Allianz was excited about it last year, now the time has come for Zurich Financial Services to join in. UBS Warburg has further developed its market index-linked equity securities (Miles) product since it lead managed the first Miles issue for Allianz last year. Unlike the Allianz deal, which allowed the issuer to choose to exchange the note into one of several of its holdings, the new version is a convertible and can only be converted into Zurich's own shares.
Zurich's Miles issue is linked to the Swiss market total return index (SMIC) and offers investors a 1% annual cash premium on the index level at issue, rather than a fixed coupon as usually received by those investing in convertibles.
The main difference between Miles and a more typical convertible is that S&P and Moody's have classified it as equity credit. Convertibles are not usually treated as equity unless the conversion value is notably higher than the straight value, that is the value of the note if it was not a convertible. Consequently, Zurich has been able to raise Sfr600 million ($400 million) in equity, while avoiding doing so at the current low share price.