Is This Structured Product's Coupons Conditional?

One of the most important questions to ask about any structured product: are the coupons conditional? The answer dramatically changes what you can expect to earn.

Guaranteed vs. Conditional Coupons: The Difference

Guaranteed coupons are paid regardless of how the underlying assets perform. You receive them on schedule as long as the issuer doesn't default.

Conditional coupons are paid only if specific conditions are met — typically that the underlying asset(s) stay above a certain barrier level on observation dates.

Case Study: A "13% Coupon" That's Partially Conditional

We analyzed a 13.00% p.a. Multi Barrier Reverse Convertible linked to Roche Holding, Sandoz Group, and VAT Group. The term sheet promises 13% p.a. — but how much of that is actually guaranteed?

The answer: the coupon is paid quarterly regardless of underlying performance, BUT only as long as no barrier event has occurred. If any of the three stocks falls below 70% of its initial level, the downside protection is lost and investors receive equity shares instead of their remaining coupons.

What the Simulation Reveals

Our simulation of 50,000 market paths found:

But the tail risk matters: in roughly 10% of scenarios, you receive far fewer coupons than expected and may lose principal.

Barrier breach probability: 10.64% — in about 1 in 10 scenarios, the barrier is breached
Average coupons received: 4.25 out of 5 — most investors receive most of their coupons
Average total coupon income: 13.82 index points — slightly above the 13.00% headline rate

Other Types of Conditional Coupons

Phoenix Coupons

Each coupon period stands alone — if conditions aren't met in one period, the coupon is lost permanently. But future coupons can still be paid if conditions improve.

Memory Coupons

Missed coupons are "remembered" and can be paid in future periods if conditions improve. This structure offers better income recovery than phoenix coupons.

Step-Up Coupons

The coupon rate increases over time (e.g., 6% in year 1, 8% in year 2, 10% in year 3). These are often conditional on the underlying staying above a barrier.

How to Check If Your Coupons Are Conditional

When reviewing a term sheet, look for:

Key Takeaway

Always ask: "Under what conditions do I NOT receive my coupon?" If the answer exists, your coupons are conditional — and you need a simulation to understand what you'll really earn.

Upload a term sheet → Let Token Engine analyze your product's coupon structure and tell you the probability of receiving each payment.