event where invested principal will be forfeited, the principal loss should be processed by selling off the position at a price of zero (or 0.000001). This will create a 100% realized loss. In the event of a partial principal loss, the appropriate portion of the position should be sold to represent the partial loss.

Interest Income Payments

As this workflow involves no daily interest accrual, interest payments should be posted on a cash basis using the asset-specific miscellaneous income (long) or expense (short) transaction. Appropriate accounts can be set up at your discretion.

Return of Capital Payments

Return of Capital (ROC) payments should be handled using the Return of Capital corporate action event. The ROC rate listed on your announcement may require additional precision. To calculate the exact rate, divide the dollar amount by the outstanding principal. A sample ROC corporate action announcement with all appropriate fields is attached. See tab ROC Corp Action: 

• Setting up a Return of Capital corporate action announcement for Bank Loan Facilities requires minor local configuration changes; contact Instrument Engineering for details

Mature

ILNs will not be picked up by Eagle Accounting’s core maturity process. Instead, you will have to enter a close by following the instructions in the Close section above. Trade Date of the close transaction must be set to a date prior to Maturity Date.

Reporting

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from the Warehouse, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each ILN in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review ILN information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Data Management Reporting

Performance

The performance toolkit is preconfigured to calculate market value-based performance for ILNs using data supplied by the S2P process. Performance calculations will appropriately reflect whether the position is short or long. Risk analysis and performance attribution analysis features are available to analyze ILN performance.

Automation

ILN SMFs and trades (modeled as Bank Loan Facilities) can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (trades do not spawn SMFs). Refer to Supported Generic Interfaces V17 for more information.