Structured products issuance $321 million for week; UBS taps into Canadian issuers’ business

By Emma Trincal

New York, Sept. 7 – In a hybrid week covering the end of August and the beginning of September, structured products agents priced $321 million in 80 deals, according to preliminary data compiled by Prospect News.

Coming on the heels of $1.96 billion priced in 348 deals the week before, in which BofA Securities Inc. led with nearly 30% of the total, it was UBS’ turn last week to prevail with more than 48% of total sales in 34 deals totaling $155 million.

More notable: the top three deals, which UBS distributed were issued by leading Canadian issuers, a way of doing business that comes from BofA Securities’ playbook, not UBS’.

As an illustration, BofA sold $3.87 billion of the $9.02 billion issued by leading Canadian banks, or 43% of this market this year through Aug. 12. Those issuers were Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank. In comparison, UBS during the same period sold $1.22 billion in 133 offerings, or 13.5% of the “Canadian” issuance volume. The rest was distributed by the issuers themselves, according to the filings, which may indicate distribution through unnamed independent broker dealers in some cases.

For last week, Canadian issuers brought to market 23 deals totaling $161 million, out of which UBS distributed $106 million, a two-thirds market share. Four of those were among the top five deals of the week, according to data available at press time. BofA was mostly out of the market last week after the close of its calendar month the week before.

“Of course, they’re competing with BofA. UBS is the next distributor powerhouse,” said a market participant.

“Just like BofA had an open architecture offering their platforms to other issuers, UBS is doing the same thing.”

“I think the success of using a big wirehouse like Merrill has resonated with some issuers who want to replicate the same thing with UBS,” noted a sellsider.

“Why hasn’t UBS reached out to those issuers more aggressively and sooner, that I don’t know. But it really makes sense. While their wealth management looks similar to Merrill’s, their note program is more wide-ranging. Their third-party business is pretty strong, bigger than BofA’s.”

Daily observation

The top deal last week was Canadian Imperial Bank of Commerce’s $36.54 million of three-year callable notes with daily coupon observation linked to the worst performing of the Nasdaq-100 index, the Russell 2000 index and the S&P 500 index. The notes will pay a contingent quarterly coupon of 14.11% a year if each index’s closing level is at least 70% of its initial level on every trading day during the observation period.

The notes are callable at par on any quarterly observation date.

The barrier at maturity is 55% of the initial price.

UBS Financial Services Inc. and CIBC Capital Markets are the agents.

“Not for me,” the sellsider said.

“I tend not to like those American barriers in general. And while I like the protection level at maturity, there is too much uncertainty around the payment in this environment.”

American barriers designate a mode of observation such as the daily one in this deal as opposed to a point-to-point observation.

“They’ve added a lot of features to enhance the yield ... worst-of, American barrier, issuer call. I don’t think advisers should be looking to manufacture yield.

“Give me a 45% coupon barrier or a memory feature and I may look at the American barrier differently,” he said.

RBC, Scotia

The top single-stock deal, also distributed by UBS, was Royal Bank of Canada’s $32.1 million of three-year autocallables tied to Apple Inc. The notes pay a contingent quarterly coupon of 9% a year based on a coupon barrier of 53.59%. After six months, the notes will be automatically called if the stock closes at or above its initial share price. The barrier at maturity is also 53.59%.

UBS also priced on the behalf of Bank of Nova Scotia $28.52 million of three-year autocallables linked to the S&P 500 index. The notes pay a contingent quarterly coupon of 10% a year based on a 75% coupon barrier and are automatically called quarterly after six months if the index is at or above initial price. The barrier at maturity is 75%.

Citi too

Another large offering distributed by UBS, this time on the behalf of a U.S. issuer, was Citigroup Global Markets Holdings Inc.’s $31.73 million of 10-year autocallables linked to the S&P 500 index and the Nasdaq-100 index. The contingent quarterly coupon is 7.72% with a 70% coupon barrier. The notes are autocallable quarterly after one year. The principal repayment barrier is at 60%. Citigroup Global Markets Inc. and UBS Financial Services Inc. are the agents.

“When you take worst-of risk, 10-year seems like a lot. I guess maybe they’re getting good pricing that way,” the market participant said.

Autocalls, indexes

With UBS dominating last week’s flow, autocallables prevailed, making for 75% of total issuance volume in $242 million and 61 deals. When BofA ranks first, leveraged and participation products take priority. But last week, UBS sold $154 million of autocallable offerings, or more than 63% of this structure type in volume.

