Structured products agents price $859 million in final week of February; issuance down

Chicago, March 6 – A diminished average deal size of $2.15 million meant a week with 6.46% less issuance in the structured products market for the week ended Friday versus the prior week, according to data compiled by Prospect News.

The slight drop in issuance is remarkable because three times more deals have been recorded in the past week, 400 deals to 139 deals the previous week.

Only seven deals cleared the $10 million hurdle and only UBS AG, London Branch’s bearish barrier early redeemable market-linked notes with a daily barrier observation due Sept. 30, 2020 linked to the S&P 500 index made it past the $20 million barrier with an offering of $26.55 million which priced on Feb. 25.

Average deal size the previous week of Feb. 17 was three times larger at $6.61 million, buoyed by three offerings over $50 million, 10 deals over $20 million and 23 deals stretching past the $10 million mark. The data however is preliminary and the Feb. 24 week numbers will likely shift upward.

Year-to-date numbers slip

Even with those last deals of the month still being added to the final tally, year-to-date issuance continues to lag the numbers from last year in a relatively consistent negative 40% to 45% range.

The current year-to-date total is $6.64 billion in 2,064 deals. At the same time last year 3,086 deals had priced for a 45.48% greater total of $12.18 billion.

The average deal size for the year to date is down to $3.22 million from $3.95 million, an approximate 18% drop.

Trailing 12-month down

The trailing 12-month totals, while not assuring, provide a less alarming backdrop.

The numbers are down 7.47% from March 2018 through February 2019, compared with the same time period a year earlier.

The trailing 12-month total is $51.30 billion in 15,158 deals compared with the one-year earlier numbers of $55.44 billion market volume in 14,906 issues.

Looking at the data this way, the issue size is still decreasing, to $3.38 million from $3.72 million, down about 9%.

The average issue size is down in spite of 72 deals pricing at the $50 million and higher mark this trailing 12 months, 19 more than the previous year.

Weekly trends

The last week of February showed some shifting trends.

For instance, ETF-linked note issuance increased last week and accounted for 7.69% of the week’s total with $66 million pricing in 33 deals.

Equity-linked deals were down 11.89% week over week but still accounted for the bulk of deals pricing for 87.4% of the total. The previous week, equity-linked deals represented 92.78% of the total, however.

The week also showed an uptick in the percentage of callable structures. Deals that contained a callable feature represented 33.30% of the total, a solid third of issuance. The previous week that percentage was closer to 15%.

A bear of a deal

The previously mentioned largest deal of the week, UBS’ $26.55 million bearish notes tied to the S&P 500 index, contained some unique structural features.

The call feature, instead of being tied to formal observation dates that often occur quarterly or at intervals that align with coupon observation dates, is continuous during the life of the notes. The notes will be called at par plus 1% should the S&P 500 index close more than 25% below its initial level at any point.

The upside participation should the index gain is 1%, whereas the bigger payout is for any decline between 1% and 25% resulting in a par plus the absolute value of the return payout at maturity.

UBS Securities LLC and UBS Investment Bank were the agents.

Leveraged S&P

The second largest deal of the week, Canadian Imperial Bank of Commerce’s $19.1 million of 0% leveraged buffered notes due March 3, 2023, was also a play on equity tied to the S&P 500 index.

Markedly different from UBS’ deal, the four-year notes do not contain either an optional redemption feature or an autocallable feature, and hope more for a longer-term increase in the index.

If the index return is positive, investors receive par plus a leveraged 131% of the index return.

Principal is protected if the index falls by up to 20%.

Should the index fall beyond 20%, investors are still protected from exposure to the full decline of the index in that the payout will be calculated at a 1.25% loss for each 1% decline beyond the 20% buffer, meaning that a hypothetical 40% decline in the index would result in only a negative 25% payout on the notes.

CIBC World Markets Corp. was the agent.

Single stock, Microsoft

JPMorgan Chase Financial Co. LLC priced a different equity play, this one tied to the common stock of Microsoft Corp., in the third biggest deal of the week.

The issue for $14.32 million of trigger autocallable contingent yield notes due Feb. 28, 2022 pay a quarterly contingent coupon at an annual rate of 8% if Microsoft shares close above 75% of their initial value on the relevant observation date.

The notes are autocallable if after six months Microsoft closes above the initial share price on a quarterly observation date.

If the notes are not called, the payout at maturity will be par unless the notes close below 75% of their initial value, in which case investors will be exposed to the losses of the share price.

UBS Financial Services Inc. and J.P. Morgan Securities LLC were the agents for the deal, which priced on Feb. 26.

Weekly issuance

UBS was the top agent last week with 80 deals totaling $245 million, or 28.46% of the total. The bank was followed by Morgan Stanley and JPMorgan.

JPMorgan Chase Financial Co. LLC was the No. 1 issuer with 62 deals totaling $180 million. It was followed by Barclays and Credit Suisse.

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