RBC prices $6.85 million in GM-linked reverse convertibles; JPMorgan sells Countrywide-linked notes

By Sheri Kasprzak

New York, April 27 - Royal Bank of Canada led structured products news to round out the week, pricing $6.853 million in reverse convertibles linked to General Motors Corp.

The offering is one of a huge number of reverse convertibles recently in the structured products market and announced in the traditional end-of-the-month rush over the past couple of sessions.

"Reverse convertibles continue to be the most popular [structure] because investors want yield," said one market source. "They want something that is going to provide income for them. We'll likely continue to see income-producing structures, things that may not necessarily be reverse convertibles but things that will, nevertheless, provide some sort of income."

The prevalence of reverse convertibles in the U.S. structured products marketplace seems to have a lot to do with the type of investor buying these products, according to another equity structurer.

"The type of [retail] investor who is out there buying structured products tends to be an older person, a Baby Boomer perhaps, who is making these investments to produce a secondary income," said the market source. "That's typically been the experience. They want a decent return on their investment."

Terms of the RBC deal

The 16.75%, six-month GM-linked notes priced Friday by RBC pay par at maturity if the stock stays at or above the 70% protection price.

If the stock falls below the protection price during the life of the notes or finishes below the initial share price - $31.07 - the investors will receive a number of shares equal to $1,000 divided by the initial share price.

The offering is not the only GM-linked deal to be announced Friday. Eksportfinans ASA priced $340,000 in six-month, 22% reverse convertibles linked to the stock of GM and Ford Motor Co.

Those notes have an 80% knock-in level.

JPMorgan's reverse convertibles

In other reverse convertibles news, JPMorgan Chase & Co. priced $5.016 million in 22% reverse convertibles linked to Countrywide Financial Corp.

The three-month notes pay par unless the stock falls by more than 20% during the life of the notes and finishes below the initial share price.

In that case, the notes pay a number of shares equal to $1,000 divided by the initial share price or, at JPMorgan's option, the equivalent cash value.

Citigroup prices slate of reverse convertibles

The popularity of stock-based deals was evident even at Citigroup Funding, Inc., an investment bank that normally prices one or two of those structures per month - although generally in large size. In April, Citigroup priced five Equity Linked Securities (ELKS).

Among them was a $43.02 million offering linked to Alcoa Inc.; a $60.41 million offering linked to Monsanto Co.; a $14,952,792 offering linked to Newmont Mining Corp.; a $26.005 million offering linked to Toll Brothers, Inc.; and a $67,209,300 offering linked to Boston Scientific Corp.

These offerings compare with just three ELKS priced in March - linked to Chesapeake Energy Corp., Intel Corp. and D.R. Horton, Inc. - and just two priced in February - linked to Celgene Corp. and Starbucks Corp.

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