Reverse convertibles seen staying popular this week; Lehman prices $26 million notes linked to financials

By Sheri Kasprzak

New York, Oct. 9 - The trend of reverse convertibles dominating structured products will likely continue into the coming week, said two market sources reached during the Columbus Day holiday Monday.

In the broader market, structured products activity ground almost to a halt because of the holiday.

The market sources reached Monday said they feel reverse convertibles will remain popular this week.

"We feel the demand is really still strong for a variety of reasons," said one distributor based in New York.

"The biggest reason is the income potential. The people who invest in these are looking at the coupons and deciding that given the rate environment, this is where they want to be."

One sector - technology - has remained more popular than other sectors in terms of issuance and some companies have been appearing again and again among those offerings. When asked about the technology sector and its impact on tech names linked to reverse convertibles, the distributor said he feels that the individual linked stocks have more impact than what the sector as a whole is doing.

"It really depends on individual [companies]," he noted. "The focus is more on looking at particular stocks and trends within one company than what else is going on."

One semiconductor company that will be linked to a reverse convertible note is National Semiconductor Corp. JPMorgan Chase & Co. is gearing up to price 10.5% reverse convertibles linked to that company on Oct. 20.

Meanwhile, ABN Amro Bank NV has a 9.75% reverse convertible notes due Oct. 30, 2007 linked to Texas Instruments Inc. common stock, coming to market via LaSalle and set to price on Oct. 25.

Barclays Bank plc is planning an issue of 14% reverse convertible notes due Oct. 17, 2007 linked to Marvell Technology Group Ltd., with terms to be fixed on Oct. 13, and an issue of 19% reverse convertible notes due Jan. 26, 2007 linked to SanDisk Corp., scheduled to price on Oct. 24.

HSBC Bank USA has in the works an offering of 12.25% reverse convertible notes due April 26, 2007 linked to Xilinx, Inc. common stock, to price on Oct. 20 and 9% reverse convertible notes due Oct. 31, 2007 linked to Intel Corp. pricing on Oct. 26.

Rabo Financial Products BV, selling via LaSalle, has a sale of 13.4% callable knock-in reverse convertible notes due Oct. 30, 2007 linked to Advanced Micro Devices, Inc. stock, pricing on Oct. 25 and an issue of 14% knock-in reverse convertible notes due April 30, 2007 linked to SanDisk pricing the same day.

Among the tech names linked to reverse convertibles last week were SanDisk, Apple Computer Inc., Yahoo! Inc., Advanced Micro Devices, Intel and Qualcomm Inc.

Another market source agreed Monday that reverse convertibles will likely retain some popularity.

"I'd expect to see some commodities-linked notes as well," he added.

That source, however, refused to elaborate on any commodities-linked offerings his firm may be announcing or pricing in the coming week.

Commodity-linked notes coming up

Speaking of commodity-linked notes, the trend seems to have begun last week already with Wachovia Corp. announcing its plans to price enhanced yield notes linked to a basket of commodities that includes West Texas Intermediate crude oil, zinc, aluminum, copper, lead and nickel.

Last week, ABN Amro priced $1.8 million in Index Out-Performance Notes (IONs) linked to the Rogers International Commodity Index and JPMorgan is gearing up to price 0% principal-protected notes linked to the Dow Jones-AIG Commodity Index.

Lehman's iShares-linked notes

Elsewhere in structured products news, Lehman Brothers Holdings Inc. priced a $26 million issue of 0.25% notes linked to the iShares Standard & Poor's Global Financials Sector Index Fund.

The notes, due Oct. 12, 2011, will pay par at maturity plus any percentage increase over an $88.5911 threshold price, equal to 104.52% of the price Lehman paid to hedge the notes. The payout will have a floor of par and will be payable in cash or stock at Lehman's option.

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