Issuance slows in early part of month; big retail shops said to be on the sidelines

By Emma Trincal

New York, Dec. 9 - Issuance shrank last week to just above one fifth of the volume the week before, with $221 million priced versus $1.085 billion in only 37 deals versus 267, according to data compiled by Prospect News.

"Looking at the $1 billion of the week before, we had the holidays and everyone was closing out. Each issuer aggregates orders to the week at the end of the month. That's when you have the bulk of the issuance," said Randy Pegg, executive vice-president and head of structured products at Advisors Asset Management, a distributor.

There were no deals with a size in excess of $25 million during the week ended Dec. 4 compared to eight during the prior week, which included a transaction of more than $75 million.

"The week before was purely an end-of the month period, always the busiest," said a sellsider referring to the week ended Nov. 27. "People always close at the end of the month. "

Unusual league table

A notable change compared to the prior week was the league table. Coming on top of the league was JP Morgan with $65 million brought to market in six deals, accounting for 29.41% of the market. Deutsche Bank was next in the second slot with $35 million in seven deals accounting for 15.68% of the total issuance for the week. Goldman Sachs Group, Inc. followed as the third agent with $33 million priced in three deals and accounting for 15.08% of the volume.

During the prior week, the top three agents were in decreasing order as follows: Merrill Lynch, Barclays Bank plc and UBS.

A sellsider said that "it's uncommon to see Deutsche Bank" among the top three, adding that the absence of shops such as Merrill was also "unusual."

"I think the explanation is that the big retail guys were not pricing deals in the first week of December. So you had a lack of participants. JP Morgan is on the list of the top three but I don't look at JP Morgan as retail. It's mostly a private banking franchise. By retail, I have in mind Merrill, Morgan Stanley, Citigroup, Wachovia [now a subsidiary of Wells Fargo] and UBS," the sellsider said.

Friday deals

Most of the important deals priced at the end of the week, on Friday.

JP Morgan on that day was agent for the pricing of $16.59 million of 0% buffered return enhanced notes linked to a basket of Asian indexes due Dec. 22, 2010 issued by Credit Suisse, Nassau Branch..

Another relatively big deal for JP Morgan was a $14.11 million sale of 0% autocallable index knock-out buffer notes linked to a basket of indexes due Sept. 14., 2010 issued by Barclays Bank plc.

The most popular deal for Deutsche Bank AG, London Branch was the $10 million sale of securities linked to the Dow Jones-UBS Commodity Index Total Return due Jan. 18., 2011. It priced on Nov. 30

Goldman Sachs continued to sell the highly popular autocallable structure that has been in the market for a few weeks. On Friday, the bank priced $22.044 million of 0% autocallable index-linked notes tied to the S&P 500 index due Sept. 14, 2010.

The structure offers investors par plus the index return if the S&P 500 ever closes below 85% of its initial level; otherwise, the payout is par plus the greater of the index return and 6.7%.

The notes will be automatically called at par plus 7% if the index closes at or above 107% of its initial level on any Thursday during the life of the notes, including the final valuation date.

Leverage and volatility

The number one structure last week was leveraged return with partial downside protection - a continuation of an existing trend. These products amounted to 35% of last week's volume with $78 million brought to market through 11 deals. The second top selling structure was reverse convertible notes with $31 million issued in nine deals for 14% of the total. Reverse convertibles have seen a surge this year with the increased volatility and continue to be a category in favor, sellsiders said.

S&P's reign

Regarding underlying assets, there was no evident trend as issuers used a broad range of indexes, stocks, exchange-traded notes and other assets for their deals as they have been doing so far this year. The only exception was the use of the S&P 500, which represented 22% of the total, confirming that the U.S. equity benchmark remains the underlying of choice for U.S. structurers.

"Investors want indices that are well-known and that trade easily. The S&P 500 is just great for that," said a structurer.

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