Credit Suisse’s contingent coupon autocalls on four stocks offer high yield, lower entry price

By Emma Trincal

New York, March 3 – Credit Suisse AG, London Branch’s contingent coupon autocallable yield notes due March 20, 2025 linked to the least performing of the stocks of Apple Inc., Amazon.com, Inc., Alphabet Inc. and Netflix, Inc. give investors a high coupon and low barrier, two pricing benefits, which may have been the result of the market sell-off.

If each stock closes at or above the coupon barrier level, 60% of its initial share price, on a quarterly observation date, the notes will pay a contingent payment for that quarter at a rate of 14.5% per year, according to a 424B2 filing with the Securities and Exchange Commission.

The notes will be called at par plus the contingent coupon if each stock closes at or above its initial price on any quarterly observation date.

If the notes are not called, the payout at maturity will be par unless any asset finishes below the 60% knock-in level, in which case investors will lose 1% for each 1% decline of the laggard stock.

High yield

Tom Balcom, founder of 1650 Wealth Management, looked at the coupon versus the risk-free rate.

“When the 10-year Treasury is at less than 1%, this in comparison gives you a very nice yield,” he said.

“As long as you don’t breach the 60% barrier you get 14.5% a year.

“These are high-tech, volatile stocks, but they had a pullback recently. Between the correction and the healthy barrier, it’s not unreasonable.”

Investors however should be comfortable with the stocks in the current market environment.

On Tuesday, the Dow Jones industrial average dropped nearly 800 points after only one day of rebound. Last week saw the index falling 3,583 points.

“You don’t get 14.5% without taking some risk or you would stick to the 10-year for 1%,” he said.

But even Treasuries carry risk.

“If you hold the 30-year for a 1.60% yield, you’re subjecting yourself to significant risk if rates go up. Interest rate risk could actually be just as bad,” he said.

Call risk

Donald McCoy, financial adviser at Planners Financial Services, pointed to reinvestment risk as one of the drawbacks.

“With the recent sell-off, the market might rebound and you could easily get called after the first quarter,” he said.

“If that’s the case, you just did a lot of work and you have to start from scratch again, trying to figure out what to do with your money.

“If you buy this to secure income, you’re not going to be around long enough to make it worthwhile.”

If the notes are called, investors are exposed to an increasing risk of losing principal at maturity, he added.

Some mitigating factors exist, such as the “low barrier” and the “high correlation” between the four stocks, he noted.

But the top-performer stocks can record steep losses. The coronavirus scare has negatively impacted shares of technology stocks over the past few weeks.

Apple, for instance, lost 9.26% over the past month, and Netflix has dropped 14.7%.

Netflix, the wildcard

“Alphabet, Netflix in particular are pretty volatile,” he said.

“I would be particularly worried about Netflix. They’re subscription-based, so they have to keep on trying to attract new subscribers. They have lots of cash but they’re burning it to create content. Netflix also has a lot of competition. They’re going against Amazon and Disney.

“I don’t think I would use it. You’re either going to be called out too soon. And if you’re not, you could lose a big chunk of money – at least 40% of your capital.”

Incapital LLC is the agent.

The notes will price on March 17 and settle on March 20.

The Cusip is 22551NU79.

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