Svensk's $70.82 million Accelerated Return Notes linked to S&P 500 topped last week's list

By Emma Trincal

New York, Aug. 1 - The largest deal last week and one of the top 20 for the year was brought to market by Bank of America Merrill Lynch, according to data compiled by Prospect News.

AB Svensk Exportkredit priced $70.82 million of 0% Accelerated Return Notes due Sept. 27, 2013 linked to the S&P 500 index, according to a 424B2 filing with the Securities and Exchange Commission.

The payout at maturity will be par of $10 plus triple any index gain, up to a maximum return of 15.33%. Investors are exposed to any losses.

Moderate bulls

The notes are designed for investors who only anticipate a moderate growth in the index during the 14-month period, according to the prospectus.

"It's a stock replacement strategy. We sell a bit of those," a sellsider said. "They make sense because investors get the asymmetrical return."

He was referring to the three-to-one upside exposure to the index subject to a capped return of 15.33% along with the one-to-one downside exposure.

"Their downside is similar to owning the SPDR. You're expecting a modest, single-digit return on the S&P, not much. People who buy this believe that the benchmark maybe will be up a little bit. It's a way to enhance your return. It's not a bad play," he said.

With the 15.33% maximum return and the three-times leverage factor, investors need only to see the S&P 500 up a little above 5%, a buysider noted.

"Anything above that and you're capped out," he said.

Overbought benchmark

The S&P 500 closed at 1,360 on the pricing date.

"That was the biggest seller? I don't think we would have done it. It's right on a trend line. We wouldn't have bought at this height," the buysider said.

"If the index had been around 7% to 10% lower, that would have been OK."

The deal closed at a level that was 6.5% higher than the low for the year seen on Jan. 3.

This buysider said there is nothing wrong with the structure. He just does not like the valuation of the underlying index.

"We've bought enhanced growth products with no buffers. We're not opposed to it," he said.

But before buying any product, this buysider said he looks at the macroeconomic environment and runs some tests based on technical analysis.

"We are macro first, and we used technical analysis to back us up," he said.

"Right now, we are bullish on the U.S. but not short term. Short term, based on charts and where the bulls and bears are, we expect the S&P to go through a correction. I wouldn't be surprised if in the next three weeks we had some bumps in the road.

"That's why we would pass on this one. It's a decision based on technical analysis."

The fees for the notes (Cusip: 01019A286) were 2%.

The deal priced on July 26.

Bank of America Merrill Lynch was the agent.

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