Paying Agent
Table of Contents What Is a Paying Agent? Paying Agent Explained Paying Agents' Other Services Adjunct Agent Roles A Paying-Agent Agreement 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. Specialty firms like investment banks, which act as paying agents, can provide related services that are broader than a straightforward disbursal of funds, including but not limited to: Automating the payment process for dividends and/or interest payments to maximize shareholder convenience Structuring and processing all required documentation Providing additional investment-management services Offering access to a full team of professionals and applicable technology A paying agent accepts payments from the issuer of a security and then distributes these funds to holders of the security. In a bond issue, the bond’s indenture will usually name a paying agent to be responsible for making interest and principal payments.
What Is a Paying Agent?
A paying agent — also known as a "disbursing agent" — is one who accepts payments from the issuer of a security and then distributes the funds to holders of the security.
Paying Agent Explained
Paying agents are usually a corporate trust department of a bank or trust company that are designated to make dividend, coupon, and principal payments to a security holder on behalf of the issuer. When paying agents are used for stocks — the agent receives dividends, which they then disburse to stockholders. For bonds, paying agents receive coupon payments, which they then give to bondholders. In a bond issue, the bond’s indenture will usually name a paying agent to be responsible for making interest and principal payments. A paying agent acts as an intermediary in these transactions, and receives a fee for their services.
In bond issues where there is more than one jurisdiction, there will be more than one paying agent, one of which will perform a coordinating role. If it is not a trustee deal, the coordinating agent role will be performed by the fiscal agent. If it is a trustee deal, the agent will be called the "principal paying agent."
Paying Agents' Other Services
Specialty firms like investment banks, which act as paying agents, can provide related services that are broader than a straightforward disbursal of funds, including but not limited to:
Paying agencies that are investment banks also 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 the debt capital markets, a wide range of administrative roles, in addition to the paying agent's, help to complete the transactions involved with bringing new issues to market.
A Paying-Agent Agreement
There are numerous formats for paying-agent agreements. Banks generally have their own standard agreements, as does the Securities and Exchange Commission (SEC). A paying-agent agreement states the date of the agreement and the parties involved, along with the physical addresses, if applicable, where the principal amount will be kept. These agreements generally cite details of the offering — such as, "XYZ municipal government is offering $200,000,000 in floating-rate notes, due August 10, 2019." The agreement could state that payment of principal and interest on the notes 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.
Related terms:
Acquisition
An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company. read more
Asset
An asset is a resource with economic value that an individual or corporation owns or controls with the expectation that it will provide a future benefit. read more
Bond Trustee
A bond trustee holds a fiduciary duty to oversee a bond issue and to enforce the terms of a bond indenture. read more
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Bond Market
The bond market is the collective name given to all trades and issues of debt securities. Learn more about corporate, government, and municipal bonds. read more
Capital Markets
Capital markets are venues where savings and investments are channeled between suppliers and those in need of capital. read more
Capital Note
A capital note is short-term unsecured debt issued by a company to pay short-term liabilities. Capital notes have low priority and carry more risk than other types of secured corporate debt. read more
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more