ABN Amro prices 34% reverse convertibles linked to Ambac, 29% notes linked to MGIC

By Sheri Kasprzak

New York, Nov. 6 - High-coupon reverse convertibles still abounded on Tuesday.

Market insiders said high market volatility is pushing those coupons higher and higher.

ABN Amro Bank NV priced $700,000 each in reverse exchangeables linked to Ambac Financial Group, Inc. and 29% notes linked to MGIC - Mortgage Guaranty Insurance Corp.

The MGIC notes, one insider said, are particularly interesting.

"It's not a huge amount of notes so that says to me that the appetite for a note like this is probably not very big but I think problems in the mortgage sector have created a bunch of problems for mortgage insurers like MGIC. So that's why we're seeing a note like that," the market source said.

A market insider said earlier this week that increased volatility in the broader stock market may be one factor in the prevalence of high-coupon reverse convertibles.

"The market is volatile in general," he said. "Some stocks are more volatile than others and that's where you're going to get those big coupons."

Terms of ABN Amro's notes

The $700,000 in 34% notes linked to Ambac have a one-year term and pay par at maturity unless the stock falls below the 65% knock-in level during the life of the notes - or $14.07-and closes below the $21.65 initial share price. The notes will then pay a number of shares equal to $1,000 divided by the initial share price.

The $700,000 in 29% notes linked to MGIC also have a one-year term and pay par at maturity unless the stock falls below the 65% knock-in level during the life of the notes - or to $11.28 - and ends below the initial share price. The notes then pay a number of shares equal to $1,000 divided by the initial share price.

Similar notes

Several offerings with large coupons were announced on Monday, all from Eksportfinans ASA, through Natixis.

On Monday, Natixis said it will price an offering of 33.1% notes linked to InterOil Corp. and 32% notes linked to Force Protection, Inc. Both notes have a 65% knock-in level and four-month terms.

The notes pay par at maturity unless the stock closes below the knock-in level during the life of the notes and ends below the initial share price. The notes then pay a number of shares equal to $1,000 divided by the initial share price.

Eksportfinans also plans to price 23% notes linked to Taser International, Inc. with a 70% knock-in level and a four-month term, as well as Baidu.com, Inc. with a 22% coupon and a six-month term. The slate of notes also includes a 23.65% note linked to Companhia Vale do Rio Doce with an 80% knock-in level and a four-month term.

Eksportfinans upsizes to $58.28 million

Elsewhere, Eksportfinans upsized to $58.281 million its offering of enhanced outperformance notes linked to a basket of high international demand stocks and a basket of low international demand stocks though Goldman Sachs & Co. The deal was previously $52 million.

The 21-month notes are linked to a basket of 46 high international demand stocks and a basket of 49 low international demand stocks. The high-demand basket is comprised of stocks included in the S&P 500 index representing companies with high foreign growth measured by the percentage of revenues earned outside the U.S. The low demand basket is comprised of stocks included in the S&P 500 representing companies with low foreign growth measured by the percentage of revenues earned outside of the U.S.

If the high-demand basket performance is greater than or equal to the low demand basket, the investors will receive, at maturity, par plus the lesser of the principal amount times the maximum return of 30.5% or the outperformance multiplied by two.

If the high-demand basket performance is less than the low demand basket performance, the investors receive par minus the lesser of the underperformance multiplied by the principal amount or par.

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