CIBC’s capped leveraged notes with absolute return buffer on S&P designed for increased safety

By Emma Trincal

New York, April 30 – Canadian Imperial Bank of Commerce’s 0% capped leveraged notes with absolute return buffer due April 2029 linked to the S&P 500 index offer terms aimed at cautious investors seeking protection first, according to sources.

The payout at maturity will be par of $10 plus 1.1 to 1.3 times any index gain, subject to a maximum return of par plus 60%. The exact leverage multiple will be set at pricing, according to an FWP filing with the Securities and Exchange Commission.

If the index finishes flat or falls by up to 20%, investors will receive par plus the absolute value of the index return.

Otherwise, investors will lose 1% for every 1% decline beyond 20%.

Decent cap

“It’s a conservative note. I like it. Obviously, the emphasis is on the downside. But the 60% upside cap over five years is not bad at all,” said Andrew Valentine Pool, main trader at Regatta Research & Money Management.

He looked at the return of the SPDR S&P 500 ETF (ticker: “SPY”) over the past 10 years.

“It was up 12.3% a year for the past 10 years. Even in 2022 it was down about 20%. Your margin of safety is pretty wide.

“If the economy continues to grow in the next five years, I think the index is more likely to be up than down.

“Even if we have a recession in two or three years, the market should be able to recover within that five-year period,” he said.

Tradeoff

The leverage multiple was “not that high,” Pool said, yet it is in line with the defensive profile of the note.

“The upside is fair for the absolute return and the buffer you’re getting.

“It’s designed for conservative clients. The benefit of the absolute return and 20% buffer make up for the lack of leverage on the upside.

“It seems like a decent investment for a client who is already retired.

“It definitely has a place in some portfolios,” he said.

Not for bulls

A market participant noted that the cap may be dissuasive for some investors but not all of them.

“It’s a pretty defensive play. It’s not just the buffer. It’s the absolute return,” he said.

“If the market is rallying a lot, of course you’re giving up some of the upside. There are always clients who want to participate, who believe in the upside. That’s obviously not for them.

“But for people who are cautious, it’s a nice structure.”

Welcome

Some advisers may find the use of the notes attractive too.

“It can help advisers who have never participated in the structured products space to be able to buy and sell those offerings.

“One way to get them is to offer a significant protection on the downside and also incorporate the absolute return feature.

“You give those new-comers those defensive features so they can easily enter the space and make their clients comfortable.

“It’s hard to get extremely attractive terms both on the upside and on the downside. This note has a couple of powerful features that address the need for safety first. It’s a good fit for skittish investors,” he said.

BofA Securities, Inc. is the agent.

The notes will settle in May.

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