Yahoo!, Southwestern, GM big favorites for reverse convertibles; Merrill prices two large note deals

By Sheri Kasprzak

New York, Oct. 4 - When it comes to reverse convertibles these days, some names pop up more than others. Among stocks making repeat appearances in recent reverse convertible deals - some of them taking the stage with virtually every issuing bank - are Yahoo!, Inc., General Motors Corp., Southwestern Energy Co. and Peabody Energy Corp.

One market source said the individual stocks tell the story of why these names are linked up to reverse convertibles more than others.

"If you look at the stocks, at least compare the levels they're trading now to the levels they were trading at earlier this year, you'll get your answer," he said.

"It's important to track [the stocks] over a period of months rather than just a few days because anything can really drive a stock in a given day. You want to know what the trend is, what direction over the long term this stock is going."

Just looking at Yahoo! as an example of that, the company's stock had been trading in a range of $43.42 to $33.74 in January. During June, the stock traded between $32.97 and $29.62. On Wednesday, the stock closed up 37 cents but still ended below its June range at $25.21.

In an altogether different sector, Southwestern Energy's stock traded between $43.42 and $37.00 in January. In June, the stock traded in a range of $32.78 to $24.80. The stock closed up 54 cents on Wednesday to settle around the middle of its June range at $28.40.

Multiple Yahoo! deals

This week, Rabobank Financial Products BV announced the imminent pricing of a 10.7% reverse convertible note linked to Yahoo! while Barclays Bank plc unveiled an 11% reverse convertible based on the same name - just days after pricing $4 million in 12% reverse convertible notes linked to Yahoo! late last month.

Meanwhile JPMorgan Chase & Co. on Wednesday disclosed plans to price an issue of 10.3% reverse exchangeable notes linked to Yahoo!

Back to Barclays, the bank also priced $1 million in 15.25% reverse convertibles linked to Southwestern in late September, the day after pricing $5 million of 15% reverse convertibles on Southwestern. Credit Suisse (USA) Inc. priced $1.638 million of 12% reverse convertibles with the same underlyer.

JPMorgan announced Wednesday it too is planning a Southwestern deal, this one with a 17% coupon.

Peabody popular

Also in the energy sector, Barclays priced $7 million in 20% reverse convertibles linked to Peabody Energy at the end of September as did Wachovia Corp. (with $43.577 million), JPMorgan (at $5.63 million), HSBC at $0.868 million while Rabobank on Wednesday launched a Peabody deal.

General Motors has been another name regularly linked to reverse convertibles within the past month. Barclays is negotiating a 15% note linked to GM and a 13% note and the bank priced $15 million in 17% reverse convertible notes linked to GM back in late August. JPMorgan, meanwhile also has a GM deal in the works.

Merrill's $166.5 million notes

Elsewhere in structured products news, Merrill Lynch & Co., Inc. priced a $166.5 million protected covered call enhanced income note linked to the Select 25 Proceeds index, one of two substantially sized offerings from Merrill this week.

The notes are due Oct. 4, 2011 and pay par in cash if the index level finishes at 103.09% of the initial level or lower. Otherwise, payout will be par plus any gain on the index.

The Select 25 index is a composite index that measures the performance of a strategy that allocates hypothetical funds among three components: a covered call basket of stocks with high dividend yields, zero-coupon bond units and leveraged units.

In other news at Merrill Lynch, the investment bank priced $79.5 million in 0% accelerated return notes linked to the Russell 2000 index.

At maturity, the notes pay triple the gain on the index, capped at $12.04 for every $10.00 in principal.

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