Coupons for reverse convertibles may be bigger; Rabo plans 31% reverse convertibles linked to Interoil

By Sheri Kasprzak

New York, March 12 - Market sources Monday said reverse convertible coupons may be heading skyward as the stock market continues its recovery from a crashing blow earlier this month.

As one example, Rabo Financial Products BV is negotiating the terms of a 31% reverse convertible offering linked to the stock of Interoil Corp.

"We've been seeing [coupons] getting bigger for the past week or so," said one market source, who noted that increased volatility sparked by the drop in the stock market has made for bigger coupons.

Another market source agreed.

"It's a great market for investors in reverse convertibles," said the New York-based equity structurer.

"The volatility is really great for huge coupons. I will say that the bigger coupon deals are more on the shorter term."

Rabo's notes

Under the terms of Rabo's three-month Interoil-linked notes, payout at maturity will be par unless the reference stock falls below the 80% knock-in price during the life of the notes and finishes below the initial share price. In that case, the notes will pay a number of shares equal to $1,000 divided by the initial share price.

The notes are being sold through LaSalle Financial Services, Inc. and are set to price on March 23.

ABN Amro's Overstock.com notes

In another offering with a particularly large coupon, ABN Amro Bank NV plans to price 25.5% reverse convertibles linked to Overstock.com, Inc.

Those notes, which are also due in three months, pay par at maturity unless the stock falls below the knock-in price - 75% of the initial share price - and also finishes below the initial share price. The notes will then pay a number of shares equal to $1,000 divided by the initial share price.

The Overstock.com notes are also expected to price on March 23 and will also be sold through LaSalle.

Other Rabo notes

In other news at Rabo, the investment bank plans to price reverse convertibles linked to Freeport-McMoRan Copper & Gold, Inc., The Nasdaq Stock Market, Inc. and Under Armour Inc.

The Freeport-McMoRan offering has a 14.4% coupon, a six-month term and pays par at maturity unless the stock falls below the 80% knock-in level and finishes below the initial share price. At that point, the notes pay a number of shares equal to $1,000 divided by the initial share price.

The notes are being sold through LaSalle and will price March 23.

The Nasdaq-linked notes also have a six-month term, have a 15% coupon and pay par at maturity with an 80% knock-in price. If the stock finishes below the initial share price and trades below the knock-in price during the life of the notes, the notes pay a number of shares equal to $1,000 divided by the initial share price.

Those notes are also set to price March 23 through LaSalle.

Finally, the Under Armour notes have a 10.5% coupon, a six-month term and a 70% knock-in level.

The notes pay par unless the stock falls below the knock-in price and finishes below the initial share price. The notes will then pay shares equal to $1,000 divided by the initial share price.

The notes will price March 23 through LaSalle.

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