Responding to investors' sensitivity to interest rate risk, units of First Union Corp. have issued $300 million of 40-year debt that offers an unusual double-put option.

First Union's Florida and North Carolina banks each issued $150 million in subordinated notes due in 2036.

The notes have a 6.18% coupon and were priced to yield 6.195%, or 48 basis points over comparable treasuries. Moody's Investors Service assigned an "A1" rating to the issues. Standard & Poor's gave the issues an "A" rating.

In what one analyst described as a "weird" twist, the issues are puttable - that is, they can be redeemed early - after 10 and 20 years.

The structure gives investors two opportunities to reposition their portfolios when rates rise.

Analysts said unusual structures like the double-put option are gaining favor.

"The puttable structures have become very popular," said Allerton G. Smith, of Donaldson, Lufkin & Jenrette. "The ability to offset the inherent convexity of those other structures with puttable bonds will make them more attractive as an investment vehicle."

Investors, especially insurance companies, are under pressure from rating agencies and regulators to control interest rate exposure, analysts pointed out.

Mr. Smith said long-term bonds at today's yields are a cheap way for banks to raise money.

First Union also is taking advantage of investors' favorable perception of the banking industry.

The industry's capital and reserves have grown dramatically in the past five years, while the level of risks on bank balance sheets has diminished, Mr. Smith said.

"Many investors view bank paper as a safe haven against industrial event risk," he said, adding that "the future of bank spreads looks sunny."

The spread, or gap between treasuries and debt, widens when investors perceive risk and demand a higher return. When investors view an industry favorably, as is the case for banks now, spreads become narrower and it is cheaper for the companies to raise money.

That the debt is being issued at the bank level rather than the holding company level is a departure from the norm for First Union, and is part of a trend among banking companies to diversify their funding sources, analysts said.

After a spate of issuance by banks, Mr. Smith predicted a lull "as issuers wait to see if there is a more favorable interest rate environment further down the road."

Ultimately, he said, the lack of new supply in the marketplace means it will continue to be cheap for banks to tap the capital markets for their funding needs.

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