Structured products tally $596 million for week; Barclays, UBS price block trades

By Emma Trincal

New York, Sept. 21 – Barclays as top issuer and UBS as leading agent worked closely together last week in the pricing of large callable income trades.

The week’s total notional was $596 million in 98 deals, according to preliminary data compiled by Prospect News.

Barclays Bank plc issued $223 million in eight deals, or 37.5% of this total amount. The agent UBS sold $318 million in 55 deals, a 53.3% share.

These figures are preliminary and may be revised as not all deals were filed with the Securities and Exchange Commission website by press time.

Barclays issued $223 million in eight deals. Out of this, UBS distributed seven offerings for $213 million. Four of those “joint” deals were in excess of $30 million.

Calendar offerings

“As you see deals being structured and sold within UBS’ network, you see bigger sizes,” said Matt Rosenberg, director at Halo Investing.

“UBS, Morgan Stanley, BofA, these are top private wealth entities selling structured products through their huge network.

“UBS has thousands of reps. It’s a solid distribution channel.”

Big deal, daily observation

The top offering was Barclays Bank plc’s $49.9 million of trigger callable contingent yield notes with daily coupon observation due June 16, 2025 linked to the worst performing of the Nasdaq-100 index, the Russell 2000 index and the S&P 500 index. UBS Financial Services Inc. was the agent.

The notes pay a contingent quarterly coupon of 15.21% a year based on a daily observation barrier of 70% and are callable on any quarterly observation period.

The point-to-point barrier at maturity is at 70%.

“I don’t like these daily observation barriers,” said Ken Nuttall, chief investment officer at BlackDiamond Wealth.

“It’s much easier to explain that you can get knocked in at the end rather than at any point even though those riskier barriers can give you an extra 2% to 3%.”

UBS brokers seem to have little difficulty selling those callable notes with daily observation barriers on the coupon, according to data compiled by Prospect News, which shows larger size deals with this feature priced from this agent. Issuer calls are almost always combined with the American coupon barrier in those issues.

Other big Barclays deals

The second block trade priced by UBS on the behalf of Barclays was a 3.5-year autocallable note offering on the same three indexes for $49.54 million. The 14% annualized contingent coupon is based on a 65% coupon barrier (point to point). The notes can be automatically called on any quarter. The downside threshold is 55%.

Barclays brought to market another 3.5-year note on the same underliers but with issuer call and daily observation barrier, which lifted the contingent coupon to 16% without however improving the barrier levels (70% for the coupon, 60% for the knock-in at maturity). UBS again was the agent.

A fourth trade was $32.53 million of five-year autocalls paying 13.1% in contingent coupon.

All those deals were structured around the same three underlying indexes. The tenor average range was between three and five years. UBS was the agent.

Money wanted

“These are not single-advisor Cusip. These are deals that are aggregated within the organization and pushed on any given month,” said Rosenberg.

Barclays, which had to buy back several billion dollars from investors in securities it had issued in excess of its U.S. registered shelf, is “aggressively coming back in the market,” said Nuttall.

The bank was out of the market from March to Aug. 1, the date at which it filed a rescission offer announcing the buyback at par of notes issued in excess of the authorized amount. The rescission offer ended on Sept. 12.

The issuer recently announced that it released $7.7 billion in proceeds earlier this month for claims filed by noteholders who were initial buyers.

An issuer in need of liquidity, a top distribution channel and investors with cash on hand make for a winning formula, Nuttall said.

“Barclays had to pay off billions. They need a lot of funding to get their money back,” he said.

This “need” is reflected in the terms offered by this issuer, he added.

“Right now, Barclays has the strongest yields in the market. They’re coming in strong. Now that this rescission period is over, they’re ready to go. I think this is why we saw these big offerings last week.”

He said his firm priced a Barclays note on Monday.

“It was an 18-month Phoenix autocall with a 15.15% contingent coupon, 30% coupon barrier and 30% on the down. I’ll take that all day.”

Money to spend

As Barclays, which was last year’s top issuer, is on board to regain its place in the league tables, could some of this year’s gap in overall issuance be bridged, at least partially? Sales of structured notes through Sept. 16 have dropped 15% to $59.4 billion from $69.8 billion a year ago. That’s a gap in excess of $10 billion, according to Prospect News.

“Investors are flush with cash,” said Rosenberg.

“They just received $7.7 billion in proceeds from the rescission. These are investors that just got bailed out from very ill-performing trades. They’re probably inclined to use the proceeds to buy structured notes.”

In addition, Barclays is expected to release more funds “as soon as practicable,” for holders who were not the initial buyers, according to the rescission offer. The amount of validated claims among those holders and the timing for their payment are still unknown.

“We’ll see a huge pickup in issuance as more people get more proceeds,” said Rosenberg.

$10 billion bridge

However, Rosenberg said “it would be pure speculation” to try and estimate if Barclays’ return to the market can really significantly improve this year’s tally and bridge the $10 billion gap.

He said he was skeptical.

“Only a portion of the proceeds will go back to structured notes,” he said.

“There is a lot of cash to deploy but rates are higher and fixed-income is looking better than it has in years.

“I can see a pickup in lightly structured notes like step ups. Treasury yields also look good for conservative investors.

“But it’s a mixed picture because at the same time with inflation upticking, the search for yield is still on. And structured notes can pay very high coupons.”

Volatility, inflation

Another factor likely to help issuance volume in the upcoming quarter is the market itself.

Last week’s release of the August Consumer Price Index led to a severe market sell-off, pushing the S&P 500 index 4.8% lower for the week.

“The market is down 20% this year. We had a very ugly sell-off last week. It’s hard to make decisions on a day-to-day basis,” said Nuttall.

“But with volatility jumping, you get bigger trades with lower barriers and yields of 15% or 15½%. That’s pretty good when you compare this with the 6.5% to 8% yields you got back in November.”

The top agent after UBS last week was Goldman Sachs followed by JPMorgan.

The No. 1 issuer after Barclays was Citigroup Global Markets Holdings Inc. with $50 million in four deals, an 8.5% share.

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