Credit Suisse’s absolute return digitals tied to S&P, Russell aimed at conservative investors

By Emma Trincal

New York, Feb. 7 – Credit Suisse AG, London Branch’s 0% absolute return digital barrier securities due Feb. 28, 2023 linked to the S&P 500 index and the Russell 2000 index may be appropriate for cautious investors given the latest developments in the market, said Matt Rosenberg, sales trader at Halo Investing.

“It’s an attractive note,” he said.

Dual directional

If each index finishes at or above its initial level, the payout at maturity will be par plus the fixed return of 33% to 38%, according to a 424B2 filing with the Securities and Exchange Commission. The exact digital return will be set at pricing.

If at maturity either index falls by up to its 60% knock-in level, the payout will be par plus the absolute value of the return of the worse performing index.

Otherwise, investors will receive par plus the return of the worse performing index with full exposure to any losses.

After the market pullback of the past few days along with a record spike in volatility, defensive notes allowing for a reasonable upside return with low barriers may be appropriate for investors uncertain about the market’s next move.

Fixed return

“I like the idea of a fixed return note with a dual directional play on the potential rise in market volatility,” Rosenberg said.

“It offers more than one scenario to your end-client, more than just a positive return if the index is up.”

Even if the notes do not provide income through the life of the product, digital structures belong to the “income camp,” he said, since the upside is capped.

The product offers a target return, in this case a gain of approximately 7% a year if the fixed payment percentage prices near the midpoint of the range.

Easy to understand

“If it’s flat or up, you get 7% a year. If not, you either get your principal back or lose some of it,” he said.

“While on face value it looks a bit complex, the talking points are actually pretty simple.”

One attractive feature was the size of the barrier providing for a potential 40% gain if the worst-performing index was down to the barrier threshold.

“I don’t think it’s realistic to expect making 40% at maturity. But at least the issuer gives you payouts in either scenario,” he said.

View

A potential investor in the notes could not be “super bullish,” he added. For those investors, a growth product would be a better fit.

“They’re neutral to bearish. On the upside, the index only needs to be flat. On the downside, even if it’s down only 5% that’s still better than the market.”

A market participant said the note could be appealing to the right investor.

“It’s not my personal view. But if you’re a little bit more cautious, if you’re comfortable with 7% then it’s not a bad trade,” he said.

“You have to consider the credit risk of course. But I can see why someone would look at that.”

Credit Suisse Securities (USA) LLC is the agent.

The notes will price on Feb. 23 and settle on Feb. 28.

The Cusip number is 22550WAV9.

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