Create a Phase in an Interest Rate Swap (IRS)

Updated July 16, 2024 16:53

An interest rate swap (IRS) is an agreement between two parties providing for the exchange of interest payments (usually fixed rate vs. floating rate), based on a specific notional amount.

In Fairways Debt, you can create phases to the IRS to take into account a change in the rate or a frequency change for both the paying leg and the receiving leg.

Prerequisite

Create an Interest Rate Swap (IRS)

Navigate to the Debt & Derivatives Application

Log in to your Fairways Debt account.
Select a customer account.
Navigate to Applications > Debt & Derivatives.

Open an Interest Rate Swap (IRS)

Navigate to Draft.
Click the relevant interest rate swap to open its profile.

The transaction profile displays.

Create a Phase in an Interest Rate Swap (IRS)

From the Time Frame panel, click Create Phase > Create Phase.

Complete the form with all relevant details.

Notes:

Fields marked with an asterisk * are mandatory.
The interest rate swap characteristics apply by default.

Field	Description
Start Date	Unadjusted start date of the phase.
Index	Name of the index used to calculate the rate value, e.g. FIXED for a fixed rate. Note: The field beside displays depending on the index selected.
Interest Rate	Fixed rate value in percentage. Note: This field displays depending on the index selected.
Initial Interest Rate	Initial rate of the custom index. Note: This field displays depending on the index selected.
Spread	Spread (or margin) value in percentage. Note: This field displays depending on the index selected.
Day Count Convention	Computes the day fraction of an interest accrual period.
Frequency	Frequency of the payments.
Interest Calculation Adjustment	Adjustment mode for the interest calculation. The nominal start and end dates of the accrual period will be adjusted accordingly before computing the interest amount.
Last Stub Period	Defines whether the last period should be a short or long stub when it does not match the selected frequency: Short Stub: The payment date just before the end date should be respected. Long Stub: The payment date just before the end date is replaced with the payment occurring at the end date. Note: If neither stub is selected, the short stub applies by default.
Capitalized Interest	Defines whether the interest amount should be paid at the payment date, or added to the principal (and included in the outstanding balance for the following periods).
In Advance Interest Payment	Defines whether the interest amount should be paid at the start of the period.
Payment Date Adjustment	Adjustment mode for the payment date.

Click Apply.

The new phase displays in the transaction profile.

Phase_Created_EN.png.png

Adjustment

Adjustment modes define how the system rolls dates in case of holidays in the calendar.

Field	Description
Unadjusted	Not rolled.
Preceding	Rolled to the previous business day.
Following	Rolled to the next business day.
Modified Preceding	Rolled to the previous business day, only if that day occurs in the same month. Otherwise, rolled to the next business day.
Modified Following	Rolled to the next business day, only if that day occurs in the same month. Otherwise, rolled to the previous business day.
End of Month (unadjusted)	Rolled to the last day of the month.
End of Month (preceding)	Rolled to the last day of the month, then adjusted to the previous business day.
Modified Following (year)	Rolled to the next business day, only if that day occurs in the same year. Otherwise, rolled to the previous business day.