Lehman prices $3 million in FX Resetting Range Notes; Bear plans PHLX Oil Service-linked notes

By Sheri Kasprzak

New York, Feb. 12 - Lehman Brothers Holdings Inc. announced the terms Monday of $3 million in principal-protected Foreign Exchange Resetting Range Notes linked to the euro/dollar spot exchange rate.

"Some investors are focusing on range-bound FX markets and ways to monetize the lack of volatility or direction," said one Lehman source.

"Range notes are a good way to do this, with resettable range notes extracting additional value from the forward volatility curve."

The one-year Lehman notes a quarterly coupon of 2.25% - equivalent to a 9% annual coupon - for each period that the euro/dollar spot exchange rate remains within the specified reference range, initially 1.2586 dollars per euro to 1.3386 dollars per euro.

The reference range resets on May 9, Aug. 9 and Nov. 9, 2007, with the upper and lower boundaries set at plus or minus 0.04 dollars per euro, respectively.

For any interest period during which the euro/dollar spot exchange rate moves outside the reference range, the coupon will be zero.

Lehman priced similar deals

Back in November 2006, Lehman priced two larger euro/dollar spot exchange rate offerings - one issue of 100% principal-protected Foreign Exchange Range Notes for $12.02 million and one $15 million issue of 0% Foreign Exchange Range Notes. In October 2006, the investment bank priced $10 million in Foreign Exchange Range Notes.

Bear plans oil-related notes

Elsewhere in structured products news, Bear Stearns Cos. Inc. said it intends to price 0% notes linked to the PHLX Oil Service Sector index.

The offering comes as oil prices sank by $2.08 to close at $57.81 per barrel. Oil prices had rebounded substantially last week, flirting with the $60 per barrel mark.

The notes are one of a few oil-related offerings in the structured products market lately.

The 18-month Bear notes pay triple the index increase, capped at a payout of 27% to 28%, if the final index level is greater than the initial index level. The exact cap will be determined at pricing. The investors will share in any losses if the return is negative.

The notes are set to price later this month.

On Feb. 6, JPMorgan Chase & Co. priced $5.089 million in 0% return enhanced notes linked to the PHLX Oil Service Sector index. Those notes pay par plus double any gain on the index, capped at 19.5%. Investors are exposed to any declines.

Lehman plans oil notes

Over at Lehman, that investment bank announced plans earlier this month to price 0% principal-protected single-barrier notes linked to the price of light sweet crude oil.

The one-year notes pay either the greater of the crude oil return or par if the price is less than the upper barrier on each business day during the observation period.

If oil prices are greater than the upper barrier on any exchange day, investors receive 3%. The upper barrier is expected to be 130%, but the exact level will be determined at pricing.

On Jan. 29, Lehman upsized to $1.78 million its issue of 0% single-barrier synthetic reverse convertibles linked to light sweet crude. The initial pricing was $1.58 million.

Those notes pay par plus a fixed return of 2.16%. If crude oil falls below the barrier during the life of the notes, payout will be par plus 2.16% minus the decline.

Bank of America jumped on the currently rather small oil bandwagon earlier this month, announcing its plans to price zero-coupon principal-protected notes linked to the price of West Texas Intermediate light sweet crude oil.

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