Recovery Product
Barrier hit?
Recovery Products will help you to get back your original capital (100% Nominal).
Carat Solutions will develop tailor made non-binding recovery solutions for you.
We offer to evaluate the situation of your products without any purchasing constraint. Feel free to contact us any time!
Sometimes it happens that a barrier event occurs. The maturity will be reached in a few months and the underlying must recover i.e. 36% (or rather ≥ 100% Strike) to generate a redemption of 100%. It seems to be very - if not too - ambitious.
What about an alternative solution lengthen the maturity and optimize the structure in order to recover 100% back as soon as possible?
Example:
- BRC on Amazon, Google and Facebook with american barrier
- Barrier Event Facebook at 24.10.2018
- Maturity at 24.04.2019
- Spot performance of worst-of is -30%
1Y Barrier Reverse Convertible auf Amazon, Google und Facebook
| Currency | USD |
| Denomination | USD 1'000.-- |
| Maturity | 12 months (early redemption possible) |
| Underlying (Worst of) | Amazon (AMZN US) Facebook (FB US) Apple (AAPL US) |
| Coupon | 12.50% p.a. |
| Observation | Quarterly |
| Coupon Barrier | Guaranteed Coupon |
| Autocall | After Q1: 100% After Q2: 99% After Q3: 98% After Q4: 97% |
| Barrier | 70% (continuous monitoring) |
| Intial fixing | 24/07/2018 |
| Size | USD 1'000'000.-- |
| Issuer | Rating A minimum |
| Issue price | 100% |
| Fixing | Facebook: 214.67 USD Amazon: 1829.24 USD Apple: 173.00 USD |
| Current Bid Offer | 70% |
Barrier Event: 24.10.2018 (Facebook 150.26 USD)
Opportunities:
- Waiting up to maturity (6 months) and praying that worst recovers at least like i.e. +36%
- Sell the product and set up a new product with longer maturity to increase the chances to get 100% redemption at maturity
Features of a Recovery Product:
- Increased maturity (e.g. 2 years)
- Strike and nominal amount of the recovery = Strike and nominal of your initial product
- Purchasing price of recovery product = Sell price of the initial product
- The recovery product is equipped with a European barrier (monitoring at maturity)
- The purpose of the recovery product is to optimize the probability to recover 100% of invested capital in initial product
- Coupons and further returns are not the main purpose of the recovery product
2Y Barrier Reverse Convertible auf Amazon, Google und Facebook (Recovery)
| Currency | USD |
| Denomination | USD 1'000.-- |
| Maturity | 24 months (early redemption possible) |
| Underlying (Worst of) | Amazon (AMZN US) Facebook (FB US) Apple (AAPL US) |
| Coupon | 2.00% p.a. |
| Observation | Semi-annualy |
| Coupon Barrier | Guaranteed Coupon |
| Autocall | After S1: 95% After S2: 90% After S3: 80% After S4: 75% |
| Barrier | 75% (monitoring at maturity) |
| Initial fixing | (i.e. today) 22/01/2019 |
| Size | USD 1'000'000.-- |
| Issuer | Rating A minimum |
| Issue price | 70% |
| Fixing | Facebook: 214.67 USD Amazon: 1829.24 USD Apple: 173.00 USD |
Conclusion
| Advantages Recovery | Disadvantages Recovery |
| Optimized chances to generate 100% redemption (Nominal) | The investor has to invest 2 years again |
| Advantages Starting Product | Disadvantages Starting Product |
| Shorter duration | The price of the worst-of has to increase in a pretty short time period |
Any question?
We offer to evaluate the situation of your products without any purchasing constraint. Feel free to contact us any time!