Citigroup prices $123.09 million ELKS linked to Halliburton, $51.09 million linked to Caterpillar

By Sheri Kasprzak

New York, Aug. 27 - Citigroup Funding Inc. led structured products news to kick off the week with two Equity LinKed Securities - one linked to Halliburton Co. and the other linked to Caterpillar Inc.

The investment bank priced $123.09 million in 9% ELKS linked to Halliburton and $51.09 million in 12% ELKS linked to Caterpillar.

"I think it shows that there is an enormous amount of interest in reverse convertible-type offerings," said one market source. "That's a pretty substantial amount [for the Halliburton-linked deal]. For an offering of this type, the amount indicates a big interest."

Market analyst Tim Mortimer said in a recent interview that reverse convertibles may be becoming more popular and the coupons bigger because of recent credit woes.

"The U.S. market has embraced reverse convertibles in a big way," said Mortimer. "We don't know how far this correction is going to go with the subprime issue. In a few months' time, if the markets are as rocky, I wonder what the appetite will be for reverse convertibles."

Note terms

The notes linked to Halliburton pay par of $10 unless the stock falls by at least 20% during the life of the one-year notes.

In that case, the notes will pay a number of Halliburton shares equal to $10 divided by the initial share price or the cash equivalent value, at the holder's option.

The Caterpillar-linked notes also pay par of $10 unless the stock falls by 17.5% or more, in which case the notes pay a number of shares equal to $10 divided by the initial share price.

Those notes have a six-month term and the 12% (annualized) coupon.

Barclays' currency-linked notes

Elsewhere, Barclays Bank plc is negotiating the terms of 95% principal-protected bear notes linked to a basket of currencies that includes equal weights of the Chinese yuan, the Indian rupee, the Korean won and the Thai baht.

Emerging markets currencies, according to one market source, have experienced fairly low volatility recently.

The notes feature a 300% participation rate and that is a function of the 95% principal protection, according the market insider.

"You have two BRIC currencies in there," said the market source. "The others are also EM currencies. EM has had fairly low volatility so I imagine these will be popular."

The Barclays notes have a one-year term and pay 95% of the principal amount plus the principal amount multiplied by the product of the 300% participation rate and the basket performance, assuming the basket performance is equal to or greater than 0%.

Assuming the basket performance is less than 0%, investors will receive $950 for every $1,000 principal of the notes.

The notes are similar to an offering of $30 million in zero-coupon 95% principal-protected notes linked to a BRIC basket earlier this month.

Those notes have a one-year term and pay $950 plus the absolute value of any increase in the basket currencies relative to the dollar, multiplied by the 440% participation rate, for every $1,000 note.

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