Autocallables 2024 Part II: Lucid-linked Notes

By Craig McCann and Mike Yan

Yesterday, we described the rapid growth in Autocallable structured products; $122 billion have been sold in the past 4 years. You can read our first post on autocallables here.

In this, our second, post, we illustrate features of autocallables with reference to the five notes linked to the stock price of Lucid.

Our third post, available here, highlights a Silicon Valley Bank linked autocallable sold by Citigroup after the close on March 9, 2023 right before SVB fully collapsed. This note was worthless when the trades settled.



The first Credit Suisse note was quickly called after paying just three out of 36 possible monthly coupons. Investors were given one quarter's coupons and their money back because Lucid's and Uber's stock price didn't fall far enough and fast enough for the issuer to expect they would fall enough, quick enough to cause the coupons to stop and the maturity payment to be much less than par. That is, autocallables are called if investors would likely benefit from continuing to own them and the notes continue to be held if investors would benefit if they were called.

Contingent Coupon Autocallable Yield Notes due October 18, 2024

These Credit Suisse notes had call features, coupons and maturity payoffs which were a function of the changes in the price of Lucid and Uber. The notes had a 3-year term, maturing on October 18, 2024 if not previously called by the issuer. Credit Suisse estimated the value of the notes on the pricing date was $966.40. Credit Suisse paid brokers who sold the notes a 3.5% selling concession but if the notes were bought in an advisory account the purchase price was reduced from $1,000 to $965. [More on this curious fact in a later post.]

Credit Suisse priced these notes on October 13, 2021 when Lucid closed at $22.59 and Uber closed at $46.41.





The notes paid contingent monthly coupons at 14.30% p.a. and had a coupon barrier of 60%. On each coupon observation date, if Lucid closed above $13.554 and Uber closed above $27.846, the coupon would be paid. If either closed below their coupon barriers, the coupon would not be paid.

The notes had an 80% autocall barrier. If both Lucid closed above $18.072 and Uber closed above $37.128 on a call observation date, Credit Suisse would redeem the notes and investors would receive the face value of the notes. We see many autocallables where the autocall level is 100%. The 80% level observed in this note meant it was highly likely it would be called.

The notes had a knock-in level of 50%. If the notes had not already been called, if either Lucid closed below $11.295 or Uber closed below $23.205 on the valuation date shortly before the maturity date, investors would receive the face value of the notes reduced by the percentage decline of the worst performing of Lucid and Uber.

Figure 1 plots the value of Lucid and Uber standardized to $100 on October 13, 2021 along with the observation dates and coupon and call thresholds.



On January 12, 2022, the first possible call date, Lucid closed at $45.43 and Uber closed at $43.08, both well above their autocall barriers. These notes were called by Credit Suisse after investors received only 3 coupons totaling 3.575% for bearing the risk that Lucid's or Uber's stock price might have fallen and the investor would be stuck with an illiquid note paying no coupon, likely to pay much less than par at maturity.

Contingent Coupon Autocallable Yield Notes due November 5, 2024

These Credit Suisse notes had call features, coupons and maturity payoffs linked to changes in just the price of Lucid. Credit Suisse estimated the value of the notes on the pricing date was $929.70. Credit Suisse paid brokers who sold the notes a 3.5% selling concession.

Credit Suisse priced these notes on October 29, 2021 when Lucid closed at $36.99. The notes had a 3-year term, maturing on November 5, 2024.



The notes paid a contingent coupon monthly at 21.0% p.a. and had a coupon barrier level of 60%. So long as the notes had not already been called, if Lucid closed above $22.194 on a coupon observation date, a coupon would be paid. If Lucid closed below $22.194 no coupon would be paid. The notes had an 80% autocall level. If Lucid closed above $29.592 on a call observation date, Credit Suisse would redeem the notes and investors would receive the face value of the notes. The notes had a knock-in level of 50%. If the notes had not already been called, if Lucid closed below $18.495 on the valuation date shortly before the maturity date, investors would receive the face value of the notes reduced by the percentage decline in Lucid's stock price during the term of the note.

Figure 2 plots the value of Lucid standardized to $100 on October 29, 2021 along with the observation dates and coupon and call thresholds.



January 31, 2022, the first possible call date, Lucid closed at $29.39 just $0.20 less than the $29.592 which would have caused the notes to be called and investors to receive the note's face value. Instead, the notes survived this and all subsequent call observation dates as Lucid's stock price continued to decline.

Lucid's stock price closed below the 60% coupon barrier on April 28, 2022, didn't pay the May 5, 2022 coupon or any coupon in the two years since. Lucid's stock price is currently about 8% of its October 29, 2021 $36.99 closing price and so noteholders are likely to get about $80 per $1,000 face value when the notes mature later this year.

Contingent Coupon Autocallable Yield Notes with Upper Threshold Feature due November 7, 2024 Linked to the Performance of Four Underlyings

These notes had call features, coupons and maturity payoffs linked to the price of Lucid, Chewy, Square and PetMed Express. The notes had a 3-year term, maturing on November 7, 2024 if not previously called. Credit Suisse estimated the value of the notes on the pricing date was $959. Credit Suisse paid brokers who sold the notes a 3.25% selling concession but if the notes were bought in an advisory account the purchase price was reduced from $1,000 to $967.5.



Credit Suisse priced these notes on November 2, 2021 when Lucid closed at $35.13, Chewy closed at $73.39, Square closed at $249,01 and PetMed closed at $29.57.

The notes had a coupon barrier level of 60%. The notes paid monthly coupons at a 21.0% p.a. rate so long as none of Lucid, Chewy, Square of PetMed's closing stock price was below their coupon barrier on a coupon observation date and the notes had not been called.

