Barclays plans product tied to repayments on mortgage pool; UBS prices $5.5 million commodity offering

By Kenneth Lim

Boston, Jan. 11 - Barclays Bank plc on Wednesday announced a 25-year offering of automatically redeemable notes linked to the outstanding balance on a pool of mortgages.

Meanwhile, UBS AG's $5.5 million of securities linked to the Dow Jones AIG Commodity Index was one of the largest registered products to price Thursday.

Barclays offers mortgage-linked product

Barclays on Wednesday launched an offering of automatically redeemable notes due January 2032 linked to a pool of mortgages formed by Freddie Mac.

The securities will be automatically called if on any review date the outstanding balance of the reference pool of mortgages is less than or equal to a to-be-determined threshold level determined according to prepayment speeds on the underlying mortgages.

The pool of mortgages is the PC Pool Number A51728 of various fixed-rate mortgages formed by Freddie Mac.

The pool factor is an eight-decimal place figure equal to the total outstanding principal balance of all mortgages in the reference pool divided by the total original principal balance of all mortgages.

If the securities are not automatically redeemed, payout at maturity will be par plus accrued interest.

Barclays Capital will be the underwriter.

Keith Styrcula, chairman of the Structured Products Association, said interest rate-structured products have been increasingly popular.

"It sounds like it is innovative," Styrcula said of the Barclays deal, explaining that more common interest rate-related structures are range-accrual notes or "relatively plain vanilla" structured notes linked to Treasury rates.

Styrcula welcomed such innovation, but stressed the importance of keeping new structures relevant to mainstream investors.

"The risk is always that innovation equals complexity," Styrcula said. "Is it something that would be accepted by mainstream investors? We see a lot of range now...some of which have met with success, some with failure because the broker has had trouble explaining the idea to investors. If there's a piece of research to support the idea, that goes a long way in getting investors to accept it. You have to be able to explain your product and where it fits in a portfolio."

UBS offering tied to commodity index

UBS led Thursday's new offerings with $5.5 million of zero-coupon partially protected performance securities due Jan. 17, 2012 tied to the performance of the Dow Jones AIG Commodity Index.

The notes have par of $10. If the index has a positive return at maturity, the notes will pay the principal plus 150.15% of the index return. If the index returns nil to -20%, investors will get par. If the index return is -20% or lower at maturity, investors will lose 1% of the principal for each 1% that the index return is below -20%. That means investors can lose up to 80% of their principal if the index falls.

The starting index level is 155.88.

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