Structured products year-to-date gap narrows; $821 million prices in post-Easter week

Chicago, May 1 – Moving closer to the end of the month, structured products issuance tallied $821 million in 235 deals in the week after the Easter holiday.

Equity-linked deals, whether an index, a single stock or a basket of different components, accounted for nearly 95% of those deals, 203 of the 235 deals recorded thus far in preliminary data compiled by Prospect News for the April 21 week.

The first three weeks of April saw an uptick in the dollar amount of issuance compared with monthly numbers in March. In 171 fewer deals, the dollar value of April’s deals increased 11.1% compared with March for the same number of days, reaching $2.11 billion versus $1.90 billion, respectively.

As likely expected at this point, year-to-date totals continue to lag a strong 2018. However, the gap narrowed some with a stronger week and month. Last week Prospect News reported a 47.4% drop in the year-to-date total, but this week that number declined to a 40.41% drop in year-over-year issuance.

Asset class changes

With four months of issuance nearly accounted for, similarities and changes in the pattern of issuance for the year can now be observed.

As a percentage of year-to-date issuance, equity-linked deals have barely changed. While the number of deals and the total amount have decreased, the percentage is nearly identical. For 2019 so far, 89.54% of $12.92 billion in deals are linked to equity. In 2018, that number was 88.36% of $21.68 billion in deals.

However, equity indexes have increased as a percentage of total deal volume. From January to April this year, 74.93%, or $9.68 billion, of the deals issued involved an equity index. For the same period in the year previous, 62.90%, or $13.63 billion, of the deals were linked to a similar index.

That difference may well be accounted for by a decline in stock-linked deals. The market is seeing, as a percentage of total issuance, fewer deals linked to a single name like Delta Air Lines, Inc. or Nvidia Corp. In 2019, the number stands at 11.84%, or $1.53 billion, of deal volume, compared with 20.99%, or $4.55 billion, of deal volume in 2018.

Structural change

For the most part the structure of the deals, again as a percentage of total year-to-date volume, is relatively similar.

For example, callable structured products where the issuer can call the notes before maturity, has remained flat. A little less than a third of the deals in 2019 have been callable, 29.82%, or $3.85 billion, of the deals. In 2018 that same category stood at 30.97%, or $6.71 billion, of issuance.

The most significant shift in the numbers, though, can be seen in notes with a leveraged return and partial downside protection, or in other words, notes with a buffer. In the first four months of this year, 28.81% of the deals issued had partial downside protection, or $3.72 billion in notes. In the first four months of the previous year, 20.35% of the deals had a buffer, or $4.41 billion in issuance.

CIBC prices S&P 500 notes

Canadian Imperial Bank of Commerce priced the largest deal of the week with a $126.25 million issue of Accelerated Return Notes tied to the S&P 500 index.

The notes mature on June 26, 2020.

Investors will receive 300% of any index gain, capped at 10.77% for the par of $10 notes. Should the final index level decline, an average of the index’s closing level on the five trading days ending June 30, 2020, investors will be exposed to any losses of the final index average.

The issue settles on May 2 with BofA Merrill Lynch working as the underwriter.

The deal helped give CIBC the lead for the April 21 week with the bank’s five priced deals accounting for 21.73%, or $178 million, of the total.

Scotia also ties to S&P

In a relatively similar deal, another Canadian bank came to market with the second-largest deal of the week, again tied to the S&P 500 index.

Bank of Nova Scotia priced $56.17 million of two-year Capped Leveraged Index Return Notes on April 25.

As in the CIBC deal, investors receive a leveraged return with a cap. For this deal, investors receive a smaller 200% leveraged index gain with a higher cap, a 15.02% maximum return on par of $10 notes.

This issue comes with a buffer, unlike the CIBC notes. Investors receive par if the index falls by 10% and then participate in any loss beyond the buffer.

BofA Merrill Lynch also served as agent.

The deal propelled Scotia into the third spot for the week, pricing four deals for a 13.75% share of the market for a total of $113 million.

The two deals together definitively worked BofA Merrill Lynch into the top spot as bookrunner, with 37.15% of the market in nine deals for the week, or $305 million.

Morgan Stanley deal differs

Morgan Stanley Finance LLC’s third-largest deal presented investors with a potential payout based on a different scenario, still tied to the S&P 500 index.

The bank priced $46.34 million trigger absolute return step securities with a longer five-year tenor, due April 30, 2024.

The notes are uncapped, unlike the two previous deals. Should the index increase in value, the notes include a flat return of 30.11% and then full participation in increases beyond a 30.11% gain.

Should the index decrease in value, but above 75% of its initial value, investors receive an absolute value return up to 25%.

And, then there is full participation in any index decline beyond a 25% drop.

There is no call feature.

Morgan Stanley was listed as agent with UBS Financial Services Inc. handling distribution.

The notes settled April 30.

The deal represented approximately a quarter of Morgan Stanley’s issuance for the week. The bank priced 27 deals totaling $171 million, 20.86% of the weekly structured products market.

Underliers for the week

While equity deals of one sort or another dominate structured products issuance, 69 of the previous week’s deals were tied specifically to the S&P 500 index. Five of the top 10 deals were tied only to that one index. In addition to the top three deals, Scotia priced $31.48 million autocallable market-linked step up notes and Morgan Stanley sold $20 million in jump securities with an autocallable feature.

Morgan Stanley priced two deals linked to single stocks, both of them contingent income autocallable securities. The first issue was for $23.19 million linked to UnitedHealth Group Inc., and the second deal priced $21.04 million in notes linked to Amazon.com, Inc.

Barclays Bank plc and Goldman Sachs Group, Inc. both priced step-up fixed-rate notes. Both issues contained a call feature. Barclays started its notes at 3.5% with a 10-year tenor. Goldman’s step-up notes started at 3.25% and have a 5.5-year maturity.

The fifth-largest deal of the week, from CIBC, was for $27.14 million linked to a six-index basket with four years until maturity.

JPMorgan on top

The month is far from over, with the vast majority of deals pricing in the last week of each month, but as the year-to-date totals stand as of the April 21 week, JPMorgan Chase Financial Co. LLC and Barclays are topping the issuer league tables for 2019.

JPMorgan has priced 655 deals amounting to $1.79 billion for a 13.87% share of the market.

Not far behind, Barclays has sold 478 deals adding up to $1.76 billion for a 13.64% share of the market.

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