Société Générale has launched a new credit linked notes (CLN) range on the London Stock Exchange (LSE) aimed at UK-based professional.
The French bank released its first LSE-listed CLN linked to the creditworthiness of Marks & Spencer at the end of 2014 and plans future launches imminently. The 10-year and two-month investment will provide an income of 3.80% pa in years one and two (paid semi-annually) and an income of six month GBP Libor + 1.25% pa from year three onwards (paid semi-annually), as well as the initial investment at maturity, as long as Marks & Spencer does not become subject to a credit event during the investment term.
The bank said that the aim of the new range is to offer products that provide investors with regular income over the investment term, and a return of capital at maturity. Such coupon payment and the repayment of the capital at maturity are linked to the creditworthiness of either a single corporate, financial institution, or a basket of different credits.
“Credit-linked notes offer an alternative to standard fixed-income securities, as they can be tailored to meet the needs of professional investors (within the meaning of Mifid), particularly in accessing credits that may not be available in UK sterling and in small denominations,” said Helene Schmitt, head of credit pricing London, cross-asset solutions at Société Générale Corporate & Investment Banking (CIB) in a statement.
Ryan Rogowski, head of asset manager solutions, cross-asset solutions at Société Générale CIB said that the listing of CLNs on the LSE is a natural extension to help further develop the listed credit market in the UK.
“We have been working on the development of this platform for the most part of last year and this includes conducting the necessary research to ensure we defined properly our target market but also to be able to provide market making on a structured fixed income note,” he said.
According to Rogowski, the new range will help bridge the gap between those buying structured products from banks and those buying fixed income bonds. “We have received feedback from UK clients that see most fixed income markets lacking liquidity,” he said. “The new CLNs are aimed at those managers that will get additional comfort from the fact that these products are traded live and have an obligation from the exchange put on us. The innovation here is bridging the gap into the exchange as this is a bread and butter type of product for us.”
According to Société Générale, CLNs offer three key benefits including liquidity as they can be traded live, intraday, on the LSE’s Order Book for fixed income securities; flexibility on coupon types (fixed, floating or inflation linked coupons), currencies (GBP, USD, EUR, CHF) and tenor (typically up to 10 years); and access including different types of credits (corporates or financials), varying geography (UK, European, American, Asian) and single names or baskets.
The minimum trading amount for a CLN is one unit, which costs £100 at launch and this is expected to vary over time with changing marketing conditions.
Société Générale is one of the leading European issuers of credit linked notes with over $3.4bn issued, a market share of over 40%. The bank said it is looking to replicate this success in the UK by regularly offering new issues across varying credits, maturities and coupon types on the new platform.
Click for the new SG CLN linked to M&S.
This product will be added to the UK database shortly.
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