Merrill sells $225 million in Rogers index-linked notes; JPMorgan plans homebuilding index notes

By Sheri Kasprzak

New York, Dec. 6 - Leading structured products activity Wednesday was a substantial $225 million offering of 0% leveraged index return notes linked to the Rogers International Commodity Index - Excess Return priced by Merrill Lynch & Co.

"The [Rogers] index is steady," said one market source when asked why the index was able to garner so much popularity. "You want something that is more likely to make small gains than it is to suffer huge losses. I think it's fair to say that the index accomplishes that standard."

The index represents the value of 35 raw materials in the agricultural, energy and metal areas.

Terms of the note

The 5½ year notes pay par plus 130% of any positive return on the index at maturity. If the index declines by 20% or less, investors will receive par at maturity and if the index declines by more than 20%, the notes will pay par minus 125% of the decline beyond 20%.

Merrill's Rogers-linked notes aren't the only ones coming up.

USB AG plans to price 0% return optimization securities linked to the index on Dec. 20.

Also, in November, Merrill priced $255 million in 0% leveraged index return notes linked to the index.

JPMorgan's homebuilding index notes

Elsewhere in structured products news, the market seems to be warming up to the housing sector as JPMorgan Chase & Co. announced its plans to price return enhanced notes linked positively to the S&P Composite 1500 Homebuilding index.

"I have been hearing so much about how the homebuilding market is looking up over the past couple of days," said one equity structurer when asked about the notes. "This seems to be an indication that the investors are feeling a stronger sense of security about it [the housing market]."

The structurer pointed to statements made earlier this week by Toll Brothers, Inc.'s chief executive officer Robert Toll that the market may be stabilizing.

"You know, it could very well be something sparked by the news," he said. "Sometimes investors get overly optimistic."

Notes pay triple appreciation

The one-year notes pay triple the appreciation of the index up to a maximum return of 26.85% at maturity.

The buyers, however, are fully exposed to any decline on the index. If the ending index level declines from the initial index, the investors will lose 1% for every 1% the index declines beyond the initial index level.

On Nov. 21, the investment bank priced $2.2 million in 0% return enhanced notes linked to the S&P Composite 1500 Homebuilding index. The payout on the notes was also triple any positive return on the index, up to 35.55%.

Those notes come in sharp contrast to recent notes linked to housing market indexes. Most of the notes priced recently have been inversely linked to the indexes.

In November, JPMorgan announced its plans to price bearish principal-protected senior unsecured notes inversely linked to the PHLX Housing Sector index from time to time.

Also in November, Morgan Stanley priced $13.25 million in 0% Bear Market Performance Leveraged Upside Securities linked to the PHLX index.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.