Merrill to price notes inversely linked to Cohen & Steers realty index

By Sheri Kasprzak

New York, March 20 - Merrill Lynch & Co. led structured products news Tuesday with an offering bearishly linked to the Cohen & Steers Realty Majors Portfolio index.

The offering, according to one equity structurer, makes sense given the dismal state of the real estate market. Still, another market source said he feels the market is showing signs of improvement.

"With the shape the housing market is in and has been in for the past year, this doesn't surprise me or anyone," said the equity structurer. "I'm surprised there aren't more, frankly."

The other market source said he has read of some promising news in the housing market.

"Everything I'm seeing says by the spring to summer months, we'll be seeing an increase in homebuilding," he said. "There has definitely been a slump and a lot of homebuilders are feeling the pinch but I think there's a light at the end of the tunnel and that end isn't very far off."

Real estate-linked deals

Even so, in the past week, several offerings have been linked to homebuilders.

On March 16, Barclays Bank plc said it plans to price 18% reverse convertibles linked to Beazer Homes USA, Inc. Those six-month notes are set to price March 30. On March 9, Barclays announced plans to price 11.2% reverse convertibles linked to the stock of Toll Brothers Inc. Those notes also have a six-month term and are set to price March 23.

The Merrill Lynch notes are 0% Accelerated Return Bear Market Notes with a three-month term.

The index seeks investment results corresponding to price and yield performance of large real estate investment trusts.

If the index decreases, payout at maturity will be par plus triple the absolute value of the change. The return is capped at between $12.80 and $13.20 per $10.00 note, to be determined at pricing.

Investors are fully exposed to any increase in the index - which will cause a decline in the payout at maturity.

Merrill to price notes linked to ruble

Elsewhere in structured products, Merrill said it intends to price zero-coupon principal-protected notes linked to the Russian ruble.

The offering is one of several conducted recently with currencies in the BRIC basket.

Recently, the investment bank announced plans to price zero-coupon principal-protected notes linked to the Indian rupee/dollar exchange rate.

Those notes will price in April.

If the final exchange rate is greater than the initial exchange rate, the payout will be par plus the percentage increase in the exchange rate, multiplied by the participation rate, which will be set at pricing.

Investors can expect to receive at least par at maturity.

Earlier this month, Deutsche Bank AG, London Branch priced $5 million in 0% appreciation notes linked to the BRIC basket.

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