With the ‘Loans module’ you can manage all your debt interest rate products such as intercompany loans, bonds, and money market loans and deposits (e.g.commercial papers).
In this section, we will explain in further detail how to create and manage normal types of loan/investment agreements.
Before entering any loan agreements you must have created a relevant Entity, Counterparty, Portfolio, Cost Center, Bank Accounts and loan instrument types to proceed with creating loan agreements. There is a separate document for each of them in the present user guide.
New loan agreements can be created manually or just copying an existing one. If you want to create a loan agreement, you must create an instrument with LOAN or INV type depending on whether you’re borrowing or lending.
When a loan agreement expires it goes into ‘Loans -> Archive’. All of your agreements that reached the due date can be found from there. When you run reports to history periods, the data will come correctly from the archived loans as well.
COPYING A LOAN AGREEMENT
When you copy a loan agreement you copy the basic information of the agreement. After checking that everything is fine, you need to create the loan payment flow for the copied loan. The process is further explained below.
CREATING A LOAN AGREEMENT
Click on Loans -> Register -> "Add new".
1) Choose from the Entity dropdown list the company from whose perspective the loan is done.
2) Select the counterparty from the Counterparty dropdown list.
3) Choosing one Portfolio helps to categorise your data in reports. (New portfolios can be created under ‘Settings > Portfolios’).
4) If you need a Cost Center in your reporting or accounting, choose one. (New Cost Centers can be created under ‘Settings > Cost Center’).
5) Enter the transaction amount in the Nominal Account box.
- Choose the Currency of the agreement (CCY).
- Choose the default account that will be used for the first cash flow from the ACCOUNT dropdown list. You can always change the account for future dealflows.
6) Choose the Instrument from the dropdown menu. You can define your own Instruments from the ‘Loans -> Instruments’ view.
7) Choose the Trade date (the date when the agreement was signed) from the calendar.
8) Choose the Effective date (the date when the first payment happens) from the calendar.
9) Choose the Maturity date (the end date of the agreement) from the calendar.
10) Enter the customer reference in the ‘Customer Reference’ box. This is a reference that you can use to identify the transaction. This field is also visible in the loan register view. For example, you can put here a recognisable loan agreement number.
Optional 11, 12 and 13) Safekeeper, Issuer dropdowns and Fee field aren't currently used. They will be used when we add counterparty risk management.
CREATING A FIXED INTEREST RATE LOAN
If you are creating a fixed interest rate loan, follow the instructions below. If floating, you can just skip this part.
Check the "Fixed Interest" checkbox if the loan has a fixed interest. If the loan has a floating interest leave it unchecked.
If the "Fixed Interest" option is selected, enter the fixed rate into the Fixed base rate %.
If the "Fixed Interest" is unchecked (meaning that you are creating a floating rate loan), choose the relevant floating rate reference rate from the drop down menu of the Floating base rate .
Enter the Spread % if you are creating a fixed rate loan.
For Fixed loans the Interest rate % is calculated as the Fixed base rate % + Spread %.
After you have provided these basic information you can save this agreement by clicking on "Add new".
CREATING A FLOATING INTEREST RATE LOAN
If you have created a floating rate loan (you left the fixed interest rate section unchecked), you need to define the floating base rate and click ‘Save’. Continue by saving the first interest rate to the "INTEREST RATES" sheet that appeared to the agreement after saving it. In practise, you must define the start Date of the first interest period and Floating base rate % and Spread %. Following these steps, the system starts to read in the right interval within the Money Market rate table to get the next interest rate automatically into the agreement.
If the reference rate is correctly defined in the reference rate settings, the system will automatically update your floating rate loans if you have also defined the first interest correctly in the interest rate table (visible after saving this loan initially).
If you are creating a loan that is in a new currency - and where you have not created a reference rate yet - you must create it under ‘Rates -> First Yield curves -> Then reference rates’.
Creating a loan payment schedule
After you saved all this basic information, you can start to create the payment schedule for the loan. Start by checking the first payment created by the system. The system will automatically create the first payment with full nominal amount to the Effective date. If this is not true, you can go into that payment by clicking the pen icon next to this first payment. Afterwards, you can just edit the payment amount and payment date, and then ‘Save’.
For example, if you have entered a facility of 10 000 000,00 € into the system and have saved the loan, the system will create the first payment with 10 m€. Usually, this is not the case, so you can go into the first payment and modify it to be the actual first withdrawal of 50 000,00 € of the facility.
The actual payment schedule is created from the tab "Payment schedule". In the payment schedule you’ll find a first section that defines how the interest is paid followed by a section where you define how is the loan capital paid for the loan.
Interest payments:
If you do not wish to create any interest flow, activate "No interest flow". Otherwise leave it inactive.
Interest calculation start date - this is where you define the first interest period start date. The system will automatically put here the Effective start date.
