BNP’s $3.68 million notes on indexes offer high premium, 2.12x leverage with no cap

By Emma Trincal

New York, March 20 – BNP Paribas’ $3.68 million of 0% autocallable leveraged notes due March 22, 2027 linked to the Dow Jones industrial average, the Nasdaq-100 index and the Russell 2000 index, intrigued advisers for the competitive call premium and high leverage multiple.

If each underlying index closes at or above its initial level on March 19, 2025, the notes will be automatically called at par plus 18%, according to a term sheet.

If the notes are not called and the worst performing index finishes at or above its initial level, the payout at maturity will be par plus 2.12 times the index gain.

If the worst performing index declines but finishes at or above its 70% downside threshold level, the payout will be par. Otherwise, investors will lose 1% for every 1% that the worst performing index declines from its initial level.

“We did this note last week. I haven’t seen anything that good in a while,” a financial adviser said.

Win-win

Another adviser, Jerry Verseput, president of Veripax Wealth Management, also liked the terms.

“I’m not totally surprised. BNP has been pricing pretty good deals lately,” he said.

The structure type, called catapult” comes with a one-time autocall typically after one year. The non-occurrence of the call means the market is negative at that time, a situation which gives investors the possibility of having unlimited upside leveraged exposure at maturity.

“A year from now puts you on the other side of the Presidential Elections and then who knows? The market could be volatile, and you would be down,” Verseput said.

“So, you keep on holding the notes for the next two years and the market takes off. Now you can get more than 2x leverage with no cap.

“Even if you get called, 18% is a pretty good return.”

Verseput had just one objection.

“My issue is the barrier. I prefer having a buffer so I can outperform on the downside.

“But overall, I like catapult notes, and this one is not bad at all,” he said.

Taking off

Steven Foldes, founder and wealth manager of Evensky & Katz / Foldes Financial Wealth Management, said that the three-year tenor was justified for this structure type even though he usually buys shorter notes.

“Three-year is beyond our preference for a two-year limit. In this instance though, if you don’t get called, you have 24 months to recover, and that’s plenty of time.

“So, while we usually buy shorter notes, this one happens to be just fine,” he said.

He offered an example.

“The year 2022 was a terrible year. But then 2023 was strong and so is 2024 so far. Those two years make it easier to recover from the 2022 losses,” he said.

One potential downside was the worst-of.

“We usually don’t like worst-of in particular because of the disparity of returns between U.S. indices,” he said.

Last year for instance the Dow was up 14% but the Nasdaq rose 43%. So far this year, the Russell has increased by 2.35% while the Nasdaq has posted a gain of 9%.

But overall, Foldes had a positive view on the note.

“BNP obviously has a very strong credit. And the terms are attractive. You have 2.12x leverage, no cap. The 18% premium is very substantial just for being flat or up,” he said.

“This note is well written.”

Low correlations

Brady Beals, director, sales and product origination at Luma Financial Technologies, attributed the high call premium to correlations.

“We don’t do a lot of those catapults. But they make sense,” he said.

“Correlations are low, which gives you better pricing. The Nasdaq for instance has had the lowest correlation with the other two indices in two years.

“If you have a strong short-term conviction, you can lock in a good premium.”

BNP Paribas Securities Corp. is the agent.

The notes will be guaranteed by BNP Paribas, New York Branch.

The notes settled on Wednesday.

The Cusip number is 05612CKH4.

The fee is 0.0837%.

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