Coupons on reverse convertibles get bigger; Rabo to price 31% reverse convertibles linked to InterOil

By Sheri Kasprzak

New York, March 19 - Kicking off the week in structured products were several reverse convertible offerings with very large coupons.

Leading the pack of offerings is a 31% reverse convertible to be priced by Rabo Financial Products BV linked to InterOil Corp., which is being sold through LaSalle Financial Products, Inc.

"It's about what I expected," said one equity structurer when asked about the higher coupons. "The market is incredibly volatile right now and the conditions are just right for higher coupons."

Another market source said Monday that coupons had been getting bigger in general but the recent substantial drops in the stock market have caused so much volatility that higher coupons are just a given.

"Investors in general have been getting pretty greedy with the coupons," he said. "Now we're just seeing them getting bigger because high volatility means high coupons."

The three-month InterOil-linked note has an 80% knock-in level.

Payout at maturity is par unless the stock falls below the knock-in level and finishes below the initial stock price. In that case, payout is a number of shares equal to $1,000 divided by the initial share price.

The deal is set to price March 23.

ABN Amro plans offering

In another offering with a large coupon, ABN Amro Bank NV announced plans to price a 25.5% note linked to Overstock.com.

Overstock has become a common reverse convertible reference stock lately.

Royal Bank of Canada said last week that it plans to price a 19.15% reverse convertible linked to Overstock.com and earlier this month, HSBC USA Inc. announced plans to price 18.75% in reverse convertibles linked to the stock. The RBC deal is set to price March 27 and the HSBC deal on March 23.

The ABN Amro offering is also set to price on March 23.

That note has a three-month term and pays par at maturity unless the stock falls below the 75% knock-in level and finishes below the initial share price. At that point, the notes pay a number of shares equal to $1,000 divided by the initial share price.

Rabo's AMR-linked notes

Elsewhere, Rabo said it intends to price 21.4% notes linked to AMR Corp. on March 30.

Those three-month notes have an 80% knock-in level and pay par at maturity unless the stock falls below the knock-in level 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.

Finally, Rabo also announced plans to price 19% knock-in reverse convertibles linked to NutriSystem, Inc. Those notes, which have a three-month term, are set to price March 30.

They pay par at maturity unless the stock trades below the knock-in level and finishes below the initial share price. The notes then pay a number of shares equal to $1,000 divided by the initial share price.

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