Rabo plans 20% knock-in reverse convertibles tied to Elan; RBC selling notes linked to global index basket

By Sheri Kasprzak

New York, Sept. 15 - Rabo Financial Products BV wound down the week with the announcement of an offering of 20% knock-in reverse convertible notes linked to Elan Corp. plc.

The notes, due March 29, 2007, will pay 10% for an annualized return of 20%. Interest will be paid on a quarterly basis. The notes are set to price on Sept. 26.

"The only reason to invest in these is the coupon," said one equity structurer who saw the prospectus for the notes Friday morning.

"And it is a pretty substantial coupon, so I think it looks pretty appealing in that regard. We've done a few of these ourselves and they've been pretty successful."

Payment at maturity will be determined by the performance of Elan's stock. If the stock trades at or below the knock-in price and closes below the initial price, investors will receive a number of Elan shares equal to $1,000 divided by the initial stock price. The knock-in price will be 70% of the initial price.

Otherwise, investors will receive par in cash.

According to a prospectus filed by agent LaSalle Financial Services, the notes are intended for investors who believe the stock price of Elan's stock will remain unchanged, increase by only a slight amount or will not decrease below the knock-in level. The notes are also intended for investors, the prospectus said, who are willing to accept the risk of owning equity in general and who understand that they could lose their entire investment.

Rabo announced two similar note offerings earlier this month. Those offerings priced on Friday, but the full terms could not be determined by press time.

On Sept. 5, the investment bank announced plans to price 20% knock-in reverse convertibles linked to Broadcom Corp.

LaSalle was the agent for those notes as well.

The three-month Broadcom notes, which are due Dec. 20, 2006, will pay 5% for an annualized return of 20%.

At maturity, investors will receive par in cash if Broadcom stock closes at the initial price or above, or never trades below the knock-in price. Otherwise they share in the downside on the stock since pricing. The knock-in price will be 80% of the initial price.

Also on Sept. 5, Rabo announced 20% knock-in reverse convertibles linked to JetBlue Airways Corp.

Those notes are also due in three months and pay 5% for an annualized return of 20%.

Payout at maturity will be determined in the same way as the Broadcom notes. The knock-in price is also 80%.

RBC's principal-protected notes

Elsewhere, Royal Bank of Canada announced this pas week plans to price principal-protected senior notes linked to a basket of global indexes including the Standard & Poor's 500 index, the Nikkei 225 index and the Dow Jones Euro Stoxx 50. The indexes are equally weighted.

"Asian stocks, in general, seem to be a hot commodity at this point," said one market source of the notes.

"We're seeing tons of stuff linked to the Nikkei [225] and even the S&P [500]."

The notes are set to price Sept. 27 and payout at maturity will be equal to par plus any gain on the index basket on Sept. 28, 2011, the final valuation date. The investors will receive at least par on their investment.

In an unusual deal, RBC is also planning an offering linked to the stocks of 15 companies based in Minnesota.

The 0% notes will pay par plus 85% of any gain on the basket at maturity.

Pricing is schedule for Sept. 26 via RBC Capital Markets.

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