Bank of America prices No. 4 deal for the year with $229.51 million Euro Stoxx-based offering

By Emma Trincal

New York, April 29 – Bank of America Corp.’s $229.51 million issue of 0% Accelerated Return Notes due June 24, 2016 linked to the Euro Stoxx 50 index is the fourth-largest deal to price so far this year, according to data compiled by Prospect News.

“Not bad. They printed a lot of stuff too,” said a trader commenting on BofA Merrill Lynch’s solid push last week.

The agent sold 83% of the week’s $1.25 billion total volume, according to the data.

The notes offered a 300% upside participation up to a 19.05% cap, but investors were fully exposed to the downside, according to a 424B2 filing with the Securities and Exchange Commission.

Euro Stoxx 50

“It’s probably a play on Europe. This market had a good run. It’s a positive theme right now. International exposure is doing well compared to the S&P,” an industry source said.

The S&P 500 index rose 13% over the past year, compared with a 7.65% decline in the Euro Stoxx 50 index.

But for the year to date, the trend has reverted with the euro zone benchmark up 7.22% while the S&P 500 has only gained 2.45%.

“What’s the underlier? What’s the Euro Stoxx doing? Here you go!” a distributor said.

“It must be some kind of research-driven idea that Europe will perform well over the next 14 months.”

Term and protection

A market participant said the higher leverage multiple is designed for moderately bullish investors.

“They have a range-bound view with a little bit of upside and you lever up. You don’t think it’s going to go down much lower,” he said.

He said the short duration of the note is the reason why the downside has no buffer or barrier.

“It’s a very short-term note. Fourteen months is not enough for the protection. You have to go longer to buy the floor,” he said.

“We prefer to issue 10-year notes with principal protection. It’s a different market. You wouldn’t get the leverage on the upside. But it would be principal-protected.”

Some agents never do such short-term notes, partly because the issuer would request longer-term funding, he said.

“From a risk standpoint, short term can also mean more risk if there is a correction. You may not have enough time for a rebound,” he said.

Given the success of the deal, however, protection is apparently not an issue for a lot of investors, he said.

Equity market valuations may be high and there may be some risk, but for some investors, getting that type of leverage and that cap level over 14 months is attractive, he said.

“It’s the view.”

Top four

The top four offerings so far this year share common characteristics: they are short-term leveraged notes referencing equity indexes or baskets of indexes.

At the end of January, Bank of America priced the No. 3 deal, $297.38 million of 14-month Accelerated Return Notes linked to the S&P 500 index.

On Jan. 30, J.P. Morgan Securities LLC brought the top two deals, one issued by Barclays Bank plc for $547.56 million and the other by Goldman Sachs Group, Inc. for $497.53 billion. Both were linked to an unequally weighted basket of international equity indexes, which included the Euro Stoxx 50 index with a 58% weight, the FTSE 100 index with a 21% weight and the Topix index with a 21% weight.

The Cusip number for last week’s offering was 06053W300.

BofA Merrill Lynch was the agent.

The fee was 2%.

© 2015 Prospect News.
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