Deutsche Bank, Morgan Stanley, Societe Generale and Nomura have collaborated with law firm Simmons & Simmons to launch a new set of product documentation for the repackaged transaction (repacks) market, with the goal of establishing an industry-wide standard for the benefit of both investors and dealers.
The Standard Repackaging Documentation project will see participating dealers issue products on the same documentation framework, and it aims to improve comparability of products and produce tangible benefits for clients via efficiency of execution and increased market liquidity. Furthermore, the initiative aims to promote greater awareness and transparency of the repack market, driving growth and development.
The standardised documentation is shared between all of the participating banks, who will issue the notes via their own Luxembourg-based special purpose vehicles (SPVs), according to Pierre Lescourret (pictured), global head financial engineering equities & derivatives at Societe Generale Corporate and Investment Banking (SGCIB). With uniformity in mind, all notes by all issuers will be registered in Ireland, sharing the same regulatory framework, and exchange if the respective note is listed.
Besides the common documentation, issuers will be able to fully utilise their structuring capabilities to design any and all products that fit Irish regulation, and Societe Generale intends to offer exposure to most assets and payoffs, Lescourret said. "We've just started marketing some products issued under the initiative."
The target market would be mostly institutional, or 'professional', clients - insurers, pension funds, as well as potentially HNWIs through private banking distribution, according to Lescourret.
"We design the repack by combining an asset - most of the time bonds - with a derivative that will swap the coupons of the bond with target profile of the return that the client seeks," Lescourret explained. "Our SPV then issues debt that is backed by the asset and the derivative in the repack."
The common documentation will allow clients to easily compare quotes from different issuers, Lescourret said, noting that the initiative is very similar to the ISDA framework for the OTC derivatives market.
Significantly, the shared documentation will allow for a relatively straightforward and quick process of redistributing assets in the case that any of the SPVs or swap counterparties goes bankrupt - a common concern amongst investors. In such a case, it will be easy for a disposal agent or a trustee to assign swaps to other participants in the initiative, who will have no difficulty in onboarding the products, Lescourret said, preventing the securities from terminating.
"We'd like to achieve something that will be shared by the whole industry and would serve as a benchmark for investors," he said, pointing out that the initiative is not driven by regulation, but by client needs. "As more issuers take up the initiative, best execution and investor security will grow, pulling the whole market forward," Lescourret said. "There are a lot of banks already knocking on the door."
The launch of the Standard Repackaging Documentation comes as a set of four other banks have teamed up with Linklaters to develop the Single Platform Investment Repackaging Entity, or Spire platform - a tool for institutional investors looking to buy repackaged structured products.
The Spire project also has a shared set of documentation that will be used by dealers, which are currently BNP Paribas, Citi, Credit Suisse and JP Morgan.
In contrast to the Standard Repackaging Documentation project, however, the Spire platform works much like a third-party medium-term note issuer, where each transaction is a bilateral trade between investor and dealer, and the note is issued by Spire, a representative for the project told SRP. Spire has no specific launch date yet, as the final touches are still being ironed out, he said.
Meanwhile, Old Mutual International (Omi), the international arm of Old Mutual Wealth, has launched a new structured products initiative that aims to reduce the production and distribution fees on structured products sold via the Omi network, as well as to make the products themselves more transparent and easy to understand.
BNP Paribas' new Committed to the Future (CTF) range has been developed in close cooperation with Omi, and is the only offer currently available under this new initiative. The range includes three certificate-wrapped products, two of which are available in both US dollars and UK sterling denominations, and the third in dollars only, offering exposure to a set of international indices.
Click on the link to be redirected to the Standard Repackaging Documentation website.
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