Reverse convertibles issuance strong, energy and tech sectors popular targets

By Sheri Kasprzak

New York, Sept. 29 - Reverse convertibles have been the buzz in structured products news this past week and one market source said he feels a good portion of those deals are linked to energy-related stocks.

"It does seem like a lot of these are coming from energy, maybe other types of resources, at least the ones I've seen," he said. "And I think it's pretty obvious that energy or energy-related stocks are not doing that great right now."

The market source noted that oil prices have been on a steady downward turn.

The other sector he pointed to was technology.

"In the big picture, tech has been bouncing all over the place," he noted. "Tech does seem to be rebounding a bit so that's yet to be seen."

Another market source agreed that sectors are important, at least to a degree, when structuring these offerings.

"Certainly the companies themselves are important, but the bigger picture impacts those shares so it all kind of comes together," he noted.

Wachovia prices Peabody notes

Biggest among those energy-related reverse convertibles was a $43.577 million offering of enhanced yield securities from Wachovia Corp. linked to Peabody Energy Corp. priced Thursday.

The 14.25% notes have a one-year maturity and a 70% threshold to trigger the reverse convertible payout.

Energy deals popular

Also in energy was a $1 million issue of 15.25% notes linked to Southwestern Energy Co. priced by Barclays Bank plc on Wednesday.

Those notes are also due in a year and also have a trigger at 70% of the initial value.

A day earlier Barclays priced $5 million notes linked to the same issuer with a 15% coupon and the same one-year maturity and 70% trigger.

The same day Credit Suisse (USA) Inc. priced a $1.637 million offering linked to Southwestern with a 12% coupon a one-year maturity and a 60% trigger.

ABN Amro Bank NV priced a $0.7 million deal linked to Chevron Corp. on Tuesday with an 8% coupon and an 80% threshold.

Another energy offering was priced by HSBC USA Inc. The investment bank priced $554,000 in 11% reverse convertibles linked to Chesapeake Energy Corp.

Those notes have an 11% coupon and an 80% trigger.

On Monday, HSBC priced $1.959 million of 17.75% notes linked to Arch Coal, Inc. with a three-month maturity and an 80% threshold and $0.868 million of 16.25% notes linked to Peabody with a six-month maturity and a 75% threshold.

Also linking to Peabody, JPMorgan Chase & Co. on Sept. 22 priced $5.631 million of 14% reverse convertibles with a 70% trigger and a one-year maturity.

The same day, JPMorgan priced $0.557 million of 10.5% notes linked to Transocean Inc., again with a 70% trigger and a one-year maturity.

Barclays' Yahoo! notes

Looking to those tech-related reverse convertibles, Barclays Bank plc priced $4 million of 12% reverse convertibles due Sept. 28, 2007 linked to Yahoo! Inc.

They have an 80% trigger.

Tellabs' notes

In other tech news, HSBC priced $2,609,000 in 15% reverse convertible notes due Sept. 28, 2007 linked to Tellabs, Inc. They have an 80% trigger.

On Sept. 22, Morgan Stanley priced $41.5 million of notes in the Sparqs structure, also linked to Tellabs. They mature on Oct. 20, 2007 and are callable from April 20, 2007 at a price to give a yield to call of 24%.

Similarly, BNP Paribas priced $2,125,000 in 17.05% down-and-in reverse convertibles linked to Red Hat, Inc. due Dec. 29, 2006. They have an 80% trigger.

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