JPMorgan and A.G. Edwards are teaming up to bring large corporate paper usually targeted at institutional investors to the hands of small retail investors, some of whom demanding denominations as small as $25 allotments, said sources close to the situation. Following the lead set by rivals Salomon Smith Barney, Lehman Brothers and UBS Warburg, JPMorgan has added a twist to its program, aimed at taking a single large corporate bond and selling to small retail buyers, leveraging A.G. Edwards' strength: its retail-sales force.

According to a recently amended shelf registration filed with the Securities & Exchange Commission, JPMorgan vehicle Structured Obligations Corp. names A.G. Edwards as a partner in the sale of highly-rated corporate debt already on JPMorgan's books into smaller pieces to sell through A.G. Edwards' sales force. The filing names Fannie Mae, Freddie Mac, the Tennessee Valley Authority as well as U.S. Treasury as likely to be sold to mom and pop investors.

The twist in this vehicle lies in the leveraging of the A.G. Edwards sales force to sell paper. Even though A.G. Edwards is one of the oldest and largest brokerage houses, with over 700 offices nationwide, it is not a player in securitized products markets, due partially to its smaller-investor focus.

Since it is difficult to get this highly sought-after paper into the hands of those without the capability of buying $100,000 blocks, the vehicle allows an issuer to separate the stream into principal and interest, or a combination thereof.

Desecuritization?

Although it doesn't seem like a true securitization, the capability to split up the pre-set coupon payments into smaller ones amounts almost to a "reverse" or "desecuritization." Additionally, the structure of the trust allows JPMorgan to do other creative things with holdings, sources noted.

"The filing reflecting our involvement with Structured Obligations Corp. (SOC) is intended to give both J.P. Morgan and A.G. Edwards the ability to essentially securitize a corporate bond. The filing gives us the flexibility to pursue a variety of transactions and act as underwriter on some - not necessarily all - of the securities offered from time to time by SOC," said a corporate spokesperson for A.G. Edwards.

This filing, when approved, allows for numerous bells and whistles - a large public CDO for example - but are unlikely, said a source close to the situation. The shelf is close to receiving regulatory approval, the source added: "We are pretty much there." Timing for the first offering from the program could not be disclosed.

This technique was initially pioneered in the mid-to-late 1990s by Salomon through its Corporate Backed Trust Certificates (Corts) and pre-merger PaineWebber with its Cabco program. Lehman is also said to have a similar program.

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