Jefferies makes debut as structured note issuer with fixed-to-floaters tied to 10-year CMS rate

By Emma Trincal

New York, Feb. 9 – Jefferies Group LLC and wholly owned subsidiary Jefferies Group Capital Finance Inc. plan to price fixed-to-floating notes due Feb. 26, 2026 linked to the 10-year Constant Maturity Swap rate, according to a 424B3 filing with the Securities and Exchange Commission.

Jefferies has been a placement agent in the structured note market before. But this deal would represent its first foray as an issuer of registered structured notes, according to data compiled by Prospect News going back to January 2007.

Good spreads

“It is good to see a new issuer enter the market. Jefferies trades at considerably higher spreads versus the banks as it should due to their BBB- rating,” said a fixed-income structurer.

The interest rate will be fixed at 7% for the first two years, according to the filing. After that, the interest rate will be equal to the 10-year CMS rate plus 100 basis points, subject to a minimum of zero. Interest will be payable quarterly.

The payout at maturity will be par.

“I would consider this an alternative product to the preferred bank market where clients are getting BB risk with 6% coupon,” he said.

New name

A market participant familiar with Jefferies confirmed that the upcoming deal signals a new business direction for the investment bank.

A sellsider showed some concerns regarding the balance between issuers and agents in the market.

“Good news for them. But we need more distribution,” he said.

Jefferies already acts as agent in some deals, he explained.

“I’m not sure if it’s their first deal as issuers. But they’ve been bidding on some deals against others. When an institutional client, a regional bank want to get the lowest fee they’ll be part of the bid. That’s how they get access to some paper without being in touch with the issuer directly.”

Crowded issuance market

But this sellsider was worried about the entrance of an issuer in a market that has recently lost some private wealth distribution channels, citing the examples of Credit Suisse, Barclays and Deutsche Bank, whose private client groups have been acquired by other companies.

The risk may be to see Jefferies withdrawing from third-party distribution, he said.

“Now that they’re issuing their own paper, they may not do third party deals anymore. They may be more busy selling their own,” he said.

“Here is just another issuer and we just don’t have as much distributors as we used to.”

Other deals

Fixed-to-floaters linked to the 10-year CMS, which have recently priced or been announced, feature lower teaser rates over a longer period.

For instance, Credit Suisse AG, Nassau Branch on Friday priced $2 million of fixed-to-floating-rate notes due Feb. 10, 2026 linked to the 10-year CMS with a 4% fixed rate over three years.

The same terms are being shown from notes to be issued by Morgan Stanley and Citigroup, Inc. this month.

Jefferies LLC is the agent.

The notes will settle on Feb. 26.

The Cusip number is 47233JAA6.

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