Issuance slows down to $682 million amid holidays, vacations; popularity of equities grows

By Emma Trincal

New York, Jan. 5 - Issuance volume quieted down last week, and investors bid strongly on single-stock deals amid a strong bullish sentiment as the year ended, sources said.

Agents sold $682 million in 151 deals in the week ended Friday, the last day of the year, down 25% from the $912 million that hit the market the week before prior to the Christmas weekend, according to data compiled by Prospect News.

Santa break

"We had an unusually high volume in December," a New York-based structurer said. "We were incredibly busy the week before the holidays, and this week, we're incredibly busy too.

"So basically, people cleaned up their books and went on vacation."

A sellsider agreed that the holiday calendar played a role in the decreased volume seen last week.

"A lot of people wanted to wrap things up before Christmas," he said. "December is a quirky month. Usually everything prices on the last week of the month, but here, people wanted to get things done before the holidays."

On a year-over-year basis though, sales volume was robust last week, amounting to 4.5 times the proceeds recorded during the last week of 2009 when issuers priced $152 million in 73 deals.

Equities appeal

Another big trend for the week was the overwhelming presence of equities-linked notes. They totaled $577 million, or 85% of the total, in 132 deals.

Sources attributed this to market sentiment. A bullish consensus kept building up among investors as the year came to an end.

"Equities as an asset class are getting greater attention from clients," the sellsider said. "Equities have been rallying since August. Many strategists are recommending greater allocations to equities."

Stock bid

Market participants also noted the strong bid on single-stocks deals, which took an unusually high share of the overall volume.

Agents sold $502 million of individual stock-linked deals, making up nearly 75% of the total.

Out of the 13 deals over $9.92 million last week, 10 were securities linked to a single stock, according to data compiled by Prospect News.

The top three transactions in excess of $35 million were all stock deals in a reverse convertible format. The top one was Citigroup Funding Inc.'s $95.36 million 10% Equity LinKed Securities due June 22, 2011 linked to Ford Motor Co.

In contrast, equity index-linked offerings amounted to only 11% of the total, or $76 million in just 13 deals.

Investors' preference for individual stocks rather than equity indexes was the result of renewed optimism about the market as the year ended in rally mode, the sellsider explained.

"People invest in stocks when their market expectations improve because individual stocks are riskier bets than indexes," said the sellsider.

"Investors are feeling more confident about the market and are more bullish. They're more comfortable investing in stocks.

"When there is uncertainty, people usually prefer indexes, which are safer bets than stocks."

Stock-picking is back

Another factor, this sellsider said, was that investors were gaining more confidence in stock-picking again.

"Stocks have become a preferred choice because people are eager to bet on names that they like," he said.

Among the top offerings of the week were very well-known and well-liked names, he noted.

Ford was one of them. JPMorgan Chase & Co. offered another Ford deal, this time in an autocallable format sold by UBS for $23.44 million.

The second-largest deal of the week was Morgan Stanley's $81 million 7% ELKs due June 24, 2011 tied to JPMorgan.

Citigroup offered the third-largest deal, $36.15 million of 8% ELKs due June 22, 2011 tied to the share price of Dow Chemical Co.

Barclays Bank plc priced $27.6 million of autocallable notes due Jan. 6, 2012 linked to Apple Inc., a favorite among investors.

The sellsider said that most of those stocks had compelling underlying themes.

"Ford is a great turnaround story with the U.S. regaining greater market shares," he said.

He said that other stocks, such as JPMorgan, had been "beaten down" in the middle of last year and have been rallying since, creating interest for investors hoping to "play a turnaround."

"With indices, you play more on the economy. Now people want to make bets on individual companies," he said. "They want to play the story of a specific stock."

Commodities stocks

Commodity-linked notes almost disappeared last week with only one issuer, Wells Fargo & Co., pricing a $7.11 million issue of leveraged buffered notes tied to a commodities basket, a strong decline from the nearly $250 million sold in this asset class during the prior week.

However, investors continued to seek exposure to the asset class through commodities stocks.

UBS AG, London Branch priced $21.8 million of autocallable notes linked to Anadarko Petroleum Co., and JPMorgan priced $16.7 million of autocallable notes linked to Halliburton Co. These were among the top eight deals issued in the autocallable format.

Reverse convertibles

Reverse convertible, always in force at month-end, recorded an unusually strong issuance pace, making this structure the most popular one last week.

Agents sold $400 million of reverse convertible notes, or nearly 60% of the total volume, in 111 deals.

In contrast, only $29 million priced the week before, which was about 3% of the total, in 27 deals.

Those deals, usually tiny, exploded not only in number but also in size. The average size climbed to $3.6 million from $1 million.

UBS and autocallables

They were not the top structure, but autocallables underwent a significant push last week totaling $115 million in only eight deals, confirming the large average size of this type of structure, in the neighborhood of $15 million - a notable difference from reverse convertibles, which come in greater numbers but smaller face values.

UBS continued to control the autocallable market.

It sold six out of the eight autocallable products, all of which were issued by a bank other than UBS except for one deal.

Moreover, the six deals in which UBS acted as the placement agent were the largest autocallable offerings to hit the market.

The two issuers that did not use the UBS sales force were Morgan Stanley, whose $5.1 million was distributed internally, and Eksportfinans ASA, which sold $5 million via Wells Fargo.

Commenting on UBS' leading position in this market, the sellsider said, "A structure gets introduced by a specific distribution network and it's like a snowball.

"First a few salespeople adopt it. Then more successful salespeople jump on it. The snowball becomes an organization.

"UBS salespeople like the structure, and so more and more of those deals are getting sold."

Another factor, he said, was UBS' ability to sell other banks' products, a process called open architecture.

"Because UBS is active in open architecture, they're able to sell internally and externally," the sellsider noted.

"They select the best prices in a fairly competitive market. They buy from different issuers. Clients like it as it provides credit diversification."

UBS was the top agent of the week as a result of its leadership in autocallable deals and active role in open architecture.

The bank sold $186 million in 19 deals, or 27% of the total.

It was followed by Citigroup, which priced 23% of the total with $155 million, and by Morgan Stanley with $103 million, or 15% of the total volume.

"We had an unusually high volume in December." - A New York-based structurer

"Equities as an asset class are getting greater attention from clients." - A sellsider

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