Structured products agents price nearly $1 billion; BofA taps into Canadian issuers for big deals

By Emma Trincal

New York, May 3 – Volume hit $984 million in 201 deals for the final week of April as BofA Merrill Lynch priced most of its monthly volume, scoring $554 million in 24 deals or 56.5% of the total, according to preliminary data compiled by Prospect News.

Pricing data at press time on Tuesday night is subject to upward revisions as normal delays occur between pricing and filing dates on the Securities and Exchange Commission website.

Rather than BofA’s large market share, which is customary at the end of each month, the big surprise last week was the strong presence of Canadian issuers, in particular Bank of Nova Scotia, the top issuer, and Canadian Imperial Bank of Commerce, ranked No. 3.

The first one issued nine offerings totaling $217 million, or 22% of the total; the second brought to market $116 million in eight offerings, or nearly 12% of the total.

Both issuers worked exclusively with BofA Merrill Lynch.

White label

“Merrill Lynch has done a very good job at promoting the Canadian banks because they don’t really have a presence here,” a market participant said.

“They’ve created an exclusive white label arrangement with the Canadian banks. There is plenty of Credit Suisse, UBS and JPMorgan products out there. But you don’t really see Canadian stuff. Now most of those issuers’ volume is done by Merrill. Those names are only available through Merrill for the most part.”

It is less true with two other Canadian issuers who tend to distribute their own deals or use other distributors than Merrill Lynch, according to the data. Those are Royal Bank of Canada and Bank of Montreal.

Last week’s Canadian-issued volume was dominated by Bank of Nova Scotia, which was the top issuer, and CIBC, which ranked third. In between was BofA Finance LLC, the issuing subsidiary of Bank of America.

Scotia

“Merrill is hedging out diversification. They have so much out there, they need to offer a variety of different names. Canadian banks have the best credit in the business,” the market participant said.

At the same time, the economics of Canadian issuers are not as good as those of other banks, for instance French banks, which offer “much better funding levels” for the same reasons, he added.

“Merrill always has to diversify credit. They did a lot of CIBC last year. CIBC had a huge year. It looks like this year they’re tilting for Nova Scotia for the big deals.”

Bank of Nova Scotia is ahead of CIBC in volume size this year but not by a lot with $583 million versus $583 million, respectively, according to the data.

Blackout

A second market participant had an explanation for last week’s unusually high volume of Canadian deals.

“In May all the Canadian banks report their earnings. They’re all in blackout in May. They may have jumped in in April knowing they will be stuck in May,” he said.

“At the same time you had most U.S. banks reporting in April and they were in blackout.”

A blackout period during earning seasons prohibits a bank from selling securities.

Year to date

The year overall continued to show a strong advance from 2016 with volume up 29.30% to $16.34 billion from $12.64 billion.

Those figures are subject to change and likely to be higher for last month.

Sources attributed the robust action to the equity bull market. One source of strength has been the steadiness of flows each month so far.

Aside from April figures subject to revision, the year has not seen one month with less than $4 billion priced.

March was the best month ever with $5.25 billion.

“It’s always good to see a trend with consistent growth as opposed to having one extraordinary month from time to time. Let’s just hope that the pattern will continue,” a structurer said.

Growth is also relative, said the second market participant.

“Last year was pretty bad. We had the elections coming up and a lot of uncertainty. This year the market has really been on a tear and as an industry we’re pretty correlated to the market,” he said.

“A lot of the uncertainty has cleared up. People are bullish.”

Euro Stoxx

The Euro Stoxx 50 was the top underlying used after the S&P 500 index last week. It showed as a single asset in nine offerings totaling $204 million, or 22% of the volume.

“We had a big relief rally last week after the French elections. European markets were up. That helps,” the second market participant said.

The S&P 500, the underlying of choice in the market, was used in 20 deals totaling $280 million, or 28.5% of the volume. The difference in market shares between the two benchmarks was relatively subdued compared to the average for the year.

Deals linked to the S&P 500 index account for 22% of the total issued this year ($3.55 billion) versus 9% for the Euro Stoxx ($1.46 billion), according to the data.

Top deals

BofA Finance LLC priced the top deal with $93.76 million of 14-month Accelerated Return Notes linked to the S&P 500 index. Leverage on the upside was three time up to a 10% cap. The downside was not protected.

The notes are guaranteed by Bank of America Corp.

BofA Finance also priced $71.93 million of the same structure with same maturity date but tied to the Euro Stoxx 50 index. The cap was 23.7%.

Canadian Imperial Bank of Commerce priced the third deal: $41.33 million of 14-month market-linked step-up notes linked to the Euro Stoxx 50 index. The step-up value was 115.95% of the initial level. Investors would receive the step-up payment of 15.95% if the index finished flat or positive; they would get unlimited upside if the underlying ended above the step-up value. Exposure to the decline was one-to-one.

Next was Bank of Nova Scotia’s $32.69 million of two-year Capped Leveraged Index Return Notes linked to the Euro Stoxx 50 index. The upside leverage factor was two, the cap, 25.1% and the buffer, 10%.

Scotiabank also priced a $30.54 million three-year autocallable step-up notes offering linked to the Euro Stoxx 50 as well as $30.14 million of two-year leveraged buffered and capped notes on the S&P 500 in a separate deal.

BofA Merrill Lynch leads way

The top agent last week was BofA Merrill Lynch with more than half of the volume.

Its 56.5% market share however should be examined in light of the monthly volume, observed the structurer.

“They price everything in the last week of each month and nearly nothing before that. So of course they’re going to shine at the end of each month,” he said.

For the year, BofA Merrill Lynch is the top agent, but it only controls 18% of the market, the data showed.

The 50% to 60% penetration rates seen for the top agent in most of the final week of each month have little meaning, he said.

“It doesn’t show anything except that they accumulate orders through the month. It tells us something about their process, which is that it pays to spend time marketing your products. It has certainly worked well for them.”

“It’s always good to see a trend with consistent growth as opposed to having one extraordinary month from time to time. Let’s just hope that the pattern will continue.” – A structurer, commenting on the year-over-year gains in issuance

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.