UBS AG sold $45.2 million of seven-year notes tied to offshore oil drilling company Ensco Plc, the Swiss bank’s largest U.S. offering in 17 months.
The securities, issued Dec. 9, are linked to the stock price with all principal protected from losses, according to a prospectus filed with the U.S. Securities and Exchange Commission. Investors can redeem the notes anytime until about two weeks before maturity, and UBS can call them after five years. The bank estimated the initial value of the securities at 97.5 cents on the dollar.
The stock has to rise more than 20 percent for the notes to gain value, according to the prospectus.
While Ensco is able to keep some of its costs low, the company also had contracted with Brazilian entrepreneur Eike Batista’s OGX Petroleo & Gas Participacoes SA, which “drilled a bunch of dry holes and ultimately filed for bankruptcy” Todd Scholl, a Houston-based analyst at Wunderlich Securities Inc., said in a telephone interview.
OGX’s “deteriorating financial condition” curbed the drilling company’s third-quarter profit, James Swent, Ensco’s chief financial officer, said in an October earnings call.
Wunderlich lowered its 12-month target price for Ensco to $61 from $64 on Nov. 21, according to data compiled by Bloomberg.
Ensco, which is based in London, rose 12 percent to $57.79 at 10:52 p.m. in New York from this year’s low on April 17.
USB sold $68.6 million of one-year securities tied to the Standard & Poor’s 500 Index on July 13, 2012, its most recent larger offering, Bloomberg data show.
Megan Stinson, a spokeswoman for the bank in New York, declined to comment on the latest notes.
Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.