4.9.18.1 PIK Margin Calculation

PIK Margin component gets added in Margin Definition Screen with Margin Basis as Drawdown and PIK Margin flag as selected. PIK Interest component gets created with Rate type as Fixed with User Input. It is not a main interest component. This is maintained in ICCF Class Screen invoked from ICCF Maintenance; PIK Component flag is selected.

PIK Interest component is attached to the borrower drawdown product by linking the PIK Margin Component.

While booking a drawdown with PIK Interest Component system computes the PIK Amount by considering the rate maintained for PIK Margin Component and Basis Principal Amount of the drawdown contract using the below formulae:

Calculated PIK Amount = Basis Amount (LOR Amount at Maturity) * Rate (PIK Component Rate)* No of Days/ Day Basis

You need to maintain the PIK Margin Rate attached to the PIK interest component during drawdown booking. PIK amount gets re-calculated once the bullet schedule is input and PIK amount calculated on the basis of above formulae and basis amount always be considered as the latest outstanding amount of the drawdown. Please to example attached in annexure.

Basis amount for the interest calculation for Participant contracts are the current drawdown outstanding * latest asset ratio of the participant.

While capturing a Rollover on a drawdown contract system will consider the PIK Margin rate maintained for calculating the PIK Rollover Amount. PIK margin rate for the drawdown can be changed by performing CAMD (Contract amendment). New rate is applied from the value date of the contract for calculation of PIK amount.

When the tranche PIK margin is changed, then during the EOD batch the same margin rate is applied on the Drawdown’s under the Tranche. The drawdown contract with PIK Rollover with capitalization as selected is excluded from the margin batch processing, only for Tranche PIK margin component.

PIK margin component can be paid from Manual Payment screen as well during the complete Principal is being paid. PIK interest is recalculated when PIK Rollover with capitalization is selected or deselected.