The notes had an 100% autocall level. If all four underlying stock prices closed above their November 2, 2021 closing price on a call observation date, Credit Suisse would redeem the notes and investors would receive the notes' face value.

The notes had a knock-in level of 50%. If the notes had not already been called, if any of the four underlying stocks closed below 50% of their November 2, 2021 closing prices on the valuation date shortly before the maturity date, investors would receive the face value of the notes reduced by the percentage decline of the worst performing of the four underlying stocks.

In addition to the added complication of four underlying stock prices to track, these notes had an "upper threshold feature". If at least one of the underlying stock's price was below its autocall barrier on every autocall date, the notes would survive to maturity. At maturity, if the worst performing stock had dropped below its knock-in level but at least one of the stocks closed about its pricing date closing price, i.e. the "upper threshold level", investors would receive the face value of the notes.

The notes passed the first two observation dates with at least one underlying stock price below its November 2, 2021 level but no underlying stock price below 50% of its November 2, 2021 level so the notes survived and paid the first two monthly coupons. On the third observation date, February 2, 2022, Square closed down 54% from its November 2, 2021 closing level and so the third coupon wasn't paid. On all subsequent observation dates at least one of the underlying stock's closing price was less than their coupon barrier and so no coupons beyond the first two, totaling 3.5%, have been paid.

Figure 3 plots the value of Lucid, Chewy, Square and PetMed Express standardized to $100 on November 2, 2021 along with the observation dates and coupon and call thresholds.



Chewy is currently down 77%, Square down 68%, Lucid down 92% and PetMed down 84% from their November 2, 2021 closing prices. Since there is little chance all four stocks will all recover to above 50% of their November 2, 2021 level, this note will only pay investors 3.5% in coupons over three years and less than 10% of the notes' face value at maturity.

Autocallable Contingent Coupon Equity Linked Securities Linked to Lucid Group, Inc. Due January 16, 2025

The first three notes were issued by Credit Suisse within a few weeks in late 2021. Citigroup issued Autocallable notes linked to lucid on January 11, 2022. These notes had call features, coupons and maturity payoffs which were linked to the changes in the price of Lucid. The notes had a 3-year term, maturing on January 16, 2025 if not previously called. Citigroup estimated the value of the notes on the pricing date was $910.70. Citigroup paid brokers who sold the notes a 3.5% selling concession but if the notes were bought in an advisory account the purchase price was reduced from $1,000 to $975.

Citigroup priced these notes on January 11, 2022 when Lucid closed at $45.47.



The notes paid a monthly coupon at a 14.3% p.a. rate. The notes had a coupon barrier level of 60%. If the notes had not already been called, if Lucid closed below $27.282 on a coupon observation date, no coupon would be paid.

The notes had an 80% autocall level. If Lucid closed above $36.376 on a call observation date, Citigroup would redeem the notes and investors would receive the face value of the notes.

The notes had a knock-in level of 50%. If the notes had not already been called, if Lucid closed below $22.735 on the valuation date shortly before the maturity date, investors would receive the face value of the notes reduced by the percentage decline in Lucid's stock price during the term of the note.

On the first valuation date, February 11, 2022, Lucid closed at $25.84, down 43.3% from its January 11, 2022 closing price and so the very first coupon was not paid. Lucid's stock price remained below $27.282 and so no coupons have ever been paid on this note, none will likely ever be paid and investors are likely to get less than $10 per $100 face value when the notes mature in January 2025.

Figure 4 plots the value of Lucid standardized to $100 on January 11, 2022 along with the observation dates and coupon and call thresholds.



Autocallable Contingent Coupon Equity Linked Securities Linked to the Worst Performing of DocuSign, Inc. and Lucid Group, Inc. Due January 16, 2025

The last Lucid-linked note was priced by Citigroup on January 11, 2022 and had call features, coupons and maturity payoffs linked to changes in the price of Lucid and DocuSign. Citigroup estimated the value of the notes on the pricing date was $905.70. Citigroup paid brokers who sold the notes a 3.75% selling concession but if the notes were bought in an advisory account the purchase price was reduced from $1,000 to $970.

Citigroup priced these notes on January 11, 2022 when Lucid closed at $45.47 and DocuSign closed at 142.13. The notes had a 3-year term, maturing on January 16, 2025 if not previously called.



The notes paid monthly coupons at a 20.5% p.a. rate so long as neither Lucid or DocuSign's stock price declined by more than 40% on a coupon observation date and the notes had not been called.

If the notes had not already been called, if either Lucid closed below $27.282 or DocuSign closed below $85.278 on a coupon observation date, no coupon would be paid. If both Lucid and DocuSign close above their coupon barrier levels a coupon is paid.

The notes had an 80% autocall level. If Lucid closed above $36.376 and DocuSign closed above $113.704 on a call observation date, Citigroup would redeem the notes and investors would receive the face value of the notes.

The notes had a knock-in level of 50%. If the notes had not already been called, if either Lucid closed below $22.735 or DocuSign closed below $71.065 on the valuation date shortly before the maturity date, investors would receive the face value of the notes reduced by the percentage decline of the worst performing of Lucid and Uber.

The first observation date was February 11, 2022. That day Lucid closed at $25.84, below the $27.282 coupon barrier level and so the very first contingent coupon was not paid. Lucid's stock price fell thereafter and no subsequent contingent coupon has been paid. These notes are unlikely to pay more than $10 per $100 face value at maturity in January 2025.

Figure 5 plots the value of Lucid and DocuSign standardized to $100 on January 11, 2022 along with the observation dates and coupon and call thresholds.



Conclusion

One of the five notes linked to Lucid described herein was called after a few coupons. The other four notes survived all autocall dates and are sure to survive the remaining call dates between now and their maturity dates. The four notes will pay approximately 10% of the notes face value.

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