Create a PIK Loan

A payment-in-kind (PIK) loan is a specialized instrument with no interest nor principal payments until maturity.

The most common PIK loan structure, which is supported by Fairways Debt, is composed of PIK interest payments and periodic interest payments.

In Fairways Debt, PIK loans are therefore configured with two different interest flows:

  • Cash-pay interest, paid periodically according to the schedule
  • PIK interest, capitalized and paid at the maturity of the loan

 

Navigate to the Debt & Derivatives Application
  1. Log in to your Fairways Debt account, e.g. https://login.financeactive.com/eu.
  2. Select a customer account.
  3. Navigate to Applications > Debt & Derivatives.

 

Create a PIK Loan
  1. Click Add Transaction > Loan > Standard Loan.

Portfolio_AddTransaction_Loan_EN.png

  1. Complete the form with all relevant details.

Note: Fields marked with an asterisk * are mandatory.

Field

Description

Reference Code

Unique reference of the transaction. Identifies the transaction in the portfolio.

Note: The reference must be unique among all the entities managed in the account.

External Reference Code

Used by external systems to identify the transaction. Used when transactions are imported from or exported to another system.

Principal

Principal amount of the loan.

Currency

Currency of the principal amount.

Borrower

Borrowing entity in the system. Only entities in the current organization can be managed by the current user.

Lender

Can be either internal (an entity in the system) or external (a commercial bank).

Transaction_EN.png

Field

Description

Trade Date

Date at which the transaction has been traded. From that date, the system takes the transaction into account as an item of the portfolio.

Start Date

Unadjusted start date of the transaction.

End Date

Unadjusted end date of the transaction.

First Roll Date

Unadjusted date of the first payment (useful when the first period is a long or short stub).

Date_EN.png

Field

Description

Drawings

Indicates if the loan includes drawings and amortization.

Notes:

  • You cannot edit this field once you created the loan.
  • Additional fields display depending on the selection.

Consolidation Start Date

Note: This field is only available for drawings with amortization.

Indicates the date at which amortization can start.

Drawing_EN.png

Field

Description

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

Used to compute the day fraction of an interest accrual period.

CashPayInterest_EN.png

Field

Description

PIK Index

Name of the index used to calculate the PIK rate value, e.g. FIXED for a fixed rate.

Note: The field beside displays depending on the index selected.

PIK Interest Rate

PIK fixed rate value in percentage.

Note: This field displays depending on the index selected.

Initial PIK Interest Rate

Initial PIK rate of the custom index.

Note: This field displays depending on the index selected.

PIK Spread

PIK spread (or margin) value in percentage.

Note: This field displays depending on the index selected.

PIK Day Count Convention

Used to compute the day fraction of an interest accrual period.

PIKIndexation_EN.png

Field

Description

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.

Payment Date Adjustment

Adjustment mode for the payment date.

Last Stub Period

Defines whether the last period should be a short or long stub when it does not match the selected frequency. Short End Stub by default.

Payment_EN.png

  1. Enable Show Details after Validation to automatically open the new PIK loan profile once created.
  2. Click Apply to create the PIK loan.

PIKLoan_Create_EN.png

The new PIK loan displays in the draft portfolio.

PIKLoan_Created_EN.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.

 

What's Next?
Related Documentation
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