NEW YORK — The American Stock Exchange began trading stock-linked debt securities Monday that are tied to the performance of Time Warner Inc. common shares.
The securities were issued by Merrill Lynch & Co. and trade under the symbol TWM.A.
Time Warner, the New York-based media and entertainment conglom, did not participate in the offering and was not involved in any way.
The idea, according to Wall Streeters familiar with the security, is to provide investors with a low-risk proxy for the media-entertainment industry as represented by Time Warner.
Or, as stated in an official release, the seven-year “notes allow investors the opportunity to gain equity exposure through a debt security.”
Amex spokesman Stephen Pechdimaldji noted that similar debt securities already trade for, among others, the high-tech industry, which are tied to the stock of Oracle Corp., and for the telecommunications business, which are linked to shares of GTE Corp.
The choice of Time Warner as an entertainment-media proxy was based on its interests in cable television, magazine, music and book publishing, filmed entertainment, recorded music and television production and broadcasting.
Merrill Lynch issued $200 million of the seven-year Time Warner securities, each with a face value of $1,000.
Holders earn an extremely modest 0.25% annual interest rate on the notes, but in exchange for the low rate they are guaranteed, at minimum, the complete return of their principal on the notes’ maturity on May 10, 2006.
Or, if they prefer, they can cash their notes in that same day for 12.1517 times the market price of Time Warner common stock.
The exchange ratio suggests a break-even price in some seven years of $82.29 a share.
Meanwhile, Time Warner stock gained 31¢ on Monday to close at $71.69 a share.