Structured products tally $678 million for week; Barclays’ rescission may boost sales

By Emma Trincal

New York, March 30 – Structured products agents last week priced $678 million in 151 deals, according to preliminary data compiled by Prospect News.

Last week saw the sales of large leveraged notes trades distributed by BofA Securities.

The biggest one was Canadian Imperial Bank of Commerce’s $110.96 million of 14-month notes linked to the S&P 500 index. The payout is triple any index gain capped at 15.05%. Investors will be exposed to any index decline.

BofA Finance LLC priced another 14-month deal for $54.17 million linked to the Energy Select Sector index. The 3x upside exposure is capped at 34.6%. Investors had no downside protection.

Volume for the year dropped 17.5% to $18.85 billion from $22.84 billion. The number of deals is down 45% to 3,712 from 6,734.

Those block trades gave leverage a higher market share than autocallables last week at 44% and 40%, respectively.

Equity indexes made for two-thirds of the issuance volume. BofA’s $54.17 million deal helped raise the ETF volume to $95 million, or 14% of the total.

Year to date still down

The notional size for the year remained “decent” in light of last year, said a market participant. December, March, February and January were the top months in decreasing order for sales last year.

“I think the rally we just had in the past couple of weeks is helping despite uncertainties around the Fed’s commitment to raise rates, Ukraine and the many other headwinds we have in the market, the market participant said.

Barclays’ rescission

Other factors may play out.

A recent blunder by one of the major issuers could be a windfall for structured notes buysiders and traders and is likely to augment notional sales of products, he added.

Barclays announced on Monday an upcoming rescission offer due to the over-issuance of structured notes beyond the size of its U.S. MTN shelf. The announcement followed a disclosure of the suspension of two ETNs two weeks before.

All buyers of securities sold during this period – both ETNs and structured notes – will be offered the right to redeem the notes at their original price. Both types of securities are issued out of the same medium-term notes shelf.

“They issued a lot of notes in the last 12 months. Over the past few weeks, they’ve slowed down a bit,” said the market participant.

It is likely that Barclays may have realized they did not have enough capacity due to the size of one of their now suspended ETNs, which is one of the bank’s largest products,” a person familiar with the matter said.

“I imagine they will list the affected securities in the offer. We’re talking about a huge amount. It’s hard to say how they’re going to do that before seeing the rescission offer,” a lawyer said.

He was referring to the $15.2 billion of “affected securities” issued in excess of the registered amount, according to Barclays.

The bank did not break down the notional amounts of structured notes versus the ETNs.

Free money

The impact for the structured notes market may be positive, sources said.

“For noteholders, it’s great. I bought an income note. It’s down. The bank will redeem it at par,” said a market participant.

“The challenge for Barclays is that they’re still in the process of refiling. Their shelf isn’t back up. It’s not like they’re readjusting their strikes. They’ll still want to reissue the notes. They may want to keep the Cusip or give another one. Not sure,” he said.

The bank in its announcement said it intends to file a new automatic shelf registration statement with the SEC “as soon as practicable.”

“For investors, it’s a free check. They’re getting bailed out if they lost money. Call it a nice put,” said a sellsider.

“The bank lost money. But if I was Barclays, I still would want the business. I would replace the notes.”

Sorting it out

The situation may be complicated for the issuer, the lawyer said.

“Theoretically at some point in time, they issued more than their U.S. shelf. They said it was for approximately for a period of one year.

“The eligible purchasers should be the buyers of notes during that period. But I don’t know how they’ll sort out people who bought when the notes were registered from those who bought in excess of the shelf.”

Another lawyer said the process should be fairly straightforward.

“It has to be issued by the bank in excess capacity. That’s how they’ll determine the pool,” he said.

“This rescission is far from being detrimental to investors. So, it shouldn’t be litigious.

“It may be a little bit more complicated with people who bought the ETNs since those are listed securities,” he said.

If many investors opt to redeem their notes, investable proceeds will flow into the market.

“The reason they announced such a huge write-down is because people are planning to redeem their notes left and right,” the market participant said.

“We’re going to see a pickup in issuance. If I’m the adviser who bought a S&P-linked note and I see the mark-to-market value drop to 92, obviously I’m going to sell it back at 100.

“There will be more proceeds, more sales. It should boost volume overall. It may also work to the benefit of other issuers.”

Barclays’ ranking

One question came out from the sellsider: will Barclays count the “over-issued” notes in addition to the new issues coming from its new shelf registration? Lawyers said it’s impossible to know without seeing the rescission offer. A bank’s spokesperson declined to provide any details beyond the public announcement.

“Right now, Barclays is on pause. They’re not issuing a lot. They used to be the top issuer, but they’re not anymore,” said the market participant.

Preliminary data compiled by Prospect News does not establish a halt in issuance volume over the past few months.

So far this month, Barclays has brought to market $171 million in 14 deals.

But it showed a significant drop in the issuers’ league table ranking as Barclays is now placed sixth this year through March 25 with $1.4 billion. The bank fell behind GS Finance Corp. ($2.91 billion), Morgan Stanley Finance Corp., UBS AG, London Brach, Citigroup Global Markets Holdings Inc. and JPMorgan Chase Financial Co. LLC. During the same period last year, Barclays held the second slot with $3.21 billion behind Morgan Stanley at $3.48 million.

Barclays has initiated an internal investigation to find out the cause of the excess issuance. The bank is expected to communicate the results to the public.

BofA Securities was the top agent last week with $205 million in seven deals, or 30% of the total. It was followed by Goldman Sachs and UBS.

The top issuer was GS Finance with $136 million in 17 deals.

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