Benefit from comprehensive functional scope of SAP’s Treasury software package: Manage your debt and investment positions with this multi-asset and multi-GAAP platform used by many major financial institutions and corporate companies world-wide.

Experts in Finance, Treasury, Asset and Risk Management

Comprehensive Functionality for Debt Management

Bond Issuance Management with SAP

NEWFeatures for

long-term

debt hedges

Jorg Pappert | President & CEOCOMPIRICUS INC. | Independence Wharf | 470 Atlantic Avenue, 4th Floor, Boston | MA 02210 | USAJorg.Pappert@compiricus.com | M +1 617 273 8045 | www.compiricus.com

Solution with SAP TRM

SAP TRM (Treasury and Risk Management) is SAP’s software package for the management of debt and investment positions with a com-prehensive 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. Further- more, 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 trans- actional 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 amortiz-ation component can be managed independently and generates its own amortization schedule for future amortizations up to its respective amorti- zation target date. In addition to SAP TRM’s broad reporting capabilities COMPIRICUS added extra reporting information for specific external requirements.

Professional data exchange

To round out the Bond Issuance Management with SAP TRM, COMPIRICUS offers an interfa-ce package with its Financial Adapter®. It enables the loading of market data from Bloom-berg® 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.

New Features: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 requi-re comprehensive data preparation, tools for dealing with complex financial calculations, and a comprehensive accounting engine for com-plying 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 DateA common method is verifying the relati-onship 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 ProceduresFor 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 require-ments with its comprehensive hedge accoun-ting and market risk management functionality. However, TRM’s general functionality for interest rate hedges was primarily designed for invest-ments. COMPIRICUS has supplemented TRM with additional features for long-term debt hed-ges 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.

SAP TRM: Example of a Regression Analysis