Bear Stearns prices $25.003 million in index-linked notes; HSBC plans reverse convertibles

By Sheri Kasprzak

New York, June 26 - Bear Stearns Cos., Inc. led structured products news on Tuesday with a $25.003 million offering of index-linked notes.

The four-year notes are linked to a 75% weight of the S&P 500 index, an 8% weight of the Dow Jones Euro Stoxx 50 index, a 5% weight of the Russell 2000 index, a 5% weight of the Nikkei 225 index, a 5% weight of the FTSE 100 index and 2% of the S&P/ASX 200 index.

"That's an awful lot of S&P [500]," said one market insider not involved with the offering. "I imagine there's a lot of confidence there on the S&P [500] but it is diversified with several others [indexes]."

Another market source also said she felt the offering was a bit heavy on the S&P 500 index.

The market source noted that in most cases, the weightings of the basket are not so widely different.

Note terms

The notes pay par plus the principal amount times the basket return times the participation rate of 120.5% at maturity if the basket return is greater than or equal to 0%.

If the return is less than 0% but greater than a loss of 20%, the investors receive par at maturity.

If the return is less than a loss of 20%, the investors will lose 1% for every percentage loss beyond negative 20%.

Index performance

The S&P 500 index fell by 4.85 on Tuesday to close at 1,492.89. A month before, on May 25, the index closed at 1,515.75.

The Stoxx closed down 38.09 to end at 4,435.04. On May 25, the index closed at 4,465.

The Nikkei gave up 21.37 to end at 18,066.11 on Tuesday. On May 25, the index closed at 17,481.21. The Russell 2000 index closed down 1.33 to close at 826.13 on Tuesday and close at 829.93 on May 25. The FTSE 100 index fell by 29.10 to close at 6,559.30 on Tuesday and on May 25, the index closed at 6,570. The S&P/ASX 200 index dropped by 21.20 to close at 6,308.60. The index closed at 6,250 on May 25.

HSBC plans notes

Meanwhile, HSBC USA, Inc. was set to price 26.1% reverse convertibles linked to W.R. Grace & Co., a company that filed for bankruptcy back in 2001.

"It really has more to do with the stock performance than anything else," said one market source. "It's certainly not the first time [W.R. Grace] has been linked to a note."

In fact, ABN Amro Bank NV priced $1.9 million offering of Knock-In Reverse Exchangeable Securities linked to W.R. Grace last month. The three-month notes pay an annualized coupon of 20%. The notes have an 80% knock-in level.

The HSBC notes pay par at maturity unless the stock falls below the initial share price during the life of the notes or closes below the 80% barrier level.

Should that occur, the notes pay a number of shares equal to $1,000 divided by the initial share price.

W.R. Grace's stock has traded between a low of $24.97 - on June 12 - and a high of $27.11 - on June 5 so far this month.

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