RBC plans sales of airbag yield optimization notes; Broadcom, Cypress among reference stocks

By Sheri Kasprzak

New York, Jan. 3 - The structured products market got right back down to business on Tuesday, with several new offerings coming up.

Heading up those deals, Royal Bank of Canada said it plans to bring to market airbag yield optimization notes linked to the shares of four different companies.

Airbag notes, said one market insider, are becoming more popular because they're capital protected as long as the trigger isn't hit, but they carry a bit more risk than capital-guaranteed notes and they're not as risky as direct-exposure notes.

"They're a form of capital-protected securities," the sellside market source said on Tuesday when asked about the structure.

"They don't have full-on exposure, but there's no guarantee either."

Linked to Broadcom, Cypress

Among the notes to be priced by RBC are notes linked to Broadcom Corp., Cypress Semiconductor Corp., Ford Motor Co. and United States Steel Corp.

All four of the notes are due July 12, 2012.

If the price of the reference stock in question does not close below the conversion price on the final valuation date, the investor will receive the principal amount at maturity and will not participate in any appreciation or depreciation in the value of the reference stock.

However, if the reference stock closes below the conversion price on the valuation date, RBC will pay investors the delivery amount at maturity, which is a number of shares equal to $1,000 divided by the conversion price. The value of the delivery amount will be less than par.

Regardless of the performance of the reference stock, investors will receive a monthly coupon. In exchange for receiving a monthly coupon, investors face the risks that are involved with receiving shares at maturity that are worth less than the principal amount.

Broadcom notes pay 3.3%-4.3%

The Broadcom notes will pay a coupon of 3.3% to 4.3% over the term of the notes, equivalent to 6.6% to 8.6% per year. The conversion price is 80% of the initial price.

The Cypress Semiconductor notes will feature a 4.4% to 5.9% coupon, equal to 8.8% to 11.8% annually, and those notes have a conversion price of 80% of the initial price.

The Ford notes have a 3.5% to 4.7% coupon over the term, equivalent to 7% to 9.4% annually. The notes have a conversion price of 85% of the initial price.

The U.S. Steel notes will feature a coupon of 3.575% to 5.075% over the term of the notes, equal to about 7.15% to 10.15%. The conversion price is 65% of the initial price.

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