CIBC World Markets is considering pitching equity-linked inverse floaters to U.S. investors after the structure has taken off this year among Canadian high-net-worth and retail clients. Typical inverse floaters feature a fixed coupon minus short-term LIBOR. Equity-linked inverse floaters feature a fixed coupon minus the lowest performer of a basket of stock.
In a hypothetical five-year deal, an investor pays USD1,000 to put into in a basket of 10 large-cap stocks. In year one, the investor receives an 8% coupon payment, and in years two though five, a 20% payment plus or minus the return of the worst performing stock. The structures are often callable and may terminate after an initial high coupon in year one or two.
"We're a big issuer of that type of structure in Canada and we will probably experiment with it in the U.S.," said one CIBC official, adding the firm may start pitching these trades to U.S. clients this year. Variations of equity-linked inverse floaters have been marketed in the U.S. by other firms, one market player said, declining to say which ones. But, he noted, these types of deals are not common because U.S. investors are turned off by their complexity.
