Credit Suisse’s leveraged notes tied to FTSE 100 are fit for country-specific bullish bet

By Emma Trincal

New York, Dec. 22 – Credit Suisse AG’s 0% Accelerated Return Equity Securities due Sept. 11, 2017 linked to the FTSE 100 index should satisfy bullish investors given the uncapped upside. But the exposure to the U.K. large-cap equity market implies being comfortable making a bet on a single country, sources said.

The payout at maturity will be par plus 195% times any index gain, according to a 424B2 filing with the Securities and Exchange Commission.

Investors will share in any losses.

Good for bulls

“I like it,” said Jim Delaney, head trader at Market Strategies Management.

“I think unlike Europe, the U.K. is in much better shape fiscally and economically. They should perform better over the next two years.”

The structure was appealing for bulls, he said.

“Anytime you get upside leverage without having to pay anything for it – in this case there is no cap – it’s a very positive thing.

“And while there’s no buffer or even barrier, in my view you’re really getting a protection on the way down because the leverage is such that you’re getting two times on the upside but only one time on the downside. That’s very important.

“If you were to replicate it in the options market, they would give you two times the upside but obviously you would have to carry two times on the downside as well.

“To me not having the leveraged exposure on the downside is a form of protection. It’s really a benefit if you compare it to a pure equity play,” he said.

Reasonable structure

For Steven Foldes, vice-chairman at Evensky & Katz / Foldes Financial Wealth Management, the structure was overall satisfying except for a few details. The exposure to one country, however, was the concern.

“This is a simple structure. I like simple,” he said.

“It’s a 32-month, which is within the range that we like, although we would prefer one to two years. We hold notes for one year for the capital gains but we like to make it less than two years when we can. However, two years and eight months is not bad.

“Credit Suisse is a fine firm. We’ve done a few notes with Credit Suisse. We have no problem with their creditworthiness.”

The upside was also attractive. Foldes said that getting an uncapped note with nearly two-times leverage was “a good thing.”

The lack of downside protection could represent an obstacle, but Foldes said it could be overcome.

“Obviously we do like the note to have some level of downside protection. It would be available to us if we customized the note but we would lose some of the upside. We understand that it would be the cost,” he said.

Single country risk

The “real issue here” was the underlying, he explained.

“We don’t typically select just one country other than of course the U.S. We would avoid exposure to just the U.K. or Germany for instance,” he said.

“We would typically choose an international fund like the EAFE fund instead. The EAFE would give us a 20% exposure to the U.K. but we would have the diversification across other countries not just in Europe but also Japan, Australia and other non-U.S. developed countries. It’s more consistent with our methodology.

“The structure seems reasonable. The credit is fine.

“For us, the non-starter is the idea of a single-country exposure,” he said.

Credit Suisse Securities (USA) LLC is the agent.

The notes will settle on Dec. 29.

The Cusip number is 22547QZR0.

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