Barclays, JPMorgan to price reverse convertibles linked to Valero Energy stock

By Sheri Kasprzak

New York, Nov. 9 - Valero Energy Corp. popped up as the base for three reverse convertible offerings - but one market source said the oil refiner may be losing some of its charm as a reference stock.

"I think their stock is about to move out of the range it's been trading in," he said. "It's been range-bound for the past several months and that has made it a good [reference] stock for these [reverse convertible] offerings. That may be changing and it may be changing sooner rather than later."

In the short-term, the market source said, oil prices are rebounding slightly.

"Oil prices are going to impact [Valero's] stock, so that will make a difference," he said. "But don't expect it to be linked to a lot of reverse convertibles in the future."

On Thursday, the company's stock was bumped up, gaining 96 cents, or 1.84%, to end at $53.07. In after-hours activity, the stock gained another 12 cents (NYSE: VLO). In September, the stock traded between $48.19 and $57.77. In October, it traded between $48.17 and $52.91.

Barclays has two Valero deals

Barclays Bank plc alone has two reverse convertible deals on the block linked to Valero's stock.

On Thursday, the investment bank priced $1 million in 10.5% reverse convertibles due April 12, 2007.

The protection price on those notes is $38.49.

Barclays also plans to price 11.4% reverse convertibles later this month linked to Valero.

The notes are due Nov. 16, 2007 and carry a 75% protection level.

JPMorgan's notes

JPMorgan Chase & Co. also intends to price some reverse exchangeable notes linked to Valero later this month.

On Nov. 21, JPMorgan said it plans to price 11.25% notes due Nov. 27, 2007. Those notes have an 80% trigger.

The coupons on the notes priced this month linked to Valero have gotten bigger than the notes priced between August and October.

Earlier Valero deals

Between August and October, Barclays and JPMorgan have priced quite a few reverse convertibles linked to Valero.

On Oct. 12, Barclays priced a $10 million in 10% reverse convertibles due Oct. 12, 2007 with a 70% protection price.

In August, Barclays priced $12 million in 10% reverse convertibles due Aug. 31, 2007 and carry a 70% protection price.

JPMorgan priced $1.01 million in 10.75% reverse exchangeables due Sept. 18, 2007 and a 35% protection level.

And on Oct. 30, Societe Generale, New York Branch priced $10 million of 13.5% ReConvs due April 30, 2007 linked to Valero with an 80% threshold.

Merrill prices Select Ten notes

Elsewhere in structured products news, Merrill Lynch & Co. priced $40.5 million in 0% strategic return notes linked to the Select Ten index.

The notes, due Nov. 8, 2011, pay $9.90 multiplied by the return on the index. The index level will be reduced by a 1.5% adjustment factor annually, reducing the return by 7.23% over the life of the notes.

To receive at least par, the index level must increase by 1%. The investors can exchange the notes ahead of maturity between Oct. 1 and Oct. 15 of each year. The redemption amount will be calculated in the same manner as the payout at maturity.

The Select Ten index is made up of the top 10 dividend-yielding stocks in the Dow Jones Industrial Average.

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