Natixis re-enters the market with its first deal since September 2009

By Emma Trincal

New York, Jan. 27 - Natixis Securities North America Inc. is re-entering the U.S. structured products market after 16 months of absence, according to two FWP filings with the Securities and Exchange Commission.

Natixis Securities North America is the brokerage arm of Natixis Capital Markets, formerly IXIS Capital Markets North America. These companies are affiliates of Natixis, a French financial institution.

In the most recent filing, Natixis Securities North America said it plans to sell 0% autocallable notes due Feb. 24, 2012 linked to the S&P 500 index on the behalf of Eksportfinans ASA.

Natixis consistently used Eksportfinans as its issuer in its prior deals, according to data compiled by Prospect News.

Past deals used the reverse convertible format. The autocallable structure would constitute a change, according to Prospect News data.

"I have never done business with them. My understanding is that their ability, what they've done in the past is very limited. But who knows?" a market participant said.

"I would be surprised if they distributed on their own. It's got to be an external broker."

Another source said that he heard the news as well.

"I just heard a few days ago that they're ramping up their desk. They were in structured products three years ago and exited the business," a market source said.

Natixis was created in November 2006 from the merger of Groupe Caisse d'Epargne and Groupe Banque Populaire. Its presence in the U.S. structured markets dates back from longer than three years ago.

Quiet presence

Data compiled by Prospect News shows that the agent - then called IXIS - priced $17 million in 12 deals in 2006.

Since then, issuance peaked in 2007 with 127 offerings totaling $83 million. The issuance pace thereafter declined, falling to $37 million in 2008 and to $12 million in 2009.

The last publicly listed deal priced in September 2009 for less than $1 million. It was an offering of reverse convertibles linked to InterOil Corp. also sold on the behalf of Eksportfinans.

There were no deals last year.

Amendment

Both filings this month involved the same deal with the second one amending the first. The changes were two-fold: pushing back the pricing date to Feb. 17 from Jan. 24 and decreasing the amount of call premium to be paid.

In its final amended filing, Natixis said that the notes will be automatically called at par plus an annualized premium of between 5.6% and 9.6% if the index closes at or above the initial level on any of the three quarterly observation dates.

It was a decrease from the initially announced premium range of 7% to 11%.

The terms for the downside protection remained unchanged.

If the notes are not called and the final index level is at least 95% of the initial level, the payout at maturity will be par. Investors will lose 1% for every 1% that the index declines beyond 5%.

Hard sell

"They won't even get that deal done. Look at the return. They've compressed the premium by 140 basis points. And it's a 5% protection. Why would I do it?" the market participant said.

He added that he could do just as well by owning outright the SPDR S&P 500 exchange-traded fund.

"I can get the same protection doing it by myself. I can own the SPDR S&P 500 and get a dividend yield of approximately 2%. Then I can sell some calls against the SPDR if I own it. And that's a 5% protection I can put together myself," he said.

This market participant said that agents have recently shown less generous buffers or no protection at all. But the trend, he noted, has consequences.

"Buffers are shrinking in general. But you're starting to see volume beginning to dry up as a result. This deal is not going to be a big one in part because of that," he said.

"I see structured products as risk-management tools. Here at 5%, you're not mitigating any risk."

Agents routinely re-price or amend their planned deals, and some said that it's often justified.

"It's hard to say why they pushed back the deal," said Matt Medeiros, president and chief executive at the Institute for Wealth Management.

"Maybe they're looking for an equity pullback later on in the quarter. If volatility increases, then offering a 9% cap may represent an easier sale."

But with current low levels of volatility, Medeiros said that the deal may be mis-priced.

"The 5.6% to 9.6% cap right now is far below most analysts' expectations for the S&P 500 for the year," he said.

"I think it's going to be a hard sale. You're capped on the upside at less than what you can expect to make if buy the index directly. Meanwhile you only have a 5% protection on the downside.

"Volatility is low. You're much better off being long the S&P 500 without a cap."

A spokesman at Natixis Securities North America said that the firm could not comment on any ongoing transaction.

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