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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.

Long Term Debt Coupon Periods
Coupon5.000000
Coupon Type CodeFixed Rate

Day Count Basis

30/360
Payment FrequencySemiannual
Issue Price100.00000000
Issue Date20150101
Dated Date20150101
First Coupon Date20150701
Last Coupon Date20200101
Maturity Date20200701
Maturity Price100.00
Asset IDEOINTFROM3

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.

Field

Record if Electing
Receive Income Accrued to Ex Date

Record if Electing
Receive Income Accrued to Pay Date

Sweep Date

20161004

20161004

Ex Date

20161004

20161004

Record Date

20161004

20161004

Announcement Date

20161004

20161004

Pay Date

20161004

20161007

Treatment of Fractional Shares

Post Fractional Shares

Post Fractional Shares

Treatment of Interest Indicator

Receive Income Accrued to Ex Date

Receive Income Accrued to Pay Date

Corporate Action Status

Released

Released

Corporate Action Sub Priority

1

1

Share Taxability

No

No

Mandatory/Voluntary Indicator

Mandatory

Mandatory

Cost/Proceed Flag

Proceed

Proceed

To Asset ID

EOINTFROM3 (USD)

EOINTFROM3 (USD)

To Issue Currency

USD

USD

To Post Action Price

100

100

Rate of Action

1

1

Corporate Action Type

EXCHANGE OFFER

EXCHANGE OFFER

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.


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