What Is a Paying Agent?
A paying agent is an agent who accepts payments from the issuer of a security and then distributes the payments to the holders of the security. Also known as a "disbursing agent."
Paying Agent Explained
Paying agents are usually banks, designated to make dividend, coupon, and principal payments to the security holder on behalf of the issuer. In a bond issue, for example, the bond’s indenture will name a paying agent, responsible for making interest and principal payments.
A paying agent agreement will often state, up front, the date of the agreement and the parties involved, along with physical addresses, if applicable, where the principal amount will be kept. This agreement could also detail the proposal of what the issuer (e.g. a government) will offer in securities (e.g. $200,000,000 in floating rate notes, due August 10, 2019). If appropriate, these floating rate notes will be guaranteed as to payment of principal and interest by a Guarantor. A Trustee could also be named.
The paying agent agreement describes the exact timing and method of when the paying agent will deliver interest on the notes or other issued securities (e.g. the Issuer must furnish to the paying agent – no later than five business days before interest on the floating rate notes is due and payable – the exact name, address, and amount due to each registered user of the notes, along with their bank account information.) This information could also include any applicable tax withholding forms, such as Form W-8BEN.
The agreement could also lay out, prior to each interest or principal payment date, how the issuer will deposit the funds, to be disbursed by the paying agent.
Additional Paying Agent Services
In addition to banks, specialty firms, which act as paying agents, could provide further services, 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
For such firms, services offered can be broader than a straightforward disbursal of funds. Paying agencies can help link its clients with target company shareholders in the event of a distribution of cash proceeds for an acquisition or leveraged buyout, for example.