Barclays' S&P 500-linked bear notes 'unusual,' says analyst

By Sheri Kasprzak

New York, June 11 - The recently announced 100% principal-protected bear notes linked to the S&P 500 from Barclays Bank plc are "quite unusual," according to Tim Mortimer, managing director of Future Value Consultants, a London-based company that analyzes derivate products.

FVC is currently moving into the U.S. structured products marketplace.

"It's quite unusual to have a bear-type product, particularly on equities," said Mortimer in an interview Monday. "There must be some logic to a bear-type product. Probably if someone thinks the market is going to go down or if there was a bit of a hedge."

The two and a half-year notes were announced late last week and are set to price June 26.

Assuming the index has a negative performance at maturity, the payout will be par plus the absolute return multiplied by a downside leverage factor of 140%.

Should the index return be positive, the notes pay par at maturity.

HSBC plans down and in notes

Mortimer said HSBC USA Inc.'s recently announced 5.625% and 7.75% down-and-in worst of reverse convertible notes are like a credit instrument because the trigger is unlikely to be hit.

"There's a fairly high chance of getting a coupon," Mortimer said, noting that the terms on both the down & in notes are very short - three months for one and six months for the other.

However, should any of the stocks in the basket of shares linked to the down and in notes fall below the barrier, the investors could be coming away with a payout instead of the coupon.

The structure, according to Mortimer, is more common in the United Kingdom and Europe than in the U.S. structured products marketplace.

The 5.625% notes are linked to the American depositary shares of Companhia Siderugica Nacional SA, TAM SA, Gerdau SA and Companhia Vale Do Rio Doce.

The three-month notes pay par unless the market price of the worst-performing ADS falls below the 80% protection price during the life of the notes and ends below the initial share price.

Should that happen, investors will receive a number of shares equal to $1,000 divided by the initial share price of the worst-performing ADS.

The annualized interest rate is 22.5%.

The notes are set to price June 26.

The 7.75% notes are linked to the stocks of Las Vegas Sands Corp., MGM Mirage and Wynn Resorts, Ltd.

The payout is very similar to the ADS-linked notes except that the protection price is 75% and the term is six months.

The annualized interest rate is 15.5%.

The notes are set to price June 26.

Rabo to price 34% reverse convertibles

In other structured products news Monday, Rabo Financial Products BV announced plans to price 34% reverse convertible notes linked to InterOil Corp.

The notes pays par at maturity unless the stock falls below the 80% knock-in level during the life of the three-month notes and ends below the initial share price.

If that should happen, the notes pay a number of shares equal to $1,000 divided by the initial share price.

The notes are expected to price on June 22.

InterOil's stock climbed during the month of May, trading between $27.62 on May 1 and $37.85 on May 29.

So far this month, the stock has traded between $37.31 on June 1 and $42.45 on June 5.

First Solar-linked note

In other news at Rabo, the investment bank plans to price a 24.9% reverse convertible note linked to the stock of First Solar Inc.

The note also has an 80% knock-in level and a three-month term and also pay par at maturity unless the stock falls below the protection level during the life of the notes and ends below the initial share price.

The notes will then pay a number of shares equal to $1,000 divided by the initial share price.

The notes will price on June 22.

The stock of First Solar traded between $55.56 on May 1 and $69.63 on May 7. In June, the stock has traded between $68.17 on June 1 and $71.83 on June 5.

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