RBC prices $6.445 million in 11% reverse convertibles linked to McDermott

By Sheri Kasprzak

New York, July 20 - Royal Bank of Canada rounded out the week in structured products with a $6.445 million offering of 11% reverse convertible notes linked to the stock of McDermott International, Inc.

The one-year notes pay par at maturity unless the stock falls by more than 20% during the life of the notes and finishes below the initial share price of $90.05.

If that should happen, the investors will receive a number of shares equal to $1,000 divided by the initial share price or, at the bank's option, the equivalent cash value.

In the broader market, an equity structurer based in New York said Friday that a recent lull in offerings volume is not that uncommon. Just three offerings were announced on Thursday.

"It's summer, people are away, it's really not that strange," he said. "Not only [is it the middle of July], it's also late in the week in the summertime. I don't think we have anything to worry about. Business is still good."

Countrywide-linked notes

In other reverse convertibles news, Lehman Brothers Holdings Inc. priced a $500,000 offering of 24.8% reverse exchangeables linked to Countrywide Financial Corp.

The three-month notes pay par at maturity unless the stock falls below the 80% knock-in level during the life of the notes or ends below the initial share price of $34.94.

At that point, the payout will be a number of shares equal to $1,000 divided by the initial share price.

Stock performance

McDermott's stock has traded between $85.77 and $92.09 so far this July with the lowest closing stock price reached July 2 and the highest on July 13.

In June, the stock traded between $75.94 on June 7 and $84.01 on June 19.

Countrywide's stock ranged between $36.30 on June 28 and $39.34 on June 18. So far this July, the stock has traded between $34.77 and $37.34 with the lowest level on July 19 and the highest on July 6.

Bear launches ETNs

In other structured products news, Bear Stearns launched the first Exchange Traded Note linked to an index of master limited partnerships - the BearLinx Alerian MLP Select ETN - according to a news release.

Bear Stearns priced $75.04 million of the notes. They pay a coupon of the amount, if any, by which the cash dividends of the index constituents exceed the tracking fee of 0.85% per year. At maturity they pay par plus the index return minus the accrued tracking fee of 0.85% per year. Investors share in losses.

According to the news release, the ETNs are listed on the NYSE under the symbol BSR and track the performance of the Alerian MLP Select Index.

The ETNs provide investors with "single security exposure across the energy infrastructure sector through the MLP asset class," said the release.

"The index's strong and growing 5.5% yield underpins historical annualized total returns greater than 20% over the last decade," said Alerian's managing partner Gabriel Hammond, in a statement.

"The ETN will provide investors with efficient access to the MLP asset class, without the double taxation inherent in typical corporate structures that invest in MLPs."

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