Merrill prices $30 million in CMS-linked notes, plans notes linked to three CMS rates

By Sheri Kasprzak

New York, May 18 - Merrill Lynch & Co., Inc. led structured products news to round out the week by pricing one $30 million issue of principal-protected notes linked to the five-year and two-year constant maturity swap rates and announcing the imminent pricing of an offering of zero-coupon, principal-protected notes linked to the 30-year, 10-year and two-year CMS rates.

Note terms

The $30 million in principal-protected notes linked to the five-year and two-year CMS rates bear interest at a fixed rate of 8.95% for the first year of the 10-year term.

From May 18, 2008 through maturity, the interest rate will be 8.95% times the proportion of days during the interest period that the spread of the five-year CMS rate over the two-year CMS rate is greater than or equal to 0.15%.

Payout at maturity is par plus accrued interest.

Under the terms of the 15-year notes linked to the 30-, 10- and two-year CMS rates, the notes accrue interest at 9% for the first year. After that, the interest rate is reset quarterly and will be 9% annually multiplied by the proportion of days on which the 30-year CMS rate is equal to or greater than the 10-year rate and the 10-year rate is equal to or greater than the two-year rate.

Similar offerings

Merrill priced a very similar deal on May 2 for $32 million. The principal-protected notes, which have a 10-year term, are linked to the five-year and two-year CMS rates.

The notes bear interest at 8.68% per year for the first three semi-annual interest periods. Starting Nov. 2, 2008, interest will accrue at 8.68% per year for each day the five-year rate is greater than the two-year rate by 0.15% of more.

On May 9, the investment bank priced $5.5 million in principal-protected notes, also with a 10-year term, linked to the 30-year and two-year CMS rates.

Those notes bear interest at 7.6% for the first 12 quarterly interest periods. Starting May 9, 2010, interest accrues at 7.6% per year for each day the 30-year CMS rate is greater than the two-year rate.

Earlier this month, Lehman Brothers Holdings Inc. priced $7 million in steepener notes linked to the 30-year constant maturity swap rate over the 10-year rate.

Those notes pay interest at 10.75% through May 23, 2009 and after that, the interest rate will be reset quarterly to equal 50 times the spread of the 30-year CMS rate over the 10-year CMS rate, subject to a minimum rate of 0%.

The notes have a 15-year term.

Also earlier this month, Deutsche Bank AG, London Branch announced plans to price CMS spread range notes with a 15-year term.

The notes pay 9.37% interest for the first year and after that, interest resets to the 9.37% base rate multiplied by the proportion of days on which the 30-year CMS rate is higher than the two-year CMS rate.

Citigroup prices notes

Elsewhere, Citigroup Funding, Inc. priced $10 million in principal-protected notes linked to a currency basket that includes the British pound, the Australian dollar, the Turkish lira, the Indonesian rupiah and the Mexican peso, all relevant to the U.S. dollar.

The two-year notes pay a one-time coupon of 6%, payable in May 2008.

At maturity, investors will receive par plus the basket return.

"I don't think there's anything particularly remarkable about these currencies against the dollar," said one market source. "There does seem to be a kind of hodgepodge here. I do think it's interesting that you're seeing currencies from several different continents. You've got Asian currencies, Australian, British, Turkish. It's an interesting mix."

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