Agents sell $600 million; UBS prices $135.5 million trade, gaining third slot in top deal list

By Emma Trincal

New York, Nov. 8 – Agents priced $600 million of structured products in the week ended Friday during a hybrid period at the intersection of October and November, giving some firms an opportunity to close more deals than in the usually slow early part of the month.

UBS priced the third largest deal of the year at $135.42 billion, according to preliminary data compiled by Prospect News. This new issue exceeded in size the third top deal spotted last week – BofA Finance’s $128.53 million, which came in at the end of October.

“You got the fee-based offerings last week. A number of deals closed on the 31st. The brokers tend to have their calendar closed five days prior, but a lot of advisory deals come just after that,” said Matt Rosenberg, sales trader at Halo Investing.

Happy Halloween

The total of deals priced last week was 155.

About 70% of those deals closed on Monday, Oct. 30, and Tuesday, Oct. 31, which were the two days of October. Nearly half of the week’s total closed on Tuesday.

“It’s a lot of deals for that time of the month,” Rosenberg said.

The equity market ended flat. The S&P 500 index finished the week up only 0.3% but hit a new high on Friday.

During this time of the year, structured products distribution is in full gear, said Rosenberg.

“The timing of the year is usually good. In September, October and before the holidays....that’s usually when clients are reviewing their portfolio. These are good months to switch some holdings and make replacements. It’s when people do the rebalancing of their portfolios,” he said.

Last week’s volume was in line with the average for regular weeks of the month. Final weeks when big wirehouses close their offerings show an average of $1.9 billion, according to the data.

Giant year

The year continues to shine with volume up nearly a third to $42.47 billion through Nov. 3 from $32.12 billion a year ago.

“It’s a good year....The best in a while. The market has helped a lot,” a sellsider said.

In terms of number of deals, growth has been exceptional with an 85% increase to 11,232 deals.

It is the first time since 2007 when Prospect News began collecting data for all structures that the number of offerings has reached a five-digit figure. So far the top year was 2016 with 9,363 issues but this figure covers the entire year.

The right market

Volume is strong because structured notes offer a wide range of investment themes for all sorts of investors, said Rosenberg.

“Investors are optimistic. Nothing seems to be stopping this stock market. But they still recognize that levels are high and that we’re susceptible to get some sort of a correction,” said Rosenberg.

“It’s hard to pinpoint what the catalyst is going to be.

“This type of toppish market can be a concern. People want to create volatility dampers in their portfolio even if they’re subject to a cap.”

This trend helps firms sell leveraged notes.

“Others want a yield-oriented product. They’re neutral on the market,” he added.

“People are just looking at a different type of payout, an alternative to a long-only exposure.”

“Whether you’re mildly bearish, neutral even bullish on the market, there is a structure out that can fit in your portfolio.

Growth, income

Leveraged products were the top structure last week with 60% of the volume versus 23% for the autocallable contingent coupon notes, the data showed.

“Leveraged notes are still very popular,” the sellsider said.

“Leverage two, three times. You see a lot of that.

“People are looking for the buffered notes because they want to participate but with a little hedge in case the market takes a dip.”

Autocallables however dominate the mix for the first time on a year-to-date basis, accounting for 36.5% of the total against 32% for leveraged products.

Many of those autocallables are contingent coupon notes with a worst-of payout.

“Rates are still low. Volatility is still not there. People are still chasing yield,” the sellsider said.

Dark side of low vol.

For Rosenberg, the bull market has a downside: distributors are facing “hardship” when showing new products to existing holders at maturity.

“The low volatility environment has made the terms significantly less attractive for someone who’s been buying structured notes for a while,” he said.

“If you’re looking for a replacement on a note that’s maturing you’re not going to be able to replicate the terms.

“The portfolio manager or the adviser understands that.

“But at the client level, it’s a common conversation that we have, a tough conversation actually when you have to tell the client that we can roll the same structure but with only 75% of the terms.”

Yet the market is such that investors continue to look for yield and returns, seeking in structured notes better alternatives than traditional securities, he said.

Top deal

UBS AG, London Branch priced the top deal in $135.42 million of two-year leveraged notes linked to a basket of international equity indexes. The underlying basket consists of the Euro Stoxx 50 index with a 37% weight, the FTSE 100 index with a 23% weight, the Topix index with a 23% weight, the Swiss Market index with a 9% weight and the S&P/ASX 200 index with an 8% weight.

The payout at maturity will be par plus 214% of any basket gain.

Investors will be fully exposed to any basket decline.

This underlying basket albeit with some variations in the weightings or number of components has been a consistent best-seller for a few years leading to some of the largest offerings ever brought to market, according to data compiled by Prospect News.

For instance Goldman Sachs Group, Inc. last year priced $1.07 billion of 13-month leveraged notes linked to a basket consisting of the Euro Stoxx 50 index with a 58% weight, the FTSE 100 index with a 19% weight and the Topix index with a 23% weight.

“UBS probably marketed it within its private banking channel given the size,” said Rosenberg who is very familiar with the basket in reference to last week’s offering.

“As a replacement to an EAFE ETF, it makes sense,” he said.

The MSCI EAFE index tracks the equity performance of developed countries excluding the U.S. and Canada.

“It’s a large issue easy to fit in your portfolio if you have to mimic an existing holding in the EAFE, an index that almost everybody has.

“People are looking to diversify from domestic stocks. This basket offers a good way to get international exposure with different weightings,” he said.

The second deal was brought to market by Barclays Bank plc. It was $23.97 million of five-year contingent income autocallables linked to the least performing of the Financial Select Sector index and the Euro Stoxx Banks index.

The annual contingent coupon of 10.85% is paid on a quarterly basis if the worst performing index closes at or above a 75% coupon barrier. The notes are autocallables on a quarterly call date after six months.

The barrier at maturity is 70%. Morgan Stanley Wealth Management is the dealer.

The top agent last week was Morgan Stanley with 31 deals totaling $247 million, or 41.1% of the total. It was followed by UBS with $186 million in 69 deals, a 31% market share. JPMorgan was third with $46 million in 17 deals.

UBS AG, London Branch was the No. 1 issuer with $156 million.

“It’s a good year....The best in a while. The market has helped a lot.” – A sellsider

“People are just looking at a different type of payout, an alternative to a long-only exposure.” – Matt Rosenberg, sales trader at Halo Investing

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