# Fixed Rate Bond Make-Whole Calculation and Manifest Errors

### Mark Dalton

20 years: Equity capital markets

In the first part of this two part series, Mark talked about the way a calculation agent helps the issuer of a convertible to deal with anti-dilution adjustments and settlement calculations. In this video he talks about the two examples of situations in which he as a calculation agent, help issuers deal with complex calculations on their transactions.

In the first part of this two part series, Mark talked about the way a calculation agent helps the issuer of a convertible to deal with anti-dilution adjustments and settlement calculations. In this video he talks about the two examples of situations in which he as a calculation agent, help issuers deal with complex calculations on their transactions.

### Fixed Rate Bond Make-Whole Calculation and Manifest Errors

7 mins 15 secs

Key learning objectives:

Understand how the formula works for fixed rate bonds that include make-whole calls at the time they are called for redemption

Understand how an issuance error is corrected

Overview:

The role of a good calculation agent is much more than typing numbers into a calculator to find the result of a formula. The role requires a thorough understanding of the transaction documents, the market activities that affect transactions, the hedging of transactions, and the processes – both formal and informal – that are needed to make the transaction work and to know how to help the issuer manage all of these items.

#### How does the formula work for fixed rate bonds which include make-whole calls at the time they are called for redemption?

When a fixed rate bond includes a make whole call, this feature allows the issuer to repay the bonds early, based on a formula that is designed to approximate their fair value, or a small premium to it, at the time they are called for redemption.

- It considers the yield in the future for a government bond in the same currency with a similar maturity
- Adds a credit spread to that yield, but which is lower than the credit spread when the bonds were initially issued
- Discounts the remaining payments on the bond itself based on that interest rate

#### How is an insurance error corrected?

- Claim that the problem is a “manifest error”, i.e., a drafting problem, and to ask the Trustee to allow a correction to the documentation post-issuance. it can be quite difficult to give the trustee sufficient comfort that they are willing to accept this, and so as a result this route is not commonly used
- The issuer can work with its agents and advisors to develop a logical and/or legal argument as to why the adjustment isn’t needed, and then simply to do nothing. In this situation, the issuer has a memo in his file to back up his position and can then defend his lack of action if the investor claims in the future

### Mark Dalton

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