Credit Suisse’s 29% contingent coupon callable notes offer tactical bet on electric vehicles

By Emma Trincal

New York, Nov. 17 – Credit Suisse AG, London Branch’s contingent coupon callable yield notes due Nov. 25, 2024 tied to the least performing of the common stocks of Ford Motor Co., General Motors Co. and Tesla, Inc. give investors an opportunity to tap into a fast-growing sector while capturing equity-like returns, sources said.

The notes pay a contingent monthly coupon at the rate of 29% per year if each stock closes at or above its coupon barrier price, 70% of its initial price, on the related observation date, according to a 424B2 filing with the Securities and Exchange Commission.

The notes may be called at par plus any contingent coupon due at the issuer’s option on any monthly observation date after three months.

The payout at maturity will be par unless any stock finishes below its 50% knock-in price, in which case investors will be exposed to the decline of the worst performer from its initial price.

Tesla’s recent slump

“I really like this note,” a financial adviser said.

“A 50% barrier with monthly coupons is very attractive without mentioning almost 30% in yield.

“And now that Elon Musk has been dumping billions of dollars of his own shares, you’re getting in at a much better entry point than two weeks ago.”

On Nov. 8, Tesla chief executive Elon Musk began selling some of his shares after a positive response to a Twitter poll in which he asked the public if he should exercise his options and sell some of his own shares in the electric-vehicle company.

Tesla is still up 55% for the year. But the stock has declined by 12.5% since its all-time high of Nov. 4, just before Musk began selling his shares.

Very high yield

This adviser also liked the monthly contingent payments.

“The 29% coupon is huge, which mitigates some of the risk. Every month, your risk is down by 2.4% and that goes very quickly.”

The size of the coupon provided some useful leverage, which could be used as a risk control strategy.

“If I have $300,000 to invest, I can allocate $100,000 to this note with a 29% coupon. I’m getting a little bit more than someone putting in $300,000 with a 9% coupon, which is hard to find anyway. And I cut my risk by two thirds since I’m only investing a third of my money,” he said.

The use of three stocks in a worst-of is always a risk, he noted. But the underliers are highly correlated as they operate in the same industry.

Competitive market

What drives valuations for stocks such as Tesla but also Ford and General Motors is the rapidly transforming impact of electric cars on the traditional automobile market, he explained.

The trend has made Elon Musk the richest man in the world and the share price of his company has skyrocketed 2,322% in the last two years from $45 to $1,090.

“I’m actually not concerned about Tesla despite the volatility of the stock. I’m more concerned about GM and Ford. They both may be gone in 10 years. Tesla is the real disruptor. The other two may not be able to pivot fast enough,” he said.

But the autonomous car and electric vehicles market is highly speculative, he conceded.

“Just look at those recent IPOs, Rivian for instance. Valuations are through the roof,” he noted.

Rivian Automotive, Inc., a newcomer in the electric vehicle market, which went public on Nov. 10, has seen its market value double in the past week, which is highly unusual.

“Its market cap is already higher than Ford and General Motors,” he said.

Another electric carmaker start-up, Lucid Group Inc., which went public in July, has already surpassed Ford in market value.

“That’s why you want this deep barrier. And that’s why you get this very high coupon,” he said.

While Tesla is much more established than any of those new players, the stock remains very volatile, he noted.

“I wouldn’t want to own the stock outright. But with a 29% contingent coupon payable monthly and a 50% barrier in three years, it makes a lot of sense to me,” he said.

Matt Rosenberg, director at Halo Investing, agreed.

“It’s an interesting, opportunistic play,” he said.

“All three companies share a commitment to move into the electric vehicle space.

“Tesla is the number one. The stock has moved up like crazy. You may worry about a big correction. But we know what it cost to play against that momentum.

There isn’t as much hype around General Motors and Ford, he said.

“But they’re big companies and they’re moving in the right direction. GM has already made significant investments in electric vehicles. They’re not as advanced as Tesla. But they’re catching up.

“If you want to bet on the space, this note is a great tactical tool with a juicy yield. I like it,” he said.

Credit Suisse Securities (USA) LLC is the agent.

The notes will price on Friday and settle on Nov. 24.

The Cusip number is 22553P4T3.

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