Investor appetite for structured products back to pre-Lehman Brothers levels: structurer

By Emma Trincal

New York, Nov. 12 - The demand for structured notes is back, almost to pre-Lehman levels, said a structurer commenting on last week's issuance.

Structured products issuance was dominated by the $1 billion pricing of Barclays' add-on to iPath S&P 500 VIX Short-Term Futures exchange-traded notes, which priced on Nov. 2.

During the week ended Friday, $1.216 billion worth of structured products priced in 36 deals.

The week before, a slightly larger volume - $1.413 billion - priced in 239 transactions.

In volume, production was down 14%, which is not atypical early in the month cycle, sources said.

Barclays' giant ETN

Barclays Bank plc priced an additional $1 billion of iPath S&P 500 VIX Short-Term Futures exchange-traded notes due Jan. 30, 2019, according to a 424B3 filing with the Securities and Exchange Commission.

This was not the first offering for this product. The bank priced $250 million of the notes on Jan. 29, 2009, $250 million more on June 29 and another $1 billion on July 21. The total amount of notes priced is now $2.5 billion.

The notes are linked to the S&P 500 VIX Short-Term Futures Index Total Return, which measures the return from a daily rolling long position in the first- and second-month CBOE Volatility index futures contracts.

Last week, the $1 billion iPath S&P 500 VIX ETNs alone represented 82.25% of the week's issuance.

Portion sales

But some sources said that it was not easy to analyze last week's data given the way ETNs price.

"When you have a big ETN issuance like this, it changes the overall picture and it's hard to draw conclusions," said a sellsider. "ETNs are more liquid. They can issue a chunk, they can authorize it. It doesn't necessarily mean that they actually sold it entirely. They may have simply made it available for future purchases."

In its pricing supplement, Barclays specified that, "We sold a portion of each series of ETNs on their respective inception dates at 100% of their stated principal amount. The remainder of the ETNs will be offered and sold from time to time through Barclays Capital Inc., our affiliate, as agent."

"ETNs are back and are attracting assets at pretty aggressive rates, so it's a place to keep an eye on," said the structurer who commented on the overall issuance earlier. "Last week's Barclays VIX ETN was very successful. People like the product.

"The people who are buying it are looking to hedge against a market retraction." This structurer was not with Barclays.

Mini deals

The Barclays' offering dwarfed other deals. The next largest deal of the week came out much smaller in size than on average. It was brought to market by Royal Bank of Canada, which on Wednesday priced $8.25 million of Direct Investment Notes due Dec. 9, 2010 linked to the EquityCompass Equity Risk Management Strategy.

League table

With more than 80% of the market shares for that week, Barclays propelled itself back on top of the bookrunners' league table. The second agent was JPMorgan with $113 million in nine deals, or 9.31% of the total, followed by Morgan Stanley with $39 million in five deals, or 3.20% of the week's issuance.

On the prior week, Merrill Lynch was topping the league followed by Barclays.

Inflation sells

Popular structures remained leveraged return deals and partial protection and reverse convertibles. "Reverse convertibles continue to be a healthy market," said the structurer.

Underlying used for the structures, as before, were very diverse with no particular trend, except that the VIX Short-Term Futures Index represented more than 82% of the total size of reference assets, as it was the underlying for the $1 billion Barclays deal.

With inflation fears and a robust commodity rally, some asset classes have gained special attention.

"Commodities-linked products are very hot as well as inflation related products. Inflation is selling today," said the structurer.

One landmark commodity structure that came to market the week before was the $101 million offering of Exchange-traded access securities (E-Tracs) tied to the Dow Jones - UBS Commodity Index Total Return and priced by UBS AG.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.