Rabo plans 34.75% reverse convertibles linked to InterOil, 19.7% notes linked to Onyx Pharma

By Sheri Kasprzak

New York, May 15 - Reverse convertibles continued to grab structured products headlines on Tuesday with Rabo Financial Products BV announcing plans to price two offerings with substantial coupons and Morgan Stanley pricing two sizable deals.

"The coupon is going to depend on a lot of things," said one market source. "I don't think the sector makes that much difference when you're talking about coupons. It has more to do with volatility and the reference stock itself than anything else."

Rabo is gearing up to price an offering with the third largest coupon so far this year - a 34.75% reverse convertible linked to InterOil Corp. Bigger coupons were seen on a deal in March by ABN Amro Bank NV linked to Friedman, Billings, Ramsey Group, Inc., which sported a 40% rate, and another from ABN Amro, this time in April and linked to IMAX Corp., which paid 36%.

InterOil's stock has traded in a fairly tight range this month, at least compared to April. The stock traded between $26.51 and $32.00 in April, ending at $26.51 on April 2 and at $32.00 on April 17.

So far this May, the stock has traded between $27.62, reached on May 3 close, and $29.90, touched on May 4.

Market sources have mentioned before that the ideal stocks for reverse convertibles trade in a fairly tight range.

Terms of the deal

The 34.75% notes pay, in addition to the handsome coupon, par at maturity unless InterOil's stock falls below the 80% knock-in level during the life of the three-month notes and finishes below the initial share price.

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

The notes are expected to price May 24.

LaSalle Financial Services, Inc. is the agent for the deal.

Earlier this month, HSBC USA, Inc. announced plans to price 34.75% in reverse convertibles linked to InterOil. Those six-month notes are set to price May 17.

Rabo announced plans in early May to price 33% three-month notes linked to InterOil.

Rabo's other notes

Also, Rabo announced plans to price 19.7% knock-in reverse convertibles, also with a three-month term and also set to price May 24, linked to Onyx Pharmaceuticals, Inc.

The notes also pay par at maturity, in addition to the coupon, unless the stock falls below the 80% knock-in level during the life of the notes and ends below the initial share price.

The notes then pay a number of shares equal to $1,000 divided by the initial share price.

LaSalle is also the agent for this deal.

Stock performance

Onyx's stock traded between $25.25 and $28.02 for April with the lowest share price hit on April 2 and the highest on April 26.

So far this month, the stock has traded between $26.65 and $29.86 with the highest price hit on May 11 and the lowest on May 1.

Morgan Stanley's notes

Elsewhere in reverse convertibles news, Morgan Stanley priced $14.5 million in reverse convertible notes linked to Whole Foods Market Inc. and $13.75 million in reverse convertibles linked to Freeport-McMoRan Copper & Gold, Inc.

The Whole Foods-linked notes have a 10.10% coupon and a one-year term.

The notes pay par at maturity unless the stock falls below the 85% trigger level during the life of the notes and ends below the initial share price of $40.97.

If those things happen, the notes pay a number of shares equal to $1,000 divided by the initial share price.

Recently, Barclays Bank plc announced plans to price six-month notes with a 10% coupon linked to Whole Foods. Those notes will price May 24.

Freeport notes

The notes linked to Freeport-McMoRan have an 11.05% coupon and a 75% trigger level.

The notes pay par at maturity unless the trigger level is hit during the life of the notes and unless the stock closes below the initial share price of $72.92.

If that's the case, the notes pay a number of shares equal to $1,000 divided by the initial share price.

Earlier this month, Fortis Bank announced its plans to price 13.25% reverse convertible linked to Freeport-McMoRan and Societe Generale priced $1.5 million in 10.65% RevCons linked to the stock and $1 million in 13.35% RevCons linked to the stock.

The Fortis notes have a three-month term and an 80% knock-in level, the $1.5 million in SocGen notes have a three-month term and a 70% knock-in level and the $1 million in SocGen notes have a three-month term and an 80% knock-in level.

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