Nomura’s Callable Contingent Notes: A High-Risk Gamble on Equity Indices

The Amended and Restated Nomura Callable Contingent Coupon Index-Linked Notes due 2027, issued by Nomura America Finance, LLC, represent a complex financial instrument tied to the performance of three major equity indices: the S&P 500, Russell 2000, and NASDAQ-100. Investors who purchased these notes on April 10, 2025, face a critical juncture on April 28, 2025, the first coupon observation date, which will determine whether they receive a monthly coupon payment or risk a potential loss of principal. This article dissects the structure, risks, and rewards of these notes, offering insights for discerning investors.

The Structure of the Notes

The notes are unsecured obligations of Nomura America Finance, LLC, guaranteed by its parent, Nomura Holdings, Inc. (rated BBB+ by S&P). They feature a contingent coupon mechanism, where investors receive a monthly payment of $12.167 per $1,000 face amount (equivalent to ~14.6% annualized) only if all three underliers close above 75% of their initial levels on each observation date. The initial levels, set on the strike date (April 3, 2025), are:
- S&P 500: 5,396.52
- Russell 2000: 1,910.546
- NASDAQ-100: 18,521.47

If any index falls below this threshold on April 28, 2025, the coupon for May 1, 2025, drops to $0, and investors face the risk of losing principal at maturity.

Key Risks and Triggers

1. Coupon Dependency:
   The notes’ returns hinge entirely on the indices’ performance. For example:
2. If all underliers close above their 75% triggers on April 28, investors receive the $12.167 coupon.
3. If the Russell 2000 closes at 1,432 (exactly 75% of its initial level), the coupon is paid.
4. If the NASDAQ-100 drops to 13,890 (just below its 75% trigger), the coupon vanishes.

1. Maturity Payout Risk:
   At maturity (April 8, 2027), investors receive $1,000 per $1,000 face amount only if all underliers remain above 70% of their initial levels. If any index falls below this threshold, the payout is reduced proportionally based on the least performing underlier’s return. For instance:
2. If the S&P 500 ends at 3,777 (70% of its initial level), the payout remains at $1,000.

3. If the NASDAQ-100 closes at 12,000 (64.8% of its initial level), the payout drops to $64.8% of face value, or $648.

4. Early Redemption:
   Nomura may redeem the notes at any time starting July 9, 2025, through March 8, 2027. If called, investors receive $1,000 plus accrued coupons, but forfeit future coupon opportunities and exposure to upside.

Scenario Analysis

Scenario 1: Bull Market Conditions
- Assumptions: All underliers remain above 75% triggers monthly, and no index dips below 70% at maturity.
- Outcome: Investors collect ~$292 in coupons over 24 months ($12.167 × 24) and receive $1,000 at maturity, totaling a 14.6% annualized return.

Scenario 2: Bear Market Shock
- Assumptions: The NASDAQ-100 falls to 13,000 (70.1% of initial) on April 28, 2025, triggering a $0 coupon, and then declines further to 10,000 (54.0%) by maturity.
- Outcome: Investors lose all coupons and receive only $540 at maturity, resulting in a 46% total loss.

Scenario 3: Early Redemption
- Assumptions: Nomura redeems notes on July 9, 2025, after the first coupon is paid.
- Outcome: Investors receive $1,012.17 per $1,000 face amount, avoiding potential downside but missing future gains.

Credit and Market Risks

• Issuer Credit Risk: The notes depend on Nomura’s financial stability. A downgrade below BBB+ could spook investors and reduce secondary market value.
• Market Volatility: Equity indices are prone to sharp swings. A crash in tech stocks (NASDAQ-100) or small-caps (Russell 2000) could trigger coupon failures and principal losses.
• Liquidity Risk: These notes trade infrequently, meaning investors may face steep discounts to exit positions early.

Conclusion

The Nomura Callable Contingent Notes are a high-stakes bet on equity indices staying within narrow bands for over two years. While they offer 14.6% annualized returns in ideal conditions, the risk of total principal loss—up to 100% if an index drops below 70% of its initial level—is severe.

Investors should weigh the following:
- Risk Tolerance: Suitable only for those willing to accept asymmetric risk for potentially high returns.
- Diversification: These notes should represent a small portion of a portfolio.
- Timing: Purchase only if confident in the indices’ stability near trigger levels.

In sum, the April 28 observation date is a pivotal moment. Investors must monitor the S&P 500, Russell 2000, and NASDAQ-100 closely, as even a minor dip below 75% could erase months of potential gains. For the bold and vigilant, these notes offer excitement—but for most, they may be better observed than owned.