JPMorgan plans notes linked to Libor, Sifma Municipal Swap; RBC to sell notes tied to oil currencies

By LLuvia Mares

New York, Jan. 18 - JPMorgan Chase & Co.'s planned range accrual notes due 2038 linked to Libor and the Sifma Municipal Swap index revives a structure that was more common in the 1980s, according to one market specialist.

"This structure is up to 30 years long, it has two interest rates - the Libor and the Sifma Municipal Swap," said Tim Mortimer, Future Value Consultants managing director. "They both have this interest rate condition, comparing the ratio of the municipal index and the Libor and also Libor itself. And every day for which that condition is met you'll wind up with a mini coupon."

"The most you would get is Libor plus 6.25%, so the idea is to set a target with a reasonable chance of being met, and in that case you would be getting Libor plus 6.25%," he said. "I have only seen a few of these, most have been Constant Maturity Swap trades so far comparing one swap rate against the other. Historically these were quite popular in the 1980s."

After an initial 9.3% for the first six months, for each interest period, the interest rate will be Libor plus 625 basis points multiplied by the proportion of days on which the interest condition is met.

The interest condition will be met either if the reference percentage, equal to the ratio of the Sifma Municipal Swap index to Libor, is no more than 73% or if the average level of Libor is no more than 3%.

The interest rate is capped at the lesser of 17% and 1.9 times the sum of Libor and 0.7%. There is a floor of par. Any interest over this figure is carried forward to be potentially paid in future periods, if the cap is not exceeded.

The payout at maturity will be par plus accrued interest.

The notes are expected to price on Jan. 17 and settle on Jan. 30.

J.P. Morgan Securities Inc. is the agent.

RBC to sell notes on currencies of oil-rich countries

Royal Bank of Canada raised eyebrows with its plan to price an issue of zero-coupon principal-protected notes due linked to a basket of currencies from six crude oil-rich countries. The notes are Jan. 29, 2010.

"This is an interesting one, it is principal-protected and has a basket of currencies," said Mortimer. "Now it is obvious that Canada, Russia and Saudi are countries that are big oil producers, and the other ones I think were chosen because of their currency, which would be a natural choice.

"Even if we expect oil prospects to stay [strong], that does not necessarily mean that it will," he said. "It's an interesting idea, but I am not sure if economic and logics follow through, but it is an economic twist."

The basket includes the Saudi riyal, the Canadian dollar, the Russian ruble, the Mexican peso and the Brazilian real, each with a 16.6666% weight, and the Norwegian krone with a 16.6667% weight, all versus the U.S. dollar.

The payout at maturity will be par plus any gain on the basket times a participation rate that will be between 125% and 150%. The exact rate will be set at pricing.

Investors will receive at least par.

The notes are expected to price on Jan. 29 and settle on Jan. 31.

RBC Capital Markets Corp. is the underwriter.

Deutsche to price to DB Balanced Currency Harvest index

In other news, Deutsche Bank AG, London Branch plans to price 0% Buffered Underlying Securities (BUyS) with limited loss linked to the Deutsche Bank Balanced Currency Harvest index. The notes are due Jan. 31, 2011.

Mortimer noted that the deal is based on a proprietary index developed by Deutsche Bank.

"It is quite a common thing, for the bank to put quite a fair amount of research to picking and monitoring an index, so it's natural to put products on the back of that," he said. "This is a trade of three years upside participation and a downside buffer."

The payout at maturity will be par plus any index gain multiplied by a participation rate that is expected to be 100% to 115%. The exact rate will be set at pricing.

Investors will receive par if the index declines by 10% or less and will lose 1% for each 1% decline beyond 10%, subject to a minimum payout of $800 for each $1,000 principal amount of securities. (See accompanying chart for more details of Mortimer's analysis.)

The securities are expected to price on Jan. 25 and settle on Jan. 29.

Deutsche Bank Securities Inc. and Deutsche Bank Trust Co. Americas will be the agents.

Goldman plans notes linked to MSCI EAFE

Goldman Sachs Group, Inc. plan to price an offering of 0% capped participation notes with a 30- to 36-month maturity linked to the MSCI EAFE index will give investors a fairly decent tax break, according to one source.

"The MSCI EAFE index is quite popular, you have upside and a fairly limited downside," he said. "It's enough to make it qualify for a decent tax treatment."

If the index gains, investors will participate in the increase up to a cap of 40%.

If the index declines, investors will lose proportionally, with a minimum payout of 90% of par.

Goldman, Sachs & Co. is the underwriter.

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