Wachovia prices yield securities linked to Apple, Cisco; Merrill plans leveraged municipal/Libor notes

By Sheri Kasprzak

New York, Sept. 13 - Wachovia Corp. sealed up the terms of $6,761,000 in 9.5% enhanced yield securities linked to Apple Computer, Inc. and Cisco Systems, Inc. earlier this week.

"I do think most investors look at particular sectors," said one market source when asked about the fact that both Apple and Cisco are technology companies.

"Sometimes you get notes linked to 20 different names that have absolutely nothing to do with each other, but most of the time there are similarities, at least they're in the same sector."

Beyond just the sector, name recognition is also important, the market source said.

Cisco and Apple, he noted, are two big names and investors do look at those things. In particular, he pointed to Cisco's recent acquisition of Arroyo Video Solutions, Inc.

"Those things drive stocks over the long term," he added.

On Tuesday, when the notes priced, the stock gained 69 cents to end at $22.65 (Nasdaq: CSCO). Apple's stock climbed by 13 cents Tuesday to close at $72.63 (Nasdaq: AAPL). On Wednesday, Cisco's stock closed unchanged and Apple's stock gained 2.16%, or $1.57, to close at $74.20, losing 5 cents in after-hours activity.

The securities are due Sept. 20, 2007 and the payout at maturity is dependent upon the closing stock value of both issuers at maturity.

Apple and Cisco contribute equally to the final payout. In both cases, investors participate in the stock performance up to a maximum gain of 10% on each.

Merrill's muni notes

In a unique structure, Merrill Lynch & Co., Inc. intends to price leveraged municipal/Libor notes due 2016.

The structure is one that baffled one equity structurer.

"I've never seen anything like that before," he admitted when asked about the structure on Wednesday morning. "I would guess you'd have to be pretty familiar with the tax-exempt market. It's not something I really follow, so I'm not at liberty to talk about it."

The notes pay out a fixed rate of interest for the first five years. After that, interest payments will be a fixed amount plus 10 times the amount by which 0.67 of three-month Libor rate exceeds the BMA index of municipal variable-rate demand obligations. The coupon has a floor of zero.

In a filing with the Securities and Exchange Commission, Merrill Lynch said the notes are designed for investors who believe that tax-exempt floating interest rates in the municipal debt market will not materially increase relative to taxable floating interest rates.

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