Credit Suisse gears up equity-linked solutions

A new team will provide monetisation and other alternative solutions to corporate and financial institutions.
Credit Suisse is setting up a team in Hong Kong to provide corporates and financial institutions with equity-linked solutions. The new team will be led by Catherine Bradley, a managing director who is moving to Hong Kong from London, where she led a similar team that focused on European financial sponsors and UK companies.

"We are trying to give this area more critical mass," says Vikram Malhotra, head of the global markets solutions group for non-Japan Asia, who adds that Credit Suisse already has a lot of the cash products, structured financing and illiquid financing that are needed to provide the full range of market and financing solutions to this group of clients.

However, until now it has lacked a big enough presence in equity derivatives to complete the suite of structured solutions, such as hedging, providing monetisation opportunities, adding structured components to convertibles and financing liquid equity stakes. "All of those areas were being covered by different departments, so we think it makes sense to give it scale and integrate these functions in one specialised unit."

Such solutions are used in a range of different ways, often to provide debt financing against an equity position or for entrepreneurs or senior executives to hedge equity positions that are locked up after an IPO, but each transaction tends to be a one-off, negotiated deal and the possible applications are broad.

In the recent bull market, these types of structures typically allowed entrepreneurs to use their high stock prices as a way to gain financing, but bear markets provide a different, yet still compelling, set of motivations, says Malhotra.

"Markets have changed and become more challenging, but clients still have needs to raise capital, to hedge their positions and to monetise assets, and they're looking for alternative solutions," he says. "We believe that these solutions are highly relevant to clients' needs now, perhaps even more than they were a year and a half ago."

Today, an entrepreneur might be loathe to dilute his stock or sell down his position given the unattractive level it is currently trading at. And, with credit markets where they are, he is even more likely to struggle to raise funding. In such a case, he may be willing to pay a little more for debt raised against his equity position than diluting at $10 when his stock was trading at $30 a year ago.

Another common bear market application is simply to use an equity derivative as a way to provide some downside protection on a concentrated position, with what is known as a costless collar û buying a put at, say, 90% of the current market price to enable the share owner to sell out before losses get too high and selling a call at whatever strike price generates enough premium to pay for the insurance.

In addition to Bradley, the Credit Suisse team will also include three new hires: Sue Lee, who joins as a director from Lehman Brothers; Kevin Yuen, also a director, who joins from BNP Paribas; and Aaron Oh, an associate from Lehman.

Bradley will report to Malhotra and Thibau de Gaudemar, head of European equity-linked solutions.
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