Merrill offers proprietary notes tied to commodities for Svensk; JPMorgan sells energy-linked notes

By Sheri Kasprzak

New York, Feb. 9 - A new note offering from Merrill Lynch & Co. linked to one of its proprietary indexes may be filling a niche request, said one market source reached Monday.

Merrill plans to sell capped leveraged index return notes linked to its Merrill Lynch Commodity index eXtra Brent 4 - Series Index Excess Return for Svensk Exportkredit.

"Could be that one of [Exportkredit's] clients wanted something linked to certain types of commodities that this particular index tracked," the market insider said.

"I don't know a lot about that particular index, but there's almost always some index that tracks just about anything you can think of. There's a lot of room for creativity."

Index factors liquidity

The index tracks certain commodities based upon liquidity, according to a commodity paper from Merrill. The eXtra index, in particular, weights commodities by importance in the global market, and are adjusted for double counting, reducing the impact of upstream commodities like crude oil in favor of downstream commodities like gasoline.

The underlying commodities in the index include crude oil, gasoline, heating oil, natural gas, wheat, corn, soymeal, soybeans, copper, aluminum, nickel, zinc, sugar, coffee, gold, silver, live cattle and lean hogs.

The 18-month notes, which are slated to price at some point this month, provide 200% leveraged upside exposure to the index, subject to a 39% to 43% cap, which will be determined at pricing.

The offering also provides one-to-one downside protection, up to a 90% threshold value.

JPMorgan's energy notes

In other commodities-related news, JPMorgan Chase & Co. said Monday it priced $3.15 million in buffered returned enhanced notes linked to a basket of energy stocks.

The 18-month notes pay double the appreciation of the equally weighted basket of stocks, up to a maximum total return of 55% at maturity. The zero-coupon notes are protected up to a 10% decline in the basket, and investors can expect to lose some or their entire principal. For every 1% drop in the basket beyond the 10% buffer, investors will lose 1.1111% of their original investment.

The basket includes shares of XTO Energy Inc., Noble Energy Inc., Chesapeake Energy Corp., El Paso Corp., Newfield Exploration Co., Pioneer Natural Resources Co. and Encore Acquisition Co.

All basket shares up

Shares of XTO were up by 25 cents on Monday to end the session at $39.59 (NYSE: XTO), and shares of Noble were up by 41 cents to close at $55.41 (NYSE: NBL).

Also on Monday, Chesapeake's stock climbed by 76 cents, or 4.2%, to end at $18.87 (NYSE: CHK), and shares of El Paso also ended on an up note, gaining 9 cents to close at $9.14 (NYSE: EP).

Newfield's stock also ended the day positively, gaining 45 cents to settle at $23.02 (NYSE: NFX).

Pioneer's shares were up $1.31, or 8.28%, to close at $17.14 (NYSE: PXD), and shares of Encore finished the day up 98 cents at $30.55 (NYSE: EAC).

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