March 24th, 2014, 4:55 pm
Look at the note ... it should specifyIf it were a swap, then one would look for the theoretical end date (probably Feb 28), construct the semi annual schedule backwards from the theoretical end date ... once one has the theoretical end dates, you'd apply the business day convention (probably ModFol) to get the actual pay dates. One would then look to see if the interest payments are adjusted or unadjusted (in swaps they are generally adjusted) ... if they are adjusted then the interest accrues from actual date to actual date; if they are unadjusted then the interest accrues for theoretical date to theoretical date (and is paid on the actual date). In corporate bonds (don't know about loans), it is not uncommon for the interest payments to be unadjusted. Even if the interest payments are adjusted, there is a second flag "Maturity adjusted" ... if the interest payments are adjusted and the "Maturity adjusted" flag is "No" then interest for the last payment will only accrue up to the theoretical end date, and you may not get interest on the last couple of actual days ... which of course was incorporated in pricing the bond. Isn't this fun?For bonds, each bond is it's own little world, and the payment schedule is specified in the bond documents.Guessing from complete lack of knowledge, I believe corporate loans follow the swap rules more often than not, but the payment schedule, the business day rule, the adjusted/unadjusted flag, business day definition (and anything else that's needed to generate a legally enforceable schedule of payments) should be in the loan docs.
Last edited by
Pat on March 23rd, 2014, 11:00 pm, edited 1 time in total.