Structured notes issuance pace does not slow in 2021 so far; cars, computers and oil in focus

Chicago, April 28 – Structured notes issuance might start to taper off a bit, if history is an indicator.

However, the first-quarter results are still being tallied daily by Prospect News, and Q1 2021 is now officially the largest on record.

Historically, a banner first quarter can set the tone for the year but subsequent quarters have most often not outpaced the first quarter of that year.

Underliers are generally in the same gear, with equity tie-ins making up the great proportion of issuance.

And, as has previously been reported, a trend continues on its current trajectory. More notes indeed have early redemption provisions, witnessed in the data.

Quarter

The tally is still growing, but enough deals have now been counted for the first quarter of 2021 to be the largest on record.

Prospect News has now recorded $22.49 billion for January, February and March combined for this year.

The nominal issuance beats out the previous record, the first quarter of 2020, which posted $21.54 billion.

And, the numbers for this year are still subject to some upward revision.

In December, January, February and March of this year there were over 9,000 deals.

Just for the sake of comparison, as recently as 2019 it took the first seven months of the year to hit 9,000 new issues.

Prospect News marked a record-breaking December with $7.85 billion, a record that was shattered not 31 days later with $8.09 billion in January.

First quarter

The first quarter typically is the largest for the year.

Since 2011, it was only in 2016 and 2019 that the year did not start with its strongest quarter.

Cars and computers

In April, so far just shy of 85% of the issuance has been tied to equity, whether indexes or stock.

And, the popular underliers persist: Ford Motor Co., Tesla Inc., Apple Inc. and the S&P 500 index, in terms of underliers that are listed on their own in a structured note.

Each of those underliers claims at least 20 deals for itself of the currently under-recorded April where 539 deals have priced and been recorded so far for the month.

Oil

Moving to ETFs as underliers, comparatively there have been a smattering when held up next to equity underliers; however, the oil ETFs stand out as the most popular ETF underlier for April so far.

Specifically, the SPDR S&P oil & gas exploration & production ETF and the VanEck Vectors oil services ETF top the list.

Both have the same number of deals, but the VanEck fund claims more of the nominal with deals that have ranged in sized between $8 million and $20 million.

JPMorgan Chase Financial Co. LLC has tied two deals in April to the VanEck ETF as yield notes with one-year maturities.

Regardless of performance, both JPMorgan notes pay a fixed coupon. And, both notes can be called as early as their first coupon date, whether in one month or three months.

To call or not to call

So far in April, 13% of the number of deals have come with no early redemption option.

Conversely, 87% of the deals to price have some sort of call provision, whether it’s autocallable based on the underlier meeting defined criteria or callable at the option of the issuer.

In terms of nominal, though, that number jumps to 35.69% of issuance for April 2021 so far.

To randomly pick a point to try and track a trend and jumping back to November 2020, with all of that month finished, non-callable notes represented 37.89% of the total dollar amount of issuance.

A year ago, though, in April 2020 non-call notes represented 52.26% of the total dollar amount issued.

Jumping back one year before that in April 2019, 57.02% of the total nominal that month came in a non-call package.

And, to stamp and certify that change has actually been happening in terms of call features, the nominal amount issued one year prior, in April 2018, had no early redemption provisions in 64.96% of the notes.

Commodity index

GS Finance Corp. priced one of the largest transactions of the last few weeks with a $58.44 million trade based on the Bloomberg Commodity index.

The index is something of a rare underlier, although not a unicorn.

Since January 2020, the index has been used as an underlier less than 20 times.

Many of those instances are times when the index was used, but in a basket or in a worst-of structure.

This recent trade is a one-to-one deal. Investors fully participate in the gain of the index, or investors will fully participate in the losses of the index – without leverage.

The deal is actually an old play for Goldman, routinely issuing big trades on this commodity index, maybe once or twice a year, regularly with full gains and full losses, no leverage.

Just one example of a previous incarnation of the deal was a $96.73 million new issue that showed up on April of 2013, when the index was previously called the Dow Jones-UBS Commodity index.

And, the notes appear to do well for the issuer. Twice in the last few years, Goldman has sold notes in an original transaction and then reopened them to add more within the year they sold.

The index currently captures the commodity market with 23 commodity futures in six sectors.

The 2021 version has two separate issues of the notes, the one mentioned above, the $58.44 million that priced on April 20 and then an issue that priced on Jan. 25 for $37.16 million.

The fees have been modest. This month’s deal priced with no fees and the January deal had a 0.1% fee.

Both notes carry 13-month tenors.

The April transaction is Cusip number 40057H3B4.

ETF trade

Citigroup Global Markets Holdings Inc. posted the second-largest recent transaction with a $44.24 million deal linked to the lesser performing of the iShares MSCI Emerging Markets ETF and the iShares Russell 2000 Value ETF.

The deal carries a 6.64% contingent coupon, based on both underliers closing above a 70% barrier on a quarterly observation date.

The notes can be redeemed at par after six months if both ETFs close above their initial levels on quarterly observation dates.

Investors receive par unless either ETF finishes below its 70% downside threshold or will fully participate in the losses of the worst performer if it declines beyond the downside threshold.

Citigroup Global Markets Inc. and UBS Financial Services Inc. are the agents.

The Cusip is 17329D570. The notes settled on April 26.

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