For structured product providers, the continuous tightening of credit default spreads for both corporate entities and financial institutions over the past 12 months has been a challenge.
In the years following the financial crisis, and into the first half of 2013, product providers had been able to deliver capital protection and attractive coupons using their own funding levels, in combination with an equity pay-off. At the same time, credit-linked notes (CLNs), that combined the credit risk of the issuer with a corporate name to generate a generous coupon, were highly favoured by investors. For example, at various points during the eurozone crisis in 2012, credit default swaps (CDS) for blue-chip Spanish companies were trading very wide. Private wealth management clients were more than happy to have credit exposure to companies that they personally felt very comfortable with.
