Britannia Building Society has hedged its latest capital-protected equity product. The 50/50 Guaranteed Bond combines a 7.25% income payout on half of the assets invested in year one, with capital growth and protection on the other half after five years. The U.K. thrift bought a call option on the FTSE 100 to lock in the structure's terms during the offer period. The bond opened to investment at the end of last month and will close Dec. 16.
An official at the thrift's treasury in Leek, Staffordshire, said it often hedges its equity-linked deals with long offering periods. He declined to name the counterparty on the deal, or the size of the tranche hedged, but said Britannia often looks to negotiate provisions with counterparties for increasing the hedge size in case a product attracts more investors than anticipated. For this deal, Britannia secured 50% participation in the FTSE 100 over five years. "Conditions have got a bit tougher over the course of this year," said the official, who noted lower implied volatility at the start of this year had made it easier to get better participation rates.
