Credit Suisse’s autocall absolute return notes on S&P, Nasdaq meet advisers’ expectations

By Emma Trincal

New York, June 2 – Credit Suisse AG, London Branch’s 0% autocallable absolute return buffered securities due June 13, 2024 linked to the lowest performing of the Nasdaq-100 index and the S&P 500 index offer several attractive characteristics, advisers said.

Investors may get paid either upon an automatic call or at maturity, according to an FWP filing with the Securities and Exchange Commission.

The notes will be called at par plus a call premium of 11% if each index finishes at or above its initial level on June 16, 2023.

If the notes are not called, the payout at maturity will be par plus 150% of the return of the worse-performing index.

If the worst performer declines but finishes at or above the 85% buffer level, the payout will be par plus the absolute value of the return of the worse-performing index.

Otherwise, investors will lose 1% for each 1% decline of the least-performing index beyond the 15% buffer.

Absolute return

“It looks like a nice note. The market is so uncertain, at least you have a 15% buffer,” said Steve Doucette, financial adviser at Proctor Financial.

“There are a lot of moving parts, but they are great moving parts. I like the uncapped leverage and the buffer.”

His view was slightly different about the absolute return.

“The absolute return...that’s great in theory. But I wish issuers would track the performance of this type of feature. How often does it really help and how much return can you get from an absolute return?

“I’ve never seen any absolute return paying off really. The margin is too narrow. Or if you do get something, it’s a small gain. The market is down 2% and you make 2%,” he said.

Request for analytics

Doucette said he wished the industry – and he meant “the issuers” – would provide performance data to financial advisers.

“Each time I go to a conference, I ask for that. But issuers have never done it. You, as the adviser, should be able to get some sort of composite performance by structure type. Since you can’t mix income and growth products, you would break it down by structure and possibly, by feature too.

“If somebody did a performance review in the absolute return space, I would love to see the results. How often do you actually benefit from it? My guess is no more than 10% of the time,” Doucette said.

Good as is

Doucette at first said he might want to reconstruct the notes without the absolute return. But the attractive terms did not really warrant a change, he said.

“I like the protection level. I wouldn’t change it. We’re already down 15% to 25%. How much more buffer do I need? I could add some leverage. I’d have to see. That’s if I get rid of the absolute return. But since we have no idea where the market is going, I might as well keep it,” he said.

Doucette said the structure met most of the criteria he seeks in a structured product.

“I really like the note. You will outperform in both directions and in between,” he said.

“The only way you are not going to outperform is if you get called at 11% and the market is higher. But is anybody really going to complain about 11% per year?”

Current pullback

Matt Medeiros, president and chief executive of the Institute for Wealth Management, also found the call premium attractive.

“I like the note. I like the idea that if I get called, I get a nice return, which is higher than my current expectations,” he said.

“I definitely like the absolute return component to it, especially after the market has been down so much.”

On Thursday afternoon, the Nasdaq-100 index was still in bear market territory, down 21.3% for the year despite a strong rally and 23% off its November high. A couple of weeks ago, the decline from that point extended close to 30%.

“Because the market has already dropped a lot, I don’t really mind the short tenor in this case,” he said.

“I’m not too concerned about the downside for either index. I would buy the S&P and the Nasdaq independently under those terms.”

Uncapped and buffered

One very compelling aspect of the note for this adviser was the uncapped upside.

“I like the fact that there is no cap. Anytime I take equity risk, I want to get equity rewards,” he said.

While the economy is “very vulnerable right now,” Medeiros was confident the buffer would be sufficient to reduce market risk.

“The 15% is realistic given the short-term nature of the notes. We don’t know how far the market can go down from this point, and you’re going to have to keep an eye on the economic indicators.

“But after the current pullback and if I contemplate the additional buffer, I don’t see a high probability of loss on the downside,” he said.

Credit Suisse Securities (USA) LLC is the agent.

The notes will price on June 9 and settle on June 14.

The Cusip number is 22553Q2L0.

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