Credit Suisse’s floating-rate notes on CPI require credit risk-taking, inflation view

By Emma Trincal

New York, March 15 – Credit Suisse AG, London Branch’s upcoming floating-rate securities due March 31, 2026 linked to the Consumer Price Index demand on the part of investors exposure to the ailing issuer and a bullish view on inflation, sources said.

Interest is equal to the year-over-year change in the Consumer Price Index plus 3% per annum subject to a minimum of 3%, according to a 424B3 filing with the Securities and Exchange Commission.

Interest is payable monthly.

The payout at maturity will be par plus any interest.

Roller coaster

Credit Suisse’s share price opened down 30% on Wednesday as its biggest shareholder, Saudi National Bank, said it would not back the bank any further, pushing down the stock to an all-time low during the day. The headline followed the release of the bank’s annual report on Monday, disclosing “material weakness” and limitations in its internal controls.

The credit default swap rates widened to 567 basis points on Wednesday, a 183 bps jump from a week before.

“The news around Credit Suisse are really not good and rattled the market today,” said Mark Dueholm, chief fixed income trader at Landolt Securities.

Investors in the notes are subject to an unusually high credit risk exposure while betting on rising inflation.

Somehow the two propositions did not seem to work well together.

A shift in fear

Since the collapse of Silicon Valley Bank and the closure of Signature Bank this weekend, the recent headlines around Credit Suisse revived fears around the banking sector, Dueholm said.

“Bond rates have plummeted. The fear has switched from inflation to contraction.

“You could have stagflation of course. But that would probably have to involve high oil prices. Maybe a war in the Middle-East or some kind of unforeseen shock could produce that type of scenario combining a recessionary and inflationary environment. But it doesn’t seem like things are in place for stagflation.”

“If you think inflation is going to remain high or that it will take a while for the Fed to bring it down to 2%, then it may be an attractive deal,” he said.

The trader did not share this view.

“The market may be overreacting right now but problems in the banking system are increasingly visible.

“It’s hard to see how inflation is not going to come down,” he said.

Thanks, but no thanks

A market participant said the terms of the notes were attractive.

“If you were holding the notes today with CPI at 6% you would get a 9% coupon. Looks like a great deal to me,” this market participant said.

“Even if the Fed takes more time to stabilize inflation, bringing it down to 4%, you’re still getting 7%. That’s not bad at all.

“It all comes down to how quickly and how successful they are in bringing down inflation.”

While the notes are principal-protected, investors remain exposed to credit risk as with any other structured note. In the case of Credit Suisse, the growing default risk of the issuer is a deterrent, he said.

“Economically the terms are great. But without the wide credit spread of the issuer, you could never produce anything close to this,” he said.

“If you’re comfortable getting exposure to Credit Suisse, it’s a great note.

“I like the deal. I just couldn’t do it.”

In a new release issued Wednesday, the Swiss National Bank said it will “provide Credit Suisse with liquidity if necessary.”

The bank’s share price traded 9.5% higher after hours in reaction to the central bank’s announcement.

InspereX LLC is the placement agent.

The notes will price on March 29 and settle on March 31.

The Cusip number is 22553QRP4.

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