End date of the first interest calculation period - this is where you define which day the first interest period ends. If you have "Include an extra day in interest calculations" active in your loan instrument, and you have a quarterly interest loan and if you choose 1.1.2020 as first day and 31.3.2020 as last day, it calculates it as 31.3.2020 - 1.1.2020 and you end up in 90 days, leaving 31.3.2020 out of the calculation. And then it starts the next interest period from 31.3.2020 which ends on 30.6.2020.
By activating "Include an extra day in interest calculations" you can choose 1.1.2020 as a start and 31.3.2020 as the end date. The system will also calculate 91 days by just adding one day into the calculations.
Interest payment day - the actual payment day of the interest
Interest payment month - this is where you need to specify the Interest payment day. It should be on the same month as the end of date of the interest period, or Next month (+1M) or Two month later (+2M).
Interest period - In this dropdown, you can choose the interest payment method after the first interest period (start - end date).
Please also remember to check after creating the last interest period. If the period is not mentioned in full, the system will not calculate an interest for it automatically. Then, you need to go into the final payment and add the interest calculation days into the last interest period.
End date - This is the date into which the system ends interest payments. The system will automatically put here the end date of the loan.
Capital payments:
If you do not wish to create any loan capital payment flow, activate the option "No amortizations". Otherwise leave it inactive.
Amortizations - this is where you define the capital payment interval after the "First amortization payment date". If the loan is a bullet loan, just choose "On maturity date" and the system will repay the debt at the maturity date of the loan.
First amortization payment date - this is where you add the first amortization payment date.
Amortization payment day - this is where you can define a payment day that should be used for the payments following the "First amortization payment date".
Amortization payment month - this is where you need to specify what is the Amortization payment day: on the same month as the end of date of interest period or Next month (+1M) or Two month later (+2M).
There are three ways to define repayments. You can only choose one:
Amortization % of nominal - This is set as the default option and with 100 %. It means that the system will assign each amortization the payment with the following calculation = Nominal amount set to the loan agreement x percentage / the number of payments.
Amortization % of outstanding - This is normally used if you are redoing the amortization schedule, but not from the start. If this is selected, the system will calculate the amortizations followingly: Unpaid debt amount at the "First amortization payment date" set to the loan agreement x percentage / the number of payments left.
Fixed amount - With this option, the system will create as many amortization payments as you define above with the fixed amount you set here.
End date - the end of the amortization schedule. The system will put here the maturity date of the loan automatically .
After you have made all selections with your best knowledge, you can click "Generate" and "Save". The system will generate the payment flow into the "CASH FLOWS" page of the agreement.
Clear all, locking of payments and Loan change
If you are not happy with the result then you can clear all and redo the flow to get it correct. Payment flows can be also deleted at once from the "LOAN CHANGE" sheet that opens up after you created one payment flow using the generator. If you have created more than one flow, you can see them as an individual row; and by that, just delete the latest generation.
You can also lock a few payments and then delete the rest by choosing the cash flows next to each payment in the "Lock" tab. This way, you can be sure no one deletes certain payments.
Modify payments
You can also after the creation, modify the payments from "edit" (pen icon), and then change, for example, the payment amount.
Creation of a single payment
You can create single interest payments or capital payments by clicking "New payment". This can be particularly useful if you have a credit facility that you use occasionally, or if you have an intercompany loan where the payments are not scheduled.
Capitalising interest
After you have created your payment flow, where you have interests, you can go into that interest payment and capitalise it back to your loan balance. This is done by entering the amount that you want to capitalise into "Capitalise interest". If the interest amount is negative, put ‘negative’; if positive, choose ‘positive’.
Postponing a part of the interest
If you want to postpone the total interest payment, you can just change the original payment date to a future date. If you want to postpone only a part of the interest, put that part of the interest into the "Postpone interest" box, and specify the interest payment date into "Postpone interest date".If the interest amount is negative, put ‘negative’; if positive, choose ‘positive’.
AUDIT TRAIL
In ‘Audit Trail’ you can view on a very detailed level all the changes made into the agreement.
ADDITIONAL
You can write additional things you need to remember out of this agreement into the "Text" field.
‘Confirmation’ means it is currently not used anywhere in the system.
The following text boxes are for accounting users: Internal order, tax, and RoU asset number. You can save text or number information to these, and have them as one column in your accounting template. Use it when you import data into your ERP/Accounting system.
Usually, ‘Move to archive before maturity’ and 'Excluded from Accounting and Reporting’ will both be unselected. Tick both boxes if you would like to move a lease to archive before maturity and you don't want it to appear in your reports or accounting.
By activating the "No capital flow" tab, you prevent capital payments from going into reporting or accounting. If you have some instrument where you need only realised interest postings, feel free to activate this option.
By activating "Calculate valuation", you enable the system to calculate loan valuation using the discounting method you have chosen to this instrument type. After activation, you need to go to the "VALUATION LOAN" sheet in this agreement. There, you need to specify the yield curve we should use for valuation and also if we should add a premium on top of the interpolated interest from the yield curve.
We require you to have the needed reference rate quotations in the Money market rates table for this yield curve (for the date you want to have a valuation out of the system). The valuation will appear into the "Loan valuation"-report and also into accounting.
ATTACHMENTS
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