Document ID: chunk:federal_register_of_legislation:F2023C00399:body:0:p103
Version: federal_register_of_legislation:F2023C00399
Segment Type: other
Provision Reference: 
Character Range: 291712–295551

bank and has a stated maturity date. The instrument pays a fixed interest rate and all contractual cash flows are non-discretionary.                                                                                                                                                                                                                                                                                                                                                                                    That analysis would not consider the payments that arise only as a result of the national resolving authority's power to impose losses on the holders of Instrument E. That is because that power, and the resulting payments, are not contractual terms of the financial instrument.

However, the issuer is subject to legislation that permits or requires a national resolving authority to impose losses on holders of particular instruments, including Instrument E, in particular circumstances. For example, the national resolving authority has the power to write down the par amount of Instrument E or to convert it into a fixed number of the issuer's ordinary shares if the national resolving authority determines that the issuer is having severe financial difficulties, needs additional regulatory capital or is 'failing'.  In contrast, the contractual cash flows would not be solely payments of principal and interest on the principal amount outstanding if the contractual terms of the financial instrument permit or require the issuer or another entity to impose losses on the holder (eg by writing down the par amount or by converting the instrument into a fixed number of the issuer's ordinary shares) as long as those contractual terms are genuine, even if the probability is remote that such a loss will be imposed.

B4.1.14 The following examples illustrate contractual cash flows that are not solely payments of principal and interest on the principal amount outstanding. This list of examples is not exhaustive.

Instrument                                                                                                                                               Analysis
Instrument F                                                                                                                                             The holder would analyse the convertible bond in its entirety.

Instrument F is a bond that is convertible into a fixed number of equity instruments of the issuer.                                                      The contractual cash flows are not payments of principal and interest on the principal amount outstanding because they reflect a return that is inconsistent with a basic lending arrangement (see paragraph B4.1.7A); ie the return is linked to the value of the equity of the issuer.

Instrument G                                                                                                                                             The contractual cash flows are not solely payments of principal and interest on the principal amount outstanding.

Instrument G is a loan that pays an inverse floating interest rate (ie the interest rate has an inverse relationship to market interest rates).          The interest amounts are not consideration for the time value of money on the principal amount outstanding.

Instrument H                                                                                                                                             The contractual cash flows are not payments of principal and interest on the principal amount outstanding. That is because the issuer may be required to defer interest payments and additional interest does not accrue on those deferred interest amounts. As a result, interest amounts are not consideration for the time