Volatility surge fattens tech-sector coupons on reverse convertibles; ABN Amro plans Rambus deal

By Sheri Kasprzak

New York, Oct. 11 - Volatility, at least in the tech sector, may be fueling higher coupons for reverse convertibles, according to one equity structurer Wednesday.

"Volatility does generally mean a higher coupon, even though there are other things to consider too," said the New York-based market source.

"The market we're in now does seem to facilitate bigger coupons. A riskier environment generally means the investors are going to demand something to sweeten the deal."

The market source noted that it is the volatility of the reference shares that is of particular interest to investors and impacts the coupon much more than any volatility in the sector as a whole.

"It matters in terms of how the volatility impacts a certain company but there are other factors like events within that particular company that really do matter as well," he added.

At least for the tech sector, the market source said he feels the sector is stabilizing somewhat and that coupons may be backing off - at least slightly.

"I can't imagine there will be an enormous decline in coupon levels," he added. "Again, it depends on the reference stock."

ABN plans Rambus notes

Looking to specific offerings in the tech sector, ABN Amro NV announced its plans to price 20% reverse exchangeables linked to Rambus, Inc. Rambus has been a name linked to reverse exchangeables quite frequently.

The exchangeables ABN Amro plans to sell are due Oct. 31, 2007.

Similarly, in September, HSBC USA Inc. priced 30% reverse exchangeables linked to Rambus. Those notes included a knock-in level equal to 65% of the initial price. Those notes are due Dec. 29, 2006.

In June, JPMorgan Chase & Co. priced $2,106,000 in reverse exchangeables linked to Rambus and those notes carried a 22% coupon and are due June 28, 2007. The exchangeables carry a protection level equal to 50% of the initial price.

In June, Rambus's stock traded between $20.55 and $28.75. In August, the stock traded in a range between $10.26 and $16.98 and in September, the stock traded between $15.98 and $19.04. On Wednesday, the stock gained $1.85 to settle at $19.13 (Nasdaq: RMBS).

GE linked to new notes

In other new offerings, General Electric Co. was linked to ABN Amro's 8% reverse exchangeables. The notes are due April 30, 2007 and carry a 90% knock-in level.

GE was linked to $2.8 million in 8.5% reverse exchangeables priced by ABN Amro in June. The notes are due June 21, 2007 and carry a 90% knock-in level.

In June, when Amro priced the 8.5% exchangeables, GE's stock was trading between $32.88 and $34.66. In September, the stock traded in a range between $33.95 and $35.78. The company's stock fell by 13 cents Wednesday to end at $36.17 (NYSE: GE).

ABN Amro's U.S. Steel-linked notes

Elsewhere, ABN Amro said it plans to price 13% reverse exchangeable notes linked to U.S. Steel Corp.

The notes are due Oct. 31, 2007 and carry a knock-in level of 70%.

U.S. Steel has popped up recently linked to reverse convertibles. In fact, HSBC USA, Inc. intends to price 13.25% reverse convertibles linked to U.S. Steel on Oct. 26.

Those notes are also due on Oct. 31, 2007.

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