A key player serving the issuer
The calculation agent plays an essential technical role in bond issues.
It determines the amounts of remuneration due to investors in accordance with the terms and conditions set out in the bond issue agreement.
The calculation agent acts as an independent third party in performing the calculations. The results of its calculations are communicated to the issuer and the paying agent for the issue for payment to investors.
The calculation agent is responsible for periodic calculations (annual, half-yearly, quarterly, monthly) of interest (coupons), the most common characteristics of a corporate bond issue being a type of rate that can be fixed or variable (based on a reference index such as Euribor, Libor, SOFR, etc.), a margin adjustable according to ESG criteria, a period or duration, and a calculation basis.
The calculation agent is also involved in specific events relating to the bond issue in order to determine the remuneration linked to that event.
The most common events are early repayments a few months before the maturity date (clean-up call) or early repayment at the issuer’s discretion (make-whole call).
Make-whole clauses require future cash flows to be discounted in order to compare the fixed rate of remuneration for the redeemed bond issue with current interest rate conditions, using a benchmark security considered to be free of credit risk (French OAT or German BUND issues).
A calculation agent is also required for bonds convertible into shares (to determine conversion ratios) or for debt securities (bonds whose performance is linked to indices, an underlying asset or other factors).
DIIS Group can also value bond issues by updating the credit risk annually and making weekly or monthly adjustments based on the prices of comparable securities available on Bloomberg.