9.5.1.1 Propagating the Increased Amount to Underlying Drawdowns

For prorata type of tranche, you can propagate the new ratio, as a result of tranche upsize, to the underlying drawdowns. By default, the system selects the Propagate Ratio to Drawdown box to facilitate the propagation. You can deselect this option, if required. If not selected, propagation to the underlying drawdowns does not happen and the system converts the tranche to a non-prorata type (the Cascade Participation option is deselected in the LB Tranche Contract Online screen).

If you check the Propagate Ratio to Drawdown box, the system displays a message to indicate that the new asset ratio is propagated to the underlying drawdowns. This message is displayed when you save the tranche upsize.

Note:

• The Propagate Ratio to Drawdown is not available for a non-prorata type of tranche.
• You can use the Non-Prorata option only to upsize the tranche amount and not for reduction in the tranche amount.

In addition, the system performs the following activities on tranche upsize:

• On saving, triggers the events VAMI (Value Dated Amendment Initiation) and PRAM (Participant Ratio Amendment) for the tranche. Increase the tranche amount and updates the new asset ratio for the tranche.
• If you have selected the Propagate Ratio to Drawdown box, triggers the PRAM event for the underlying drawdowns for propagating the new asset ratio.
• Allows you to book new drawdowns to the extent of increased tranche amount. However, in the new drawdowns, you have to monitor the settlement advice messages since all the participants of the tranche become part of the new drawdowns. Hence, you have to manually perform settlements for the participants who contributed towards tranche upsize.
• Restricts all back valued activities (drawdown initiation, amendment) for a prorata tranche till the value date of the non-prorata tranche upsize.
• You cannot initiate a tranche upsize beyond/after an assignment and another value dated amendment.