Second week of April hits near $1 billion of new structured products issuance

Chicago, April 17 – Issuance for the week of April 7 tallies at least $963 million, according to preliminary data compiled by Prospect News, even as the last of the structured products deals were still being reported to the Securities and Exchange Commission.

Of most of the larger deals already figured, nearly all of them are linked to the booming stock market.

Of those deals, around three-quarters were linked to equity indexes.

Largest deal

Citigroup Global Markets Holdings Inc., as both issuer and agent, sold the largest deal of the week, $39.4 million of autocallable buffer securities linked to the S&P 500 index.

The deal priced on April 8.

The two-year notes feature a one-time call at the halfway point if the index is above its initial level. In that situation, the notes would be called at par plus a 10.15% premium.

If the notes are not called, they remain outstanding until maturity when the performance of the index is measured.

If it is above its initial level, the payout will be par plus 1.5 times the return.

There is a buffer where investors would receive par if the index declines but not more than 20%.

Otherwise, investors will have a 1% loss for each 1% decline beyond the buffer.

Here’s the breakdown of where the week’s top deal fits among others that have priced so far:

Where it fits: issuer

In terms of issuers, Citi’s deal contributed to the bank’s No. 2 spot in the preliminary numbers for the week.

Barclays, currently in No. 1, was listed as issuer on almost 20% of the larger deals that priced earlier in the week.

Citigroup was named on 15.77% of last week’s deals.

The week before it was also second, but behind UBS.

Where it fits: agent

In terms of agents, Citigroup was lower on the weekly list.

The bank was listed fifth behind UBS, Bank of America, Morgan Stanley and Barclays.

UBS is a returning favorite for the month to date.

Morgan Stanley is running in the No. 2 spot for April thus far.

Where it fits: index

The tie to an underlying index is squarely with the current trend.

Both week to date and month to date, at least two-thirds of deals are pricing with a link to at least one equity index.

Where it fits: structure

In terms of structure, the Citi deal bucked the trend.

For data purposes, it would be logged as “other,” a category that comprised around 15% of the deals that priced during the week.

This would be because of the two-pronged upside possibility. Either one could get the autocall premium or the leveraged return at maturity.

Most deals are being structured as a callable reverse convertible – so with a coupon, a call of some sort and a maximum payout of par at maturity.

Last week, around 65% of the deals had the callable reverse convertible structure.

Outlier underliers

Most of the deals that were above $14 billion last week were tied to equity indexes.

Three were tied to single stocks: Boeing Co., Estee Lauder Cos. Inc. and Alphabet Inc.

Alphabet and Boeing are popular choices.

Some version of Alphabet stock has been used 160 times in the year so far.

Boeing has been chosen as a single underlier 81 times.

Estee Lauder is a rarer pick.

The stock has been tracked so far in only 15 deals, including this week’s $20 million issue from UBS AG, London Branch.

Those trigger phoenix autocalls account for one-fourth of the annual issuance on the stock.

The American cosmetic company has had a wild ride of a year with a 52-week high of $260.46 and a 52-week low of $102.22.

Separately, UBS priced another deal in January that contributed mightily to that $80 million total on the stock.

UBS priced a $15 million note in January with a first call on April 26 linked to Estee Lauder.

If the stock hangs above that initial level of $128.66, that $15 million deal will be taken out near the end of the month.

Currently, the stock is closer to the low at $138.04.

The stock dropped 5.45% in the last five days but has yet to get close to that call threshold.

The company’s earnings are not set to be released until May 1.

Month to date

Merely in terms of what has been logged, the first 12 days of April account for $2.3 billion of issuance.

That number is subject to upward revision, as the smaller deals and those that priced later in the April 7 week get added to the total.

The final tally on April 2023 was $6.92 billion.

April 2024, with all the smaller deals still out there and the month not half over, should beat the year-ago April number as the deals roll in, by a back-of-the-envelope Prospect News projection.

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