Barclays' sale of $119.85 million of autocallables tied to Russell 2000 repeats 2009's success

By Emma Trincal

New York, Jan. 13 - Barclays Bank plc priced $119.85 million of autocallable knock-out buffer notes on the Russell 2000 index via JPMorgan, repeating a successful structure and sales formula that has been the signature of some of the largest deals of last year, sources said.

Barclays priced the notes on Friday. The zero-coupon notes are due Oct. 13, 2010, according to a 424B2 filing with the Securities and Exchange Commission.

Barclays used the same structure in several autocallable deals last year, according to data compiled by Prospect News.

More notably, sources pointed out that Barclays continues to work in tandem with JPMorgan for the distribution of those popular autocallable products that appeal to investors hunting for yield.

The notes will be called at 107% of par if the index closes at or above 107% of its initial level on any review date, or the third trading day of each week.

A knock-out event occurs if the index falls by more than 21.05% at any time during the life of the notes.

If the notes are not called and a knock-out event does not occur, investors will receive par at maturity plus the index return, with a contingent minimum return of 2% and a maximum return of 7%.

If a knock-out has occurred, the payout at maturity will be par plus the index return, capped at 7%.

If the shoe fits

"It's an interesting structure. It's been done before. It's not new," said a New York sellsider, adding that both Goldman Sachs Group, Inc. and Barclays issued the same series of autocallable deals last year. Part of the success of the deal for both issuers, this source said, was the choice to use JPMorgan as the agent. "Each time, it was done for the same distributor," he said.

Last September, Barclays priced via JPMorgan $131.89 million of notes with the same structure: The nine-month notes were linked to the Russell 2000 and featured a similar 2% contingent minimum coupon with a 107 call price and a 21% knock-out buffer.

A month later, Barclays replicated the deal, tapping again into JPMorgan's distribution network. It priced $123.96 million.

Goldman's $346.8 million

Goldman Sachs was even more successful in November when it introduced two similar autocallable offerings, also using JPMorgan as its co-agent. In what was the second-largest structured product offering of the year (excluding exchange-traded notes), Goldman priced $346.8 million of 0% autocallable notes due Aug. 19, 2010 linked to the S&P 500 index. The structure was essentially the same. Its main features were a tenor of less than one year, a 2% minimum coupon if the barrier was not breached, an exposure to market losses if it was and a potentially high coupon of 7% if the notes were called.

Income appeal

"People like it because if the market rallies, you collect your money and you're out," the sellsider said. "You get your investment back right away. Investors don't expect the market to go down. If it goes down, you get the market return. But people don't anticipate that. They believe that the market will continue to rally and that they will get their payout."

New deals

Last week, Goldman Sachs priced $29.57 million of autocallable notes due Jan. 24, 2011 linked to an index basket made up of the Dow Jones Euro Stoxx 50 index with a 49% weight, the Topix index with a 28% weight and the FTSE 100 index with a 23% weight. This structure reproduced the 107% capped level with the 80% barrier.

However, it did not offer the usual 2% contingent minimum coupon. According to the 424B2 filing, in the absence of a call, the payout will be par plus the greater of 0% and the basket return.

As a trend though, Barclays and Goldman Sachs have consistently used the same structure consisting of the 102 floor price, the 107 call price and the 20% to 21% buffer when pricing those autocallable notes via JPMorgan, according to data compiled by Prospect News.

On Wednesday, Barclays said that it plans to price 0% autocallable knock-out buffer notes due Oct. 26, 2010 linked to the Dow Jones Euro Stoxx 50 index via JPMorgan.

The usual structure is applied again with the 107% cap and the 80% buffer. The contingent minimum return is slightly higher at 2.35%.

Repeat deal

"It's getting to be a repeat deal because it's a popular product that fits the current environment. Autocallable notes in general will continue to be very successful until we hit higher rates," said another New York sellsider.

"You see a lot of these products because people tend to buy it again and again. Say you invest 100. A month later, your notes get called. You earn a pretty good return, much better than the 1% annual rate of return on a money market fund. You would be very much willing to enter this transaction again. People are really excited about it."

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