RE: Loan FpML WG: PIK and Fee Tier Modelling

["Iqbal, Mazhar" <mazhar.iqbal@xxxxxx>]

Title: RE: Loan FpML WG: PIK and Fee Tier Modelling

Hi Everyone,

I have a couple of amendments to my last email.

1.       The PikAmount that I added to the InterestPayment structure should be optional.

2.      I had previously mentioned that we may need to identify Paydown Interest explicitly.  Paydown interest is when the interest amount is based on the Principal Repayment taking place and not on the outstanding contract balance.    Thinking about this a bit more I realized that the calculation method is the field that we should use to identify paydown interest.  Not doing so is in fact incorrect since ProRataShare and FacilityPosition are not valid calculation method values in this case.  I am proposing adding a third calculation method called RepaymentAmount.  The rest of the notice would look identical.

I have applied both the changes above to the amended schema and am re-attaching here:

<<fpml-4-7-1-wd-1.zip.GS>>

Regards.

Mazhar.

_____________________________________________
From: Iqbal, Mazhar
Sent: Friday, January 29, 2010 3:36 PM
To: 'loanwg@xxxxxxxx'
Subject: Loan FpML WG: PIK and Fee Tier Modelling

Hello everyone, 

Here is my proposal for modelling PIK and adding a tier level to utilisation fee pricing.  At GS we are looking to represent it this way and I’ve made changes to the XSD to illustrate.  There may be additional features that need to be represented such as PIK toggle but what I detail here is the minimum needed for PIK to work.

Utilisation Fee Tiers

The OnGoingFeeRateChange structure will have a pricingTier node added to it.  That will contain a tier start percentage and a tier end percentage.




How To Model PIK

To notify a PIK servicing action the following events have to be represented

1.      PIK Accrual

·       Notice to use: InterestPaymentNotice

·       Purpose: Shows detailed accrual over the contracts.

2.      PIK Capitalisation

·       Notice to use: DrawdownNotice

·       Purpose: Capitalise PIK amount onto target contract.  (Increase commitment)

3.      Increase Commitment

·       Notice to use: None.  We will implicitly work this out from the new drawdown type on the drawdown notice.  If in the future we want to model PIK events that do not increase commitment it will be easy to add a new drawdown type to identify those as well.

·       Purpose: Increase commitment due to capitalisation

So we would send 1 Interest Payment Notice and 1 Drawdown Notice to fully notify PIK taking place.  The following enhancements would be needed to each of those events to allow us to distinguish PIK correctly:

FpML Enhancements Needed To Model PIK

LoanContract Structure

We need to add PIK margin to the CurrentInterestRatePeriod structure.  Also the meaning of AllInRate would need to change as follows:

        AllInRate = Interest Rate + Cash Margin + MCR – PIK Margin

Interest Payment Notice

There is no actual payment taking place when PIK occurs.  As such the amount on the interestPayment structure should be set to 0 and we need an additional field to capture total PIK accrued.  I have called this pikAmount on the XSD.

Drawdown Notice

The drawdownEventType enumeration will be expanded to include the value “PIKCapitalisationEvent”




I’m attaching an amended schema. For your review.

 << File: fpml-4-7-1-wd-1.zip.GS >>

Also here are comments from last minute that describe PIK issue in more detail:

 << Message: RE: Loan FpML WG Meeting: 26 January 2010, 1000-1100EST (London Time: 3-4pm) >>

Regards.

Mazhar.

Attachment: fpml-4-7-1-wd-1.zip.GS
Description: fpml-4-7-1-wd-1.zip.GS