Investment banks revive structured finance repack market
Credit Suisse, JPMorgan Chase and Citigroup have struck the first deals on a new structured debt platform amid a boom in repackaged note transactions.
The service offers so-called repack bonds issued through a Luxembourg-based special purpose vehicle. Five such trades were completed on the Single Platform Investment Repackaging Entity (Spire) from May to August, according to data compiled by Bloomberg.
The structured securities allow buyers to alter parts of the profiles of underlying bonds, by for example turning coupon payments into floating from fixed or switching returns into other currencies. The start of trading on the platform, which was first announced in 2015, comes a year after new global Basel III rules curbed banks' use of excessive leverage, prompting them to sell the products through special purpose vehicles to earn fees.
Investor appetite is fuelling demand for structured debt products as interest rates remain low in Europe, a major centre for trading such securities. Buyers are typically insurers and pension funds. Sales of repackaged notes rose 5.6pc to $24bn (€20.4bn) last year, the highest since 2008 when $67bn of products were issued.
"Repacks are appealing right now due to pressure on bank balance sheets from regulation such as the leverage ratio," said Paul Bajer, managing director in global markets solutions at Credit Suisse in London. "Use of third-party platforms such as Spire is driven by the ongoing deleveraging theme in financial markets where banks can add clients without an extra capital cost."
Credit Suisse, JPMorgan and Citigroup are thought to have so far sold about $258m of repacks through Spire. (Bloomberg)