Understand Third Party Cash Flows

Third party cash flows, previously called vendor provided cash flows in Eagle Accounting, are cash flows provided by vendors or third parties in the asset currency of the security that Eagle Accounting can utilize to generate amortization yields and cash flow projections. You can set up Amortization/Accretion Rules to use third party cash flows.

For information about using Reference Data Center to manage third party cash flows, see Manage Third Party Cash Flows.

Calculating Amortization Yield based on Third Party Cash Flows

You can specify whether to use third party cash flows as part of the amortization rule setup. In the amortization rule, if you set the Use Third Party Cash Flows field (tag 11768) to Yes, the Earnings process uses the third party cash flows in the Vendor Cash Flow table if there are cash flow records available. If you set the Use Third Party Cash Flows field to No, the Earnings process does not use third party cash flows. When the amortization rule specifies use of third party cash flows, this election overrides any other cash flow assumption such as calls, puts, prepayment model, and speeds, and tells the Earnings process to use those cash flows for the purposes of deriving an amortization yield.

Third party cash flows are provided in sets identified by the date for which the set was applicable (the Effective Date). For example, if on 7/1/11, you input a series of cash flows, each having an Effective Date of 7/1/11, the cash flows represent the complete set of principal and interest cash flows from after, but not including, 7/1/11 to the target redemption date. Each cash flow has a Flow Date corresponding to the date on which a principal adjustment is to be done and/or or interest payment is made. The effective date does not include delay days of the cash movement. When you input additional sets of cash flows, the set with the latest Effective Date less than or equal to the date for which a yield is needed is selected for the yield calculation. In the event that the Earnings accounting processes do not find a cash flow in the cash flow table, the Earnings process uses the cash flows assumptions found on the appropriate amortization rule to project cash flows of a security for purposes of deriving a yield.

If the Earnings processes find the appropriate cash flow record in the table, the Earnings process uses those cash flows and discounts those cash flows for purposes of deriving a yield. When new cash flows are entered into the system, Eagle Accounting’s Earnings process recalculates the cash flows.

Third party cash flows are not interpreted literally, that is, they do not have to match the existing position dollar amounts in Eagle Accounting. Each flow has a Current Balance, a Remaining Balance, a Principal Flow field, and a write down. The Current Balance less the Principal Flow and less the write down amount must be equal to the Remaining Balance. Each flow is interpreted relative to the Current Balance of the third party cash flow in its set. For example, if a third party cash flow is 5% of the earliest third party cash flow Current Balance in its set, 5% of the purchased quantity is used in the yield calculation.

Setting Up Amortization/Accretion Rules to Generate a Yield Based on Third Party Cash Flows

You can configure an amortization/accretion rule to use third party cash flows to generate a yield. When you configure the rule, you can set the Use Third Party Cash Flows field (tag 11768) to a value of Yes or No.

Using Third Party Cash Flows in Yield Calculations

For a fixed income security, the yield is the interest rate which discounts the security's future cash flows back to a present value such as the purchase price or amortized book value. For bonds and notes, this is at maturity. For factor based securities, these future cash flows consist of the interest payments, coupons, and the redemption value that will be paid along with the coupons over the life of the security. While there are simple models for estimating the distribution and size of the payments (CPR, PSA, and so forth), it is sometimes desirable to directly specify the amount of each payment. These amounts are input to Eagle Accounting as Third Party Cash Flows. Third Party Cash Flows are used only for yield and amortization calculations and do not affect the actual paydowns processed, which are driven by the factors input.

Third party cash flows are provided in sets identified by the date for which the set was applicable (the Effective Date). For example, if on 7/1/11, a series of cash flows is input, each having Effective Date of 7/1/11, they represent the complete set of principal cash flows from after (but not including) 7/1/11 until maturity date. Each cash flow has a Flow Date corresponding to the date on which a principal adjustment is to be done, not including delay days to cash movement. When additional sets of cash flows are input, the set with the latest Effective Date less or equal to the date for which a yield is needed is selected for the yield calculation.

Third party cash flows are not interpreted literally, that is, they do not have to match the existing position dollar amounts in Eagle Accounting. Each flow has a Current Balance, a Remaining Balance, and a Principal Flow field. The Current Balance less the Principal Flow must be equal to the Remaining Balance. Each flow is interpreted relative to the Current Balance of the starting third party cash flow in its set. For example, if a third party cash flow is 5% of the earliest third party cash flow Current Balance in its set, 5% of the purchased quantity is used in the yield calculation.

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