BofA Merrill Lynch dwarfs its competitors with 83% of volume priced, $229.5 million offering

By Emma Trincal

New York, April 29 – BofA Merrill Lynch closed its month early last week with a surprisingly high market share of more than 83% of the total volume priced, according to data compiled by Prospect News.

The week’s total volume as of Friday was $1.25 billion sold in 109 deals. Out of this, BofA Merrill Lynch priced $1.04 billion in only 29 offerings, the data showed.

In comparison, the No. 2 agent, JPMorgan, captured 2.58% of the market in 16 deals totaling $32 million.

It was followed by Barclays and UBS, which priced $29 million and $27 million, respectively, or slightly more than 2% each.

No. 4 deal of year

Part of BofA Merrill Lynch’s strong push last week was due to its pricing of the fourth-largest deal of the year so far for more than a quarter of a billion dollars.

Bank of America Corp.’s $229.51 million of 14-month Accelerated Return Notes linked to the Euro Stoxx 50 index offered three times upside leverage up to a 19.05% cap. Investors were fully exposed to the downside.

Another big deal followed that was also above the $100 million mark, Bank of America’s $128.11 million of 14-month Accelerated Return Notes linked to the S&P 500 index. They offered a three times multiple on the upside up to a 10.65% cap. The downside was not protected.

BofA Merrill Lynch priced the top 16 deals in excess of $20 million. Three offerings exceeded the $50 million size.

Early close

Most of BofA Merrill Lynch’s deals priced on Thursday. The agent closed a week before the final week of the month in order to avoid overlapping May, explained an industry source.

“With T+3 you don’t want to price this week, now, because you would have the crossover with May. Some deals would settle on Friday the 1st,” he said.

“The brokers look at offerings at the same time each month. That’s why pricing was done last week.”

Record participation

The average market share of BofA Merrill Lynch on a year-to-date basis is in the 30% range, according to the data.

Even if the agent has a high penetration rate on any week when it closes its month, the 83% level surprised some.

But not everyone.

“It’s kind of normal. It’s the biggest shop on the Street. They have a massive internal distribution system,” a market participant said.

“Any time you have a massive deal like this one, it’s going to skew the numbers.

“But there’s a lot that’s not seen in this data. There are billions of CDs that get priced. They don’t show if one only looks at U.S. MTNs.

“The way the calendar works ... a lot of desks will come out this week too.”

Prospect News data does not include market-linked CDs. It includes only offerings registered with the Securities and Exchange Commission website. Exchange-traded notes are not included nor are lightly structured rates notes such as step-up notes, step-down notes, fixed-to-floating notes and capped floaters.

Two tiers of growth

A structurer pointed to BofA Merrill Lynch’s internal growth.

“The numbers tell the whole story. They’ve always been No. 1, and they’re growing faster than the others,” he said.

For the year to date as of April 24, total volume has increased by 9.78% to $15.25 billion from $13.89 billion, according to the data.

During that time, BofA Merrill Lynch saw its volume rise 15.40% to $4.70 billion from $4.07 billion.

Meanwhile, volume for all other agents grew by a little bit over 10% to $10.82 billion from $9.82 billion.

Full-month comparisons are more telling, but the data indicates that BofA Merrill Lynch’s growth is stronger than that of its rivals.

“They’re very successful. Their structured products team is pretty solid,” added the structurer, who is not affiliated with BofA Merrill Lynch.

“They’ve also started to expand the type of structure they offer, with some single-stock deals. They’ve done some autocallables too.”

Leverage, step-ups

The large majority of BofA Merrill Lynch’s volume, however, remains limited to leveraged notes with one-to-one downside exposure as well as market-linked step-ups with or without an autocallable feature, according to the data. BofA Merrill Lynch also offers leveraged notes with barriers and sometimes buffers but to a lesser extent as clients of the bank tend to be bullish, sources said.

Leverage represented nearly 55% of the volume last week. Autocallable reverse convertibles, which in some weeks can reach close to 20% of the total, accounted for only 7.25% of the market.

Market-linked step-up deals, a structure almost entirely sold by BofA Merrill Lynch, made for almost 30% of the total.

An example of this latest structure was the No. 3 deal of the week.

Credit Suisse AG, London Branch priced $78.37 million of 0% autocallable market-linked step-up notes due April 27, 2018 linked to the Euro Stoxx 50 index. The notes could be called annually with an 11.6% premium if the index closed at or above its initial level on the observation date. At maturity, if the index finished above a 130% step-up value, investors would get par plus the index return.

If the final index level was greater than or equal to the initial level but less than or equal to the step-up value, the payout would be par plus the step-up payment, 30%.

There was no downside protection.

April

April so far is a good month, sources said.

Volume reached $2.34 billion as of April 24, a 32% increase from the same period in March.

“We had another record month. We thought it would slow down because for a number of reasons, including the tax deadline, April is usually a softer month,” the market participant said.

“March was a high watermark for us, and it turns out April is a high watermark too.”

However, volume this month fell by 11% from $2.63 billion a year ago for the same period.

“They’ve always been No. 1, and they’re growing faster than the others.” – A structurer on BofA Merrill Lynch

“March was a high watermark for us, and it turns out April is a high watermark too.” – A market participant

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