Agent payments also known as a “disbursing agent” is an individual who accepts payments from the issuer of a security and then distributes the funds to the security holder.
Agent payments are designated to make dividends, coupon, and principal payments to a security holder on behalf of the issue and they are usually a corporate trust department of a bank or trust. The agents receive dividends when paying agents are used for stocks, which they then disburse to stockholders. Paying agents receive coupon payment for bonds which they then give to bond holders. The bond’s indenture in a bond issue will usually name a paying agent to be responsible for making interest and principal payments. In these transactions, a paying agent acts as an intermediary and receives a fee for their services.
When there is more than one jurisdiction in a bond issue, there will be more than one paying agent, one who will perform a coordinating role. In a case where it is not a trustee deal, the coordinating agent role will be performed by the fiscal agent. In the case of a trustee deal, the agent will be called the “principal paying agent”
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Agent Payments other Services
Firms that specialized in related services that are broader than a straightforward dismissal of funds like investment banks including but not limited to:
- To minimize shareholder convenience, automating the payment process for dividends and/or interest payments.
- All required documentation is structured and processed.
- Additional investment – management services are provided.
- Access to a full team of professionals and applicable technology are offered.
Investment banks that are paying agencies can help link their clients with the shareholders of a target company in the event of a cash distribution of proceeds for an acquisition or leveraged buyout (LBO).
Adjunct Agent Roles
In capital markets debts, a wide range of administrative roles in addition to the paying agents help in transaction completions which includes bringing new issues to market.
- Agent Bank: when there is a floating rate of interest, this role is required. Payments relative to each interest period based on the formula set out in the terms and conditions of the securities are calculated using the coupon payments.
- Calculation Agent: when there are more complicated coupon payments, the role is required than floating interest rates. For example, if derivative-based or index-linked calculations are needed, a calculation agent at the agent bank performs the task.
- Registrar: records of the holders of registered securities age kept by the registrar. Most times, this role is performed by the same group performing the custodian or paying agent role. Transfer agents who are other agents may assist with this process in other jurisdictions.
- Custodian: assets used as underlying security may include debt instruments if the issue is secured. This scenario is particularly frequent in repackagings and other structured financial transactions. A custodian in this case holds the assets in an account on behalf of the issuer.
- Listing Agent: if on the stock exchange the debt instruments is to be listed, the exchange must specify that there must be a listing agent. Listing agents act as liaison between issuer and stock exchange. All the materials will be prepared to be submitted to the exchange, which includes the prospectus.
- Legal Advisers: if a loan syndicate is involved in the issue, then the issuer and the underwriter and where appropriate, the trustee will each appoint their own legal advisers. If an overseas jurisdiction issue is involved, overseas lawyers are usually appointed to advise on local laws, selling restrictions, and regulations.
A Paying Agent Agreement
For paying agents there are numerous formats. There is a general standard agreement for bank as does the Securities and Exchange Commission (SEC). On the agent payment agreement, the dates of the agreement and the parties involved, along with the physical addresses, if applicable where the principal amount will be kept is stated. Details of the agreement are generally cute such as, “XYZ Municipal government is offering $200,000,000 in floating rate notes, due Aug. 10, 2019.” the payment of principal and interest on the notes could be stated on the agreement which would be guaranteed by a guarantor or a trustee. The paying agent agreement also describes the exact timing and method (when and how) the paying agent will deliver interest on the notes or other issued securities.