American Express $1.8 billion convertible talked at 1.35-1.85% yield-to-maturity, up 58-62%

By Ronda Fears

Nashville, Nov. 17 - American Express Co. launched early Monday the quick sale of $1.8 billion of 30-year cash-to-zero convertible notes talked to price for a yield-to-maturity of 1.35% to 1.85% with a 58% to 62% initial conversion premium, with warrants, for pricing expected after the close.

Merrill Lynch & Co., JPMorgan Securities and Lehman Brothers are joint bookrunners of the Rule 144A deal.

The issue will pay a cash coupon for three years, then become an accreting zero-coupon bond.

Buyers of the convertible notes also will receive incremental shares based on net share settlement of a number of call options equal to three times the base conversion ratio, struck at the conversion price. There will be a cap, however, on the number of shares delivered, equal to the issue price divided by the stock price at closing.

According to the initial term sheet, assuming a 60% premium and $45.33 stock price, the conversion price of $45.33 would be adjusted to $72.53, which would put the conversion ratio at 13.7878. That would amount to 41.3633 warrants for a minimum of 13.7878 and a maximum of 22.0604, which would be the cap, according to the term sheet.

The notes will be non-callable for three years.

The notes will be remarketed at year three, if the stock is below the conversion price, into a straight debt instrument with no conversion feature.

There are cash puts in years three, five, 10, 15, 20 and 25, if no remarketing has occurred and the issue is not convertible at the put date.

Also, there is a contingent conversion trigger of 125% as well as a contingent payment trigger of 125%.

The issue is expected to be rated A+ by Standard & Poor's Corp. and A1 by Moody's Investors Service.

There is a $200 million greenshoe available.

The New York-based credit card company said proceeds would be used for general corporate purposes.

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