Largest structured notes in $1.77 billion April 22 week showcase most popular single underlier

Chicago, May 1 – The last full week of April posted $1.77 billion of structured products volume, according to early numbers compiled by Prospect News, as more deals were more recently filed and smaller deals will be added later.

That tally covers deals priced from April 22 to April 26, with a hefty amount expected on the final two days of the month, which will be counted in next week’s deal total.

Canadian banks priced the largest seven deals, all tied to the S&P 500 index as a single underlier.

Just those seven deals alone comprised more than $580 million of the weekly total.

The largest deal, by far, was from Bank of Nova Scotia, $153.58 million of autocallable notes structured as Strategic Accelerated Redemption Securities (Stars).

Largest deal so far

In the largest structured note deal of the year thus far (excluding hybrid cash-settled equity notes), Scotiabank sold $153.58 million of notes with a three-year tenor.

Investors who participated took the bet that the S&P 500 index will be up at least one time out of three annual observation dates.

If they are right, they will receive a 9.83% annualized return, structured as a snowball autocall.

If the notes make it to maturity, the final autocall premium is 29.49%. Or, investors will fully participate in the losses of the index if it is still down.

14 months later

Two of the large seven deals carried a 14-month maturity date but presented two different views of where the S&P index be at the end of that time period.

From Toronto-Dominion Bank, sold by BofA Securities, came an $82.27 million deal with some insurance should the market go down.

Investors on the TD notes participate in any increase on a one-to-one basis, subject to a cap of 10%.

However, these investors will receive a positive absolute return if the index drops by not more than 10.4%.

If the index drops by more than 10.4%, the exposure to losses will be one-to-one on the downside.

The highest possible return is if the index has suffered a modest pullback in just over a year.

Modest S&P bulls alternatively have a chance at a 14.43% return and no net to catch them in a Royal Bank of Canada note for $64.01 million.

In 14 months, if the index is up, investors will receive a return of par plus 3x the return of the index with a 14.43% cap.

Or, if the index goes down, they will fully participate in the losses.

On both notes, the final level will be the average of the trading days between June 17 and June 24.

BofA was also the agent on the RBC deal.

Bull run

The S&P’s confirmed bull run has put it as a single, stand-alone underlier on 1,000 of the deals that have priced in 2024 thus far, including the seven largest deals that priced last week. The total tracked so far for S&P issuance is $7.34 billion.

The S&P is overwhelmingly the most popular underlier of the year, representing 20% of the nominal market.

The number is up. In all deals tracked before 2024 started, S&P as a single underlier accounted for less than 10% of the nominal.

The next competing single underlier, the Russell 2000 index, by comparison, has been used 184 times in 2024 in under 5% of the nominal amount priced.

S&P breakdown

Of those 1,000 deals, a rather modest 176 of them have an autocall structure.

Half of those S&P notes have a tenor of two years or less. Another 14% have a three-year tenor.

Around 40% of these notes have a positive leveraged return on a ratio of more than 1x if the index return is positive.

Approximately 14% of the deals have priced with an upside return if the index declines, or around $908 million of the $7.34 billion.

Weekly wrap

Not surprisingly, as those larger deals priced, BofA cleared its monthly calendar and was the most popular bookrunner for the final week of April.

Canadian Imperial Bank of Commerce was the top issuer with $307 million of last week’s issuance.

Thus far for last week, equity tie-ins, including single stocks, multiple stocks and equity indexes, were used in 83.48% of the nominal amount of deals.

Of that amount in equity, 76.87% was an index or indexes.

The most popular structure in last week’s deal was the snowball, with just less than one-third using the increasing call.

A separate one-third had a leveraged return in the payout, with the number split rather evenly between deals with or without downside protection.

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