Credit Suisse’s Bares linked to Euro Stoxx 50 show best pricing within a series of four

By Emma Trincal

New York, Nov. 6 – Credit Suisse AG, London Branch’s 0% Buffered Accelerated Return Equity Securities due Nov. 19, 2020 linked to the Euro Stoxx 50 index are the only issue to show uncapped upside among a series of very similar offerings also announced by this issuer.

The payout at maturity will be par plus 151% of any index gain, according to a 424B2 filing with the Securities and Exchange Commission.

Investors will receive par if the index falls by up to 15% and lose 1% for every 1% decline beyond 15%.

Uncapped

What makes the offering appealing is the combination of leverage, relatively short duration, buffer and unlimited upside, a financial adviser said.

“No cap? Really? There is nothing not to like here,” said Carl Kunhardt, wealth adviser at Quest Capital Management.

“I’ve got exposure to an asset class I’m always going to be invested in. I’ve got leverage. I’ve got a buffer. I’ve got no cap.

“The only thing I can see is that you’re giving up dividends.”

The Euro Stoxx 50 index yields 3.36%.

“But even still, if I compare this to holding the position long, I’m better off with the notes because I have the advantage of the leverage.”

Kunhardt said he always has exposure to the Euro Stoxx 50 because it is part of the international equity allocation he maintains at all times as 20% of his portfolio. The Euro Stoxx 50 alone makes for 70% of this 20% international allocation.

Part of a series

Credit Suisse is also planning a series of three other notes tied to three distinct equity underliers. All the deals, while nearly identical, differ from the Euro Stoxx offering in that they all have caps.

The maturity date, leverage and buffer amount are common to all four products.

The three other upcoming offerings are as follows:

•∙Notes linked to the S&P 500 index with a 25% cap;

•∙Notes linked to the Russell 2000 index with a 27.5% cap; and

•∙Notes linked to the iShares MSCI Emerging Markets exchange-traded fund with a cap of 34%.

“I actually like the S&P one even with the cap. It’s in line with our long-term assumptions,” said Kunhardt.

“I’m not giving up much because I’m just not expecting much more on the upside.”

The yield factor

Comparing the uncapped notes linked to the Euro Stoxx with the three other notes, which limit the upside, Matt Rosenberg, sales trader at Halo Investing, said that the dividend yield makes all the difference.

“If you ask me why the difference in price between those four, it’s the higher dividend that you find in the Euro Stoxx 50,” he said.

The S&P 500 yields 1.85%. The Russell 2000 and the iShares MSCI Emerging Markets ETF each have a dividend yield of about 1.30%.

“Based on those terms, for a three-year on the S&P ... getting it uncapped would be very tough.” he said. “In fact, very indicatively you can’t achieve 150% participation without a cap on a three-year for any of these. ...”

Indicative pricing

This trader said he could see three-year notes with no cap on the three underliers, but none of those would have any downside protection. The upside leverage multiples would also be less: 1.26 times for the S&P 500, 1.33 times for the Russell 2000 and 1.4 times for the emerging markets ETF.

“You couldn’t get the protection you get with the Euro Stoxx. If you wanted to get near the terms of the Euro Stoxx deal that they’re showing, you would probably have to extend the term to five years,” he said.

“This is why the Euro Stoxx is one of the most popular underlyings right now.”

Credit Suisse Securities (USA) LLC is the agent for all upcoming offerings.

The four issues will price on Nov. 15 and settle on Nov. 20.

The Cusip number is 22550BP23 for the Euro Stoxx 50 deal, 22550BP31 for the notes based on the S&P 500, 22550BPC1 for the Russell 2000 offering and 22550BNZ2 for the emerging markets ETF deal.

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