Lehman's currency-linked notes seen pointing to investor interest away from dollar

By Sheri Kasprzak

New York, Dec. 7 - An offering of foreign exchange basket-linked notes from Lehman Brothers Holdings, Inc. set to price later this month may be an indicator of investor uncertainty in the U.S. dollar, said one market source Friday.

"I'm sure the currencies were chosen for a reason and the weighting was chosen for a particular reason," said the insider, who was not involved in structuring the notes.

"Investors are going elsewhere, looking at other currencies, because the [U.S.] dollar has been weak," he added.

"If you're pretty sure the dollar will continue to fall, then great," he said. "Obviously, the upside looks a lot better than the downside, so this is clearly for someone who thinks the dollar is going to continue to deteriorate."

The two-year notes are linked to a 57.6% weighting of the euro, a 13.6% weighting of the Japanese yen, an 11.9% weighting of the British pound, a 9.1% weighting of the Canadian dollar, a 4.2% weighting of the Swedish krona and a 3.6% weighting to the Swiss franc, all against the U.S. dollar.

The notes pay par plus 100% any gain on the basket, with the exact upside return to be determined at pricing.

If the basket depreciates against the dollar, investors receive par plus 50% of the absolute value of any decrease in the basket. The exact downside return rate will be determined at pricing.

The notes are expected to price Dec. 21.

Eksportfinans prices Asian currency notes

Elsewhere, in an offering that supported the argument for investor interest in certain Asian currencies, Eksportfinans ASA priced $14.7 million in FX basket-linked notes, linked to equal weights of the Chinese renminbi, Indian rupee, Indonesian rupiah, Singapore dollar and Malaysian ringgit.

"Seeing tons of stuff linked to China, Malaysia and Singapore," noted one market source Friday afternoon.

"They're all strong Asian currencies, all have traded strong against the [U.S.] dollar and investors seem to love them. They're absolutely everywhere. I'm not sure how long it's going to last. Hard to say at this point."

The three-year notes pay the greater of zero and par times the basket return times the 190% participation rate.

Lehman is the agent.

Lehman to price another Asian-linked deal

Looking ahead, Lehman plans to price notes linked to equal weights of the Malaysian ringgit, the Indian rupee, the Philippine peso and the South Korean won, all against the U.S. dollar.

The two-year notes pay par plus an additional return equal to the principal amount times the product of the leverage, which will be a minimum of 185% with the actual leverage to be determined at pricing, and the basket return.

The zero-coupon notes are principal protected.

The notes are scheduled to price on Dec. 21.

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