Bond Issuance Management with SAP TRM

Comprehensive Functionality for Debt Management

Manage your debt and investment positions with this multi-asset and multi-GAAP platform used world-wide

SAP TRM (Treasury and Risk Management) is SAP’s software package for the management of debt and investment positions with a comprehensive functional scope. SAP TRM is a multi-asset and multi-GAAP platform used by many major financial institutions and industrial corporations worldwide.

It comprises portfolio management functionality as well as several analytical reporting features, including risk management analysis. Furthermore, it is fully integrated into SAP’s general ledger and cash management applications for liquidity and bank communication management.

Extensive functionality

For issuance management SAP TRM provides extensive functionality. All relevant instrument types can be used as debt and investment instruments. This enables corporations to manage their short-term debt programs with commercial papers and credit lines using SAP TRM.

For the long-term Bond Issuance Management both publically available master data as well as internal data can be utilized effortlessly, given the right configuration. Issue brochures and links to important web pages can be attached to the SMF in different file formats.

Advanced issuance management

SAP TRM supports a majority of the transactional and process requirements listed in the section above, especially with COMPIRICUS’ features for an advanced issuance management approach. These features enable the definition of multiple amortization components for an independent amortization calculation with varying amortization target dates. Each amortization component can be managed independently and generates its own amortization schedule for future amortizations up to its respective amortization target date. In addition to SAP TRM’s broad reporting capabilities COMPIRICUS added extra reporting information for specific external requirements.

Long-Term Debt Fair Value and Cash Flow Hedge with SAP TRM

Long-term debt such as Bond Issuances and loan originations are often hedged against interest rate risks with interest rate swap cash flow hedges (CFH) and fair value hedges (FVH). Hedge management and accounting require comprehensive data preparation, tools for dealing with complex financial calculations, and a comprehensive accounting engine for complying with the accounting standards such as US-GAAP. Accounting Standard Update (ASU) 2017-12 US-GAAP recently modified some requirements to lessen the burden, but many complex requirements remain.

Some of these requirements include:

  • Prospective Effectiveness Test at Inception Date A common method is verifying the relationship between the hedged item and the hedging instrument prospectively applying future market data scenarios.
  • NPV Calculations Including CVA and DVA Components Utilizing Credit Spreads.
  • FVH Basis Adjustments for the Underlying Long-Term Debt Instrument In cases where the hedge inception date is not the bond issue date or loan start date a book value adjustment which is amortized over the life time of the hedge relationship is to be calculated and posted
  • Accounting Procedures For hedge accounting purposes, procedures are required which separate the impact of the effective and ineffective hedge portions to OCI or Profit/Loss. In cases of early and/or partial de-designations, the correct accounting entries must also be created.

SAP TRM supports many of the hedge requirements with its comprehensive hedge accounting and market risk management functionality. However, TRM’s general functionality for interest rate hedges was primarily designed for investments. COMPIRICUS has supplemented TRM with additional features for long-term debt hedges and extended its SAP TRM Bond Issuance Add-On. Now, with these additional features, SAP’s “Hedge for Positions” can also be used for long-term issued debt positions with the integrated hedge instrument all managed within SAP TRM.

COMPIRICUS’ Bond Issuance Add-On is well established in the market. And in addition to its core hedge features, the Add-On is also US GAAP compliant with separate amortization of premium/discount and fees, automatic transfers from non-current to current, and other market requirements.

Professional data exchange

To round out the Bond Issuance Management with SAP TRM, COMPIRICUS offers an interface package with its Financial Adapter®. It enables the loading of market data from Bloomberg® and Reuters®, as well as the import of transactional data, such as used for short-term debt programs with commercial paper or other instrument classes.