HSBC USA prices three reverse convertibles; market may be moving away from index baskets

By Sheri Kasprzak

New York, Oct. 24 - Heading up structured products activity Tuesday were three reverse convertible offerings from HSBC USA Inc.

Apple Computer, Inc. is a stock linked to one of the reverse convertibles and is a name that has crept up before as a popular base for these deals. Most recently, The Bear Stearns Cos. Inc. announced its plans to price 14% one-year reverse convertibles linked to Apple.

The HSBC notes, for $628,000 in principal, bear interest at 12.5% annually and are due Oct. 28, 2007.

The ideal stocks linked to reverse convertibles, according to one market source, are not overvalued.

"The stocks that are linked have good option premiums," he said. "You're looking for a stock that is not overvalued."

The market source said some investors inquire about certain stocks they believe will be range bound over the life of the notes.

Apple appeared earlier

HSBC and Bear are not the only investment banks with offerings from Apple.

Barclays Bank plc priced $3 million in 11.5% notes linked to the computer maker earlier this month. Those notes are due Oct. 17, 2007 and carry a 70% knock-in price.

Apple's stock has traded between $74.08 and $81.46 during the month of October. In September, the company's stock traded between $68.38 and $77.61. On Tuesday, the company's stock gave up 41 cents to end at $81.05 (Nasdaq: AAPL).

Other HSBC offerings

In other reverse convertible news from HSBC, the bank priced $2,297,000 in 15% reverse convertibles linked to Frontier Oil Corp.

Those notes are due Jan. 26, 2007 and carries a 70% knock-in price.

HSBC also priced $496,000 in 15% notes linked to AMR Corp.

The notes are also due Jan. 26, 2007 and carry a 70% knock-in level.

Both the notes fall below what one market source said is the average knock-in price for reverse convertibles.

"Seventy-five percent to 80% has become standard," he said.

Market moving away from index baskets?

One market source said Tuesday that the U.S. structured products market may be making a move away from notes connected to a basket of indexes and may be moving towards single index-linked offerings.

"We're seeing more and more notes linked just to the S&P [500] or just to the Dow Jones [Industrial Average]," he said.

Also, there is a move from non-U.S. assets except as part of a global basket, he noted.

"One thing that structured products is able to do well is capture international exposure more than mutual funds and things like that," he said.

Index-linked deals

Just in the past two weeks, several offerings have been linked to a single index.

Lehman Brothers Holdings Inc. priced absolute buffer senior notes linked to the EuroStoxx 50 index, Barclays priced Super Track notes linked to the S&P 500, JPMorgan Chase & Co. priced return enhanced senior notes linked to the S&P 500 and also priced separate buffered return enhanced notes linked to the EuroStoxx 50 index, the Russell 2000 index and the S&P 500.

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