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European Insurance and Occupational Pensions Authority

2245

Q&A

Question ID: 2245

Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities

Topic: Disclosure Templates

Article: N/A

Status: Final

Date of submission: 02 Feb 2021

Question

Could I please raise a question concerning the CIC table? We are in a discussion concerning the classification of a Bond that is a Floating Rate Note (FRN) with variable interest rate, that has been issued by a corporation as defined in the CIC table. Our understanding is that such FRNs are not falling with the categories 21-28 and therefore, they are to be classified with the code 29 - "other corporate bonds, not classified under the above categories. Is our assumption correct? 21 Common bonds Bonds issued by corporations, that don't fall into the categories identified below 22 Convertible bonds Corporate bonds that the holder can convert into shares of common stock in the issuing company or cash of equal value, having debt and equity-like features 23 Commercial paper Corporate bonds classifiable as money market securities, with original maturity lesser than 270 days 24 Money market instruments Short term debt securities (original maturity lesser than 1 year), e.g. certificate of deposit, bankers' acceptances and other highly liquid instruments 25 Hybrid bonds Corporate bonds that have debt and equity-like features, but are not convertible. 26 Common covered bonds Corporate bonds which have a pool of assets that secures or "covers" the bond if the originator becomes insolvent. The cover assets are restricted to cash flows from mortgages or public sector loans and those assets remain on the issuer balance sheet 27 Covered bonds subject to specific law Corporate bonds which have a pool of assets that secures or "covers" the bond if the originator becomes insolvent and are subject by law to special public supervision designed to protect bond-holders. On example of this category is Pfandbrief: "Covered bonds which are issued on the basis of the Pfandbrief Act. They are used to refinance loans for which collateral is furnished in the form of loans secured by real estate liens (Mortgage Pfandbriefe), public-sector loans (Public Pfandbriefe), ship mortgages (Ship Pfandbriefe) or aircraft mortgages (Aircraft Pfandbriefe). Thus, the distinction made between these Pfandbrief types refers to the cover pool created for each type of Pfandbrief." 28 Subordinated bonds Corporate bonds which have a lower priority than other bonds of the issuer in case of liquidation. 29 Other Other corporate bonds, not classified under the above categories.

Background of the question

Clarification concerning the CIC table code

EIOPA answer

The CIC sub-category within the category “Corporate bonds" for floating rate notes (FRN) depend on the individual features of the asset.  A simple FRN, i.e. a corporate bond with a variable coupon and no other additional features, should be categorizes as  “Corporate bond (21)".

An FNR, with the respective additional features,  could also be a convertible bond (22), a hybrid bond (25), a common covered bond (26), covered bonds subject to specific law (27) , subordinated bond (28) or, if no other category fits, as “other" bond (29).

Simple additional features (e. g. 'fix to float' or floor/ceiling) can also be considered as CIC 2.

FRNs with more complex additional features should be categorized as CIC 5.