Eksportfinans launches Dogs of the Dow product; Wachovia, Lehman issue energy-linked offerings

By Kenneth Lim

Boston, Jan. 9 - The Dogs of the Dow equity strategy is finally getting its day in the structured universe, with Eksportfinans ASA's new product that is linked to the highest-yielding stocks in the blue chip index.

Meanwhile, the energy sector continues to receive interest, with Wachovia Corp. and Lehman Brothers Holdings Inc. offering issues tied to the industry.

Eksportfinans launches Dogs product

Eksportfinans plans to issue 17.25% reverse convertible securities due Jan. 31, 2008, that are linked to the 10 Dogs of the Dow stocks of 2007, which are the 10 component stocks of the Dow Jones Industrial Average with the highest yields at the start of the year.

IXIS Securities North America Inc. will be the agent.

The basket comprises Pfizer Inc., Verizon Communications Inc., Altria Group Inc., AT&T Inc., Citigroup Inc., Merck & Co. Inc., General Motors Corp., E.I. du Pont de Nemours and Co., General Electric Co. and JPMorgan Chase & Co.

Upon maturity, investors will receive par unless any of the stocks falls below its knock-in price, which is 60% of the initial share price, during the life of the notes and falls below the initial share price. In that case, investors will instead receive a number of the worst-performing reference shares equal to the share redemption amount of that stock.

Steve Peters, vice president of JVB Financial Group, which is distributing the product, explained that the Dogs of the Dow strategy is commonly used to pick stocks among equity investors.

"Typically in January there's a common practice on equity desks to implement the Dogs of the Dow strategy, which was made popular in '91 by Michael O'Higgins," Peters said.

"The strategy was you would invest in the 10 highest-yielding names in the Dow, because these are the ones that are the most beaten up. You would invest your money in 10 of them and at the end of the year you would take a look and see which of them were still the 10 highest-yielding names and reinvest accordingly. Of course, what we're offering is slightly different, but we like the idea that these are the stocks that are beaten up."

Peters said the "worst-of" structure is more common in Europe, and in the United States, where single-stock offerings are more common, the worst-of structure does not usually borrow from a stock-picking strategy.

"There are other deals that have come with these worst-of baskets, but they're not specific to any strategy, like for example they'll be linked to the entire Dow," Peters said. "We are trying to pinpoint those that are the highest yielding."

Peters said interest so far has been strong.

"We just announced it yesterday, and we have very good responses so far," Peter said. "Typically - these are all best-efforts offers, we put it out and accumulate interest for about three weeks - typically in the early stage of the offering period we don't get any calls, but we have gotten a lot of calls from people interested in this deal."

Eric Miller, managing director for structured products marketing at IXIS, said the product offered investors a much better yield than they would get if they were investing in the individual stocks.

"These structures are great for people to get relatively stable bellwether names with a coupon that is extremely appealing," Miller said. "When you look at these stocks individually, you wouldn't get much of a coupon at all. The only way to get a Dow-like stock with an appealing yield is to package them together like this."

Wachovia, Lehman tie offers to energy

The energy sector continues to draw interest among structurers, with Wachovia and Lehman announcing offers that will be tied to the sector.

Wachovia is offering one-year zero-coupon enhanced growth securities linked to the Energy Select Sector Index. If the final index level is greater than the initial level, the securities will pay par plus an enhanced upside payment based on triple the percentage increase in the index level, capped at between $11.90 and $12.10 per $10 security. If the final index level is lower than the initial level, the payout will be based on the full percentage decrease of the index level.

Lehman's $2.5 million offering of one-year zero-coupon notes is linked to the price of crude oil. At maturity, the notes will pay the principal and a 10.10% fixed return, but will be reduced by a principal adjustment amount if the price of crude oil falls to or below $47.5725 during the life of the notes. The principal adjustment amount will be the principal multiplied by the crude oil return or 0%, whichever is lower.

© 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.