Debt Portfolio Management and TMS Support

Unlike the situation with corporate long-term investments, administration and risk management of corporate debt of all maturities is generally well handled by integrated modern TMSs. Despite differences in detail in the management of short and long-term borrowings, there is generally a coherent picture across the maturity spectrum. Overall, the TMS provides the reporting and analysis to support borrowing decisions of all kinds, and includes integrated functionality to manage the transaction workflows, update positions automatically and manage the on-going interest and principal management required.

Short-term Debt

TMS cash positioning – and to some extent cash forecasting – modules include reporting to alert treasurers when they need to perform borrowing operations to cover short-term shortfalls in central or subsidiary cash positions. The requirement may to some extent be met by using available internal currency surpluses, and the necessary cash movements for putting in place this kind of cover are accomplished either through transfers between in-house bank (IHB) accounts, or through intercompany lending transactions.

If external borrowing is required, the TMS workflow is used to originate and settle the loan or foreign exchange (FX) swap transaction selected for execution in the market. TMS decision support functionality can evaluate the relative yield costs of alternative approaches so that the dealer can select the most cost-effective action.

Corporates often draw down from borrowing facilities to provide the required funding. The TMS tracks the available loan facilities, and shows the dealer where sufficient facility headroom is available to meet the requirement – and at what cost. The draw down transaction is processed in the money market dealing workflow, accomplishing position updating and deal confirmation, settlement and accounting; and the TMS will also automatically update the facility record so that is up to date for potential further usage.

Commercial paper issuance,
especially in the US
is frequently used to fulfil short-term borrowing needs. TMSs may be integrated with the reporting systems of the commercial paper issuing and paying agents, so the database is updated with issuance details – the amounts, rates, maturity dates and counterparties of each purchase by an investor. The relevant information is used by the TMS to update cash and debt positions. A commercial paper issuance programme may be regarded as a floating rate borrowing facility over its whole term, so the information may be additionally consolidated into the strategic long-term debt analysis process.

Among efficiency and quality gains achievable through using a fully-integrated TMS, the broad real time updating of the cash and related positions to reflect borrowing activity is especially valuable in providing visibility of the current situation. This level of automation allows treasury cash managers to add professional value through focus on their core duties, without having to expend energy on verifying or building reports. At the same time, treasury management can evaluate and report on the risks of an accurately-consolidated debt position, so the organisation bases its operations on validated information.

Derivatives, typically interest rate swaps and forward rate agreements (FRAs), play a part in many companies’ short-term debt risk management, enabling treasury to adjust the fixed/floating rate balance of the portfolio in line with risk policy. TMSs provide the facilities to evaluate the effects of proposed actions, and to administer their execution and subsequent integration with risk analysis.

Support for short-term debt management has been a long-standing feature of TMSs, so there is a well-established framework for the related operational and management reporting. For example, daily maturity ladder reports document the portfolio’s future maturity profile, enabling treasurers to plan rollover programmes that reflect the short term cash demands and projected surpluses of the organisation. Other management reports in this sector include net cost of borrowing derivation, lending counterparty exposure risk analysis, and comparative analysis of the costs of short term borrowing from different sources. These reflect the typical analytical and control benefits resulting from effective debt portfolio automation.

Long-term Debt

The boundary between short and long-term debt in treasury is arbitrary, but is generally found around the dividing line between working capital and strategic financing. Working capital meets the operating expenses requirements of day-to-day business activities; strategic financing comprises longer-term investments in the business’s growth.

Negotiating and executing a major long-term financing or refinancing occupies senior treasury and finance executives as the results of the exercise are likely to translate directly into the growth and profitability of the enterprise. Accordingly, TMS technology plays a major role in evaluating alternative long-term debt management strategies, recording new and potentially complex debt structures, and in their efficient administration and evaluation over the duration.

TMS support for long-term debt – using instruments such as term bank loans and capital markets products such as medium-term notes (MTNs) and fixed and floating rate bonds – relates to programme evaluation, execution and management.


Programme evaluation is an important discipline in which the more functionally powerful TMSs allow treasurers to evaluate proposed long-term debt structures before they are actually committed. In outline, different issuance structural ideas can be to be estimated. Such decision support facilities provide treasurers with powerful tools that enable increasing levels of bank independence to be achieved. Treasurers can take their strategic borrowing decisions based on neutral and objective analysis.


Programme execution relates to the deal capture operation, which can be demanding for longer term issuances, and in cases where there are embedded derivatives such as interest rate swaps, put and call options and coupon caps and floors. More sophisticated TMSs will have intuitive functionality to generate cash flow schedules for the entire term of the instrument. This type of facility provides – at a price – a valuable automated tool for defining and managing complex debt structures.

The TMS should accommodate the interest accrual and coupon calculation requirements; an additional complex requirement, given the wide range of calculation conventions for day counting, payment timing and other highly variable features of the underlying mathematics and instrument definitions.

Sophisticated TMS support further enables-linked derivatives to be fully defined, administered and – perhaps most importantly – to be integrated in the ongoing analysis of borrowing. Interest rate swaps and cross currency interest rate swaps are commonly involved in borrowings, providing treasurers with cross market opportunities to borrow from the cheapest available source, and to convert the proceeds to, typically, a floating rate liability. TMSs provide the means to validate potential opportunities execute them effectively and administer the results.

The TMS also provides a controlled, transparent solution to the setting up and operation – including settlement and accounting – of corporate debt structures of all kinds and durations, in a reliable environment that supports strong regulatory compliance and audit quality demands.


Programme management involves both debt administration and analysis.

The primary TMS role in debt issuance administration is to monitor interest payment obligations, alert them in advance to team members and initiate the required cash flows on the correct action dates. Efficient technology support enables the corporate to comply with the details of all bond issuance and lending covenants, and to preserve or even enhance corporate creditworthiness through transparent debt portfolio administration.

In the case of floating rate debt issues, many TMSs include functionality to alert and execute rate resets, including accessing the required market index against which the debt’s interest rate is periodically reset. This enhances accuracy and eliminates a time-consuming and unproductive manual task.

A central part of best practice debt portfolio administration is the periodic review of performance against pre-defined objective benchmarks, so that strategies may be adjusted through agreed derivative trading, or more radically wound down through call option exercise. Accordingly, the TMS needs to include the facilities to price and evaluate each item of debt and its linked derivatives throughout its lifetime, drawing down the necessary current market data. Such analysis gives senior treasury executives opportunities for objective analysis in the optimisation of interest expense performance, while also securing dependable long-term financing for the corporation’s strategic growth.

Convertible Bonds, Equities and others

TMSs fare less well in supporting convertible bond issuance programmes, because they may not include sophisticated functionality to analyse equity conversions. Also, equity issuance tracking and administrative support is not covered in many TMSs. Equity issuances are, of course, not debt but corporates looking at financing alternatives will naturally compare all capital markets options. More complete TMS solutions can – at least to some extent – allow equity issuance to feature in the analysis.

There is increasing demand for TMS support for the letter of credit (L/C) and guarantee trade finance instruments. This is now generally available, for basic tracking and administrative treasury management purposes.

These are all areas of activity that impose special demands on system selection projects, to balance needs against the functionality and cost effectiveness of the TMS solutions available.

Broader TMS Benefits

We have seen how TMSs offer significant efficiency, transparency, risk management and control gains in the operation of corporate debt portfolios of all kinds. The benefits of using an integrated TMS are additionally reflected in effective enterprise-wide cash and financial risk visibility and management. Debt management is a long-established feature of TMSs, offering a good variety for buyers of new solutions.


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