How to Perform a Repricing Run

Table of Contents

Example scenario - Index Variable Lease Payments tab Payment Schedule after repricing run example: Lease Liability Projection after repricing run example: Example scenario - Reference Rate

The Repricing Run function is used to update periodic lease payments when the value of the underlying index changes.

The Repricing Run handles two types of variable leases:

  • Initial Payment x Index – the payment amount is updated from a Payment index.
  • Reference Rate % + Fixed Interest % – the Discount Rate is updated from a reference rate (Discount Rate index). The payment amount stays the same.

In both cases the lease is recalculated from the repricing date.

Before running this action, you need to set up Index Rates.

You can find the action through the Role Center, navigating to Monthly Process → Repricing Run. Enter the Repricing Date and click OK.

 

Example scenario - Index

The Payment Amount of the lease is based on CPI index and is repriced every year on January 1st.

  1. Enter new lease in the system as per example.

Variable Lease Payments tab

The Variable Lease Payments tab in the Lease Card is hidden by default. To enable it, head to Lease Setup and enable Variable Leases in the System Feature Configuration tab.

 
  1. Sign and Activate the lease.
  2. Run Post to G/L for period (ex., 2020-01-01…2020-12-31).
  3. Enter a new CPI rate a date (ex., 2021-01-01).
     
  1. Run the Repricing function with a repricing date entered (ex., 2021-01-01).
  2. Find the repriced payment amounts in the Lease Payment Schedule and Lease Liability recalculations based on the new payment amounts in Lease Liability Projection.

Payment Schedule after repricing run example:

Lease Liability Projection after repricing run example:

Example scenario - Reference Rate

This is the Based on Reference Rate section of the lease card. It’s only shown when Variable Lease = Reference Rate % + Fixed Interest %.

Field What it means
Reference Rate The market rate index the lease follows, e.g. EURIBOR 6M. Only indexes with Affects = Discount Rate can be picked. Choosing one sets Discount Rate Option to Variable Interest Rate based on Reference Rate and fills in Reference Rate Component % from the latest rate on or before the Last Repricing Date.
Fixed Interest Component % The fixed margin added on top of the reference rate, e.g. 2.00. It doesn’t change at repricing. Editing it recalculates the liability and RoU schedules.
Reference Rate Component % The reference rate currently in use, e.g. 1.50. It’s filled from the Index Rate lines and updated by each Repricing Run. You can overwrite it by hand (Last Repricing Date must be filled), which recalculates the schedules. That doesn’t create an Index Rate line.
Current Total Reference Rate % Fixed Interest Component % + Reference Rate Component %, after Floor/Ceiling at repricing. Read-only. This becomes the lease’s Discount Rate.
Total Rate Floor The lowest total rate allowed. If the new total at a Repricing Run is at or below it, the floor is used. 0 means no floor.
Total Rate Ceiling The highest total rate allowed. If the new total at a Repricing Run is at or above it, the ceiling is used. 0 means no ceiling.

How repricing works: the Repricing Run takes the latest reference rate between the Last and Next Repricing Dates and adds the fixed component. It caps the result with Floor/Ceiling and sets that as the new Discount Rate. Then it moves the repricing dates forward and recalculates the schedules. Payment amounts don’t change.

Total Reference Rate % gets transferred to Discount Rate based on Discount Rate Option selected.

Euribor Rates table:

 

After doing repricing in 2021-01-01:

Same effect can be seen in Liability schedule with Remeasurement and change in discount Rate: