Example structured note analysis

April 22, 2017 / Knowledge Centre

Below we perform an example analysis of a typical Phoenix structured note. The bold words in the description are important.


Royal Bank of Canada – 4 years 14% Technology Phoenix Note

Start date: May 20XX

Underlying stocks: Apple, Activision Blizzard, Intel Corp, United Technologies Corp and International Business Machines.

The Technology Phoenix Notes (the ‘Notes’) are designed for investors seeking regular Bonus Coupons (3.5% p/qtr.) compared to low deposit rates, and are moderately bullish equity markets over the medium term.

The Notes are a Phoenix structure linked to a basket of diversified Technology Stocks. The Notes will deliver a regular quarterly Bonus Coupon of 3.5% if All Stocks are at or above 75% of their initial levels. Providing an excellent opportunity for investors to benefit from strong regular bonus payments, even in bearish markets.

The Notes ‘Autocall’ or early redeem on the first quarterly period that all the Stocks are recorded as being at or above 100% of their Initial Levels. On Early Redemption the Notes return 100% of capital, plus the relevant 3.5% Bonus Coupon.

Even if the Notes do not early redeem, they contain a valuable protection feature for the investor. The Notes will return 100% of capital invested as long as none of the Stocks at the Final Valuation Date have fallen by more than 50% from their Initial Valuation Levels.

If any Stock has fallen by more than 50% at the Final Valuation Date, then the Final Redemption Amount will be equivalent to the performance of the Worst Performing Stock, and some capital will be lost.


Explanation of the bold terms in this example structured note analysis:

Let’s analyze the above terms and determine if this note offers good value. (For an explanation of the terms please check our FAQ)

Issuer: Royal Bank of Canada – Good bank

Type: Phoenix note as it states that there are regular bonus coupons paid out. – Good, regular income

Basket: Five technology stocks issued in a time technology was (and still is) performing well – acceptable

Coupon barrier: 75% of strike price – quite a high barrier, but the coupon is attractive – acceptable

Maturity barrier: 50% – Standard European barrier – good

Observation: Quarterly – Good

Observation type – Worst-of – Good

Memory Coupon – No – acceptable

This note had an acceptable investment risk and an investor received ten coupon payments worth 35%, before maturing early by auto-call after two and a half years.

Shoreline offers structured notes to clients via its many partners. If you have any questions, or would like to receive regular updates on structured notes please contact us. Follow this link for additional reading material on structured notes.