CIBC’s $89.45 million capped leveraged notes on Euro Stoxx 50 show big size, high leverage

By Emma Trincal

New York, June 13 – Canadian Imperial Bank of Commerce’s $89.45 million issue of 0% capped leveraged notes due June 16, 2020 linked to the Euro Stoxx 50 index was last week’s top deal and caught market participants’ attention for its high multiple on the upside.

If the index return is positive, the payout at maturity will be par plus 4 times the index gain, subject to a cap of 64%, according to a 424B2 filing with the Securities and Exchange Commission.

If the index finishes flat or falls, the payout will be par plus the index return with full exposure to losses.

For bulls only

“It’s certainly a nice deal. Four times leverage is not very common and you get a high cap. Still I’m surprised they did so well with no downside protection,” a market participant said.

The deal was “extremely bullish,” he said. Based on the tenor, upside participation rate and 64% cap, investors may achieve up to 28% in annualized return on a compounded basis, he observed.

“Someone has a pretty bullish view on Europe for the next couple of years to go all in with no buffer, no protection on the downside.

Encouraging

“I’m impressed because the variety of advisers I speak to would tend to shy away from anything that doesn’t have a buffer or a barrier.

“The fact that they priced such a big deal is actually a good sign for me,” he said.

The issuer’s subsidiary, CIBC World Markets Corp., is listed as agent in the prospectus.

“I’m not too familiar with their internal distribution network. But it’s not a big domestic bank. You have to have a lead order going into this. From there I suppose it just took off.

“It’s a great trade,” he said.

Hot market

Tim Bonacci, president of Navian Capital, noted that European equity markets are regaining momentum despite recent negative headlines.

“We’re seeing an increase in demand for growth structures on the Euro Stoxx 50 and also the FTSE 100,” he said.

The Euro Stoxx 50 index represents the countries of the euro zone, with France and Germany making for 70% of the portfolio. The FTSE 100 index on the other hand covers the U.K., which is the biggest non-euro zone country in Europe. Together, the indexes offer a close proxy of Western European equity markets.

“The pricing is working fairly well on the European indexes,” he noted.

“A little bit of political uncertainty as we’ve recently seen in Italy and Spain provides some opportunities for people looking to allocate to this asset class.”

The notes (Cusip: 13605WLQ2) priced on June 8.

The fee is 1.73%.

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