HSBC prices two tech-name reverse convertibles; Morgan Stanley to price PHLX Oil Services notes

By Sheri Kasprzak

New York, Sept. 26 - HSBC USA Inc. led structured products news Tuesday pricing two reverse convertible notes with substantial coupons linked to two tech names.

"Both of them [Rambus Inc. and Palm Inc.] have had some serious problems over the past month," said one market source, explaining why investors should be betting against the stocks.

"I think Palm had some issues with its earnings and Rambus has been caught up in legal hell.

"Those things aren't necessarily the death knell for them, but it will affect the stock[s]."

Rambus was recently barred from enforcing some of its patents and Palm last week announced that its profits were down 9% for the first quarter of the year.

"There has been a great deal of volatility in the tech market for certain," said one equity structurer when asked about the appeal of these two tech-linked reverse convertibles.

"Things seem to be getting some better, but how far that goes remains to be seen. It really does help to look at the individual stocks and see where they are and how they've been sliding over a certain period."

Rambus, Palm stock down

The largest of the two offerings is $1,656,000 in reverse convertibles linked to Rambus with a huge 30% coupon and a short three-month maturity.

The other is a $333,000 issue in 20.25% reverse convertibles linked to Palm, also with a three-month maturity.

The Rambus-linked notes pay par at maturity unless the stock falls by 35% or more during the term of the notes and finishes below its initial price on the valuation day - Dec. 26, 2006. If that is the case, the notes pay a number of Rambus shares equal to $1,000 divided by the initial share price.

The Palm-linked notes also pay par at maturity unless the stock falls by 20% or more during the term and finishes below the initial price on the valuation date, also Dec. 26, 2006. Under those circumstances, the notes pay $1,000 divided by the initial share price.

Looking specifically at Rambus's stock, the stock has seen some substantial gains since August, but has also run into some volatility in the past month. During the month of September, the stock has traded between $15.88 and $19.04. On Tuesday, the stock gave up 29 cents to close at $17.66 (Nasdaq: RMBS).

Palm's stock has been trading between $14.31 and $15.61 during the month of September. On Tuesday, the stock fell by 19 cents to close at $14.50 (Nasdaq: PALM).

Morgan Stanley plans Oil Services PLUS

Elsewhere in structured products news, Morgan Stanley announced its plans to price Performance Leveraged Upside Securities (PLUS) linked to the PHLX Oil Service Sector index.

The notes are due Nov. 20, 2007 and are set to price in October.

If the final index value is greater than the initial index value, the PLUS will pay par plus three times the return on the index, capped at a maximum payment of 123% to 125% of issue price, with the precise level to be determined at pricing.

If the final index value is less than or equal to the initial index value, investors will participate in any loss on the index.

The PLUS are designed for investors who are willing to forgo upside in the index above 123% to 125% in exchange for leveraged exposure below that level, are not concerned about principal risk and are not seeking current income, according to Morgan Stanley.

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