Those deals, for the most part, were tied to equity indexes. This underlying asset class overall made for 63% of total sales. Index-linked issuance volume was evenly split between single indexes and worst-of.

Issuance of stock-linked notes regained strength with $98 million, or 31% of the total, a larger-than-usual market share thanks in part to RBC’s $32.1 million deal on Apple.

When BofA closed its monthly inventory during the previous week, leveraged notes amounted to a third of the total. Last week, it was only 14%.

Top agents on any given week will leave their imprint on the asset and structure breakdowns, said the sellsider.

“Each bank is trying to push their product. Each one is trying to find their niche. If Merrill does more leveraged notes and UBS more income products, it will be reflected in the breakdowns changing one week from another,” he said.

JPMorgan Chase Financial Co. LLC priced a sizable single-stock offering for that type of underlying asset class with $23.71 million of autocallables on Tesla, Inc.

The monthly contingent coupon of 17% per annum is paid at or above a 50% barrier. The securities are called quarterly after six months if the stock closes at or above its initial price. The barrier at maturity is 50%.

Barclays back to life

Barclays is rebuilding its franchise. This issuer stopped issuing new notes in March after it exceeded its shelf capacity for more than a year due to a clerical error, according to the bank. Barclays resumed operations Aug. 2, a day after publishing its rescission offer.

With more than four months out of the market, Barclays Bank plc has issued for the year through Sept. 2 322 deals totaling $1.79 billion, or 3.2% of the total.

From Aug. 1 a day prior to resuming issuance to Sept. 2, Barclays has brought to market 71 offerings totaling $240 million, or 4.2% of the overall notional, placing the issuer in tenth place for this period, according to the preliminary data. Figures may be revised upward due to gaps between pricing and filings with the Securities and Exchange Commission website.

Last week, Barclays Bank placed second among issuers with $48 million sold in nine deals, a 14.9% share.

One of such deals consisted of $30.09 million of two-year leveraged buffered notes on the S&P 500 index paying 2x the index gain, up to a 35.2% cap with a 5% buffer on the downside. Barclays was listed as the agent in the filing.

“They should quickly pick up to what they were doing before,” said the sellsider.

“They have all the resources and the teams to jump start their business. They’ve maintained relationships with existing counterparties during the time they haven’t been issuing.

“They probably spent a lot of time during that period making sure their clients are aware that they have the capacities to move on.”

Insurer to buy AAM

On the merger and acquisition front, Toronto-based Sun Life Financial Inc. announced on Thursday that it is acquiring a majority stake in Advisors Asset Management, Inc. through SLC Management, Sun Life’s asset manager. AAM oversees $41.4 billion assets and distributes various fixed-income and alternative investments.

“This is a trend that’s already happening with other firms,” the market participant said.

“It’s not uncommon to see insurance companies partnering or merging with wealth management companies.

Two years ago, New York Life partnered with M+funds so they could sell their structured investments to individual investors, he added.

M+funds was a structured ETF products originator. M+funds later on was acquired by Axio Group, a third-party distributor of structured products. Finally, iCapital Network, Inc. ended up buying Axio last year.

“It’s a cross opportunity for Sun Life to build up a U.S.-based wholesale force. AAM is pretty diversified across UITs, structured products and corporate bonds,” said the sellsider.

Down year

Volume for the year is now down 17.1% to $55.79 billion through Sept. 2 from $67.29 billion last year.

The number of deals has declined to 11,975 from 19,990, a 40% drop.

“It’s not good this year. But it is what it is,” the market participant said.

The stock market in 2022 has moved from bear market to relief rally and is now on a downtrend again. The S&P 500 index peaked on Jan. 4, then dropped 24.5% to a low mid-June. It then rebounded by nearly 20% until mid-August. Since then, the market has been on a losing streak, especially after the Fed chair’s speech in Jackson Hole two weeks ago left no hope for a rate cut any time soon as the central bank sends a strong hawkish message to the markets.

The S&P 500 index lost 4.3% last week and the Russell 2000 was down 4.7%.

“Personally, I’m more bearish than bullish on stocks,” said the sellsider.

“There are many global headwinds as we still try to get a handle on inflation. More aggressive policy measures are expected, and rates will go higher and perhaps for a longer period of time than initially anticipated.

“The case for structured notes remains strong.”

The top agent last week after UBS was Barclays. It was followed by Royal Bank of Canada.

Royal Bank of Canada was the No. 1 issuer with $84 million in 17 deals, or 26.2% of the total.

© 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.