Credit Suisse’s 7% yield autocallables tied to two indexes are designed for predictable income

By Emma Trincal

New York, May 3 – Credit Suisse AG, London branch’s 7% autocallable yield notes due Aug. 13, 2018 linked to the lesser performing of the Euro Stoxx 50 index and the Russell 2000 index present a mix of features, allowing the issuer to provide investors with a fixed rate, sources said.

Interest will be payable monthly, with the exact rate to be set at pricing, according to a 424B2 filed with the Securities and Exchange Commission.

Contingency prevails

“It’s so rare to see reverse convertible deals with a fixed rate nowadays,” an industry source said.

“Rates are so low. You can’t really get these things to work.”

The notes will be called at par if each index closes at or above its initial level on Nov. 8, 2017, Feb. 7, 2018 or May 9, 2018.

The payout at maturity will be par unless either index ever closes below its knock-in level, 67% of its initial level, during the life of the notes and finishes below its initial level, in which case investors will be fully exposed any losses of the worst performing index.

“By putting in a worst-of on two indices, two indices that are not very correlated and also by adding this American barrier that can knock in any day, they were able to get a little bit of premium,” he said.

“I’m sure it was a client who requested a fixed rate.”

Tweak

A market participant also noted that pricing guaranteed coupons has become more the exception than the rule in today’s market environment.

“Obviously it can be done. This particular structure is a tweak on the standard autocallable. There is no contingency on the coupon except for the autocall,” he said.

“It’s a mixed bag of things... some of those things help the investor, some don’t.”

The fixed rate of 7% for a 15-month was in itself a “mixed bag,” he said.

“There’s no coupon barrier, so that’s a plus,” he said.

“But then pricing is tougher. They had to price a lower coupon to make it work.”

A 7% annual rate for 15 month is the equivalent of 6% a year.

Fair enough

The call option is also used for the same purpose as it is used with autocallable contingent coupon notes: to enhance the yield, he added.

“But what really increases the risk and therefore the premium is the American barrier,” he said. “Anytime you touch the threshold, you can lose your protection.

“That’s really what helps the most. I don’t think they could have done that without it.

“Overall, the structure makes sense. I can’t see anything glaringly unfair to the investor.”

Credit Suisse Securities (USA) LLC is the agent.

The notes will price on May 9 and settle on May 12.

The Cusip number is 22550B2H5.

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