Merrill Lynch is marketing a credit-linked note that will give Singapore retail investors exposure to the credit risk of five banks. The so-called LinkEarner notes are issued under MerrillÆs $8 billion Jubilee programme and reference Lehman Brothers, Macquarie Bank, Morgan Stanley, Overseas-Chinese Banking Corporation and United Overseas Bank.

The notes have a seven-year life but the issuer has an option to call them after two years. If they arenÆt called at that point the coupon steps up by 100bp for the remaining life of the notes. The interest that investors earn depends on whether they buy the notes in Singapore or US dollars: for the first two years, the S$150 million notes pay 5.25% and the US dollar notes pay 7%.

Designed to be held to maturity, the expected pay-out in year seven works out at 41.75% for the Singapore dollar notes and 54% for the US dollar notes. Merrill has the option to upsize the deal by a further 25% if demand is high.

Merrill will act as the swap counterparty with the issuer û Jubilee Global Finance, a Cayman Islands special purpose vehicle û to provide currency swaps, interest-rate swaps and credit-default swaps.

Exposure to the five banks is achieved by reference to one of their senior or subordinated bonds, each of which is rated at least single-A by Standard & PoorÆs or Fitch, or A2 by MoodyÆs. For instance, the reference obligation for Lehman is a $1.5 billion senior unsecured bond, due 2012.

LinkEarner is structured as a first-to-default credit-linked note, which means that a credit event (such as bankruptcy, failure to pay or restructuring) at any one of the five banks will trigger redemption. The proceeds of the offer will be invested in a synthetic collateralised debt obligation, comprising a pool of about 120 international companies.

Merrill kick-started its Jubilee programme in Singapore with its LinkGain credit-linked notes in November 2006. LinkEarner is the second offering under the programme. ôWe look forward to growing this fixed income platform in the Singapore retail market,ö says Mike Scherrer, a director in MerrillÆs global structured credit products group. ôIn the past we have linked the payoffs to credit and interest rates, however there may be structures linked to FX, commodities or other asset classes in the future.ö

The note is aimed, says Merrill, at investors who have a portfolio comprising equity and mutual funds, and want to add some diversification in the form of credit exposure.

The minimum investment size is S$20,000 or $10,000 and the notes are distributed through CIMB-GK Securities, DMG &&& Partners Securities, Kim Eng Securities, OCBC Securities, Phillip Securities and UOB Kay Hian. The offer opened on April 16 and closes on May 18. The notes are expected to be issued on June 1 in denominations of S$5,000 and $5,000.

Allen & Gledhill advised Merrill on Singapore law and Maples and Calder advised on Cayman Islands law relating to the special purpose vehicle.