ABN Amro plans principal-protected notes linked to 'green' companies

By Sheri Kasprzak

New York, May 8 - ABN Amro Bank NV grabbed structured products headlines on Tuesday with word that it intends to price zero-coupon principal-protected notes linked to the stocks of 10 environmental or renewable-energy companies.

Market sources said the notes are likely capitalizing on the fact that global warming has been in the news quite a bit recently.

"A lot of times, news does drive these deals," said one market insider. "I think there are several factors that went into this - oil prices, the fact that global warming is a big issue now and alternative fuel companies, renewable resources companies are just becoming more prominent."

Another market source agreed.

"Almost every day there's another environment-related story in the news," he noted.

On Tuesday, General Motors Corp. announced it has joined a coalition of corporations seeking Congressional approval for a mandatory cap on carbon dioxide emissions.

GM is not part of the basket of stocks linked to the ABN Amro notes

10-stock basket

The basket does, however, include Aqua America, Inc.; Archer-Daniels-Midland Co.; Energizer Holdings, Inc.; Evergreen Solar, Inc.; Monsanto Co.; Pentair Inc.; Republic Services Inc.; Ormat Technologies, Inc.; Waste Connections, Inc.; and Waste Management, Inc.

At maturity, the five-year notes pay par plus a supplemental amount, equal to the participation rate - expected to be between 121% and 127% - times the basket return. Investors will receive at least par at maturity.

Stock performance

The performance of the stocks linked to the notes varied over the course of April. Some improved markedly while others traded in a tight range. Still others ended the month lower than at the beginning of the month.

Aqua's stock traded between $22.11 and $23.37; Archer-Daniels-Midland's stock traded between $36.91 and $39.52; and Energizer's stock between $89.33 and $97.18. Evergreen's stock ranged between $9.69 and $12.07, and Monsanto's stock traded between $55.01 and $60.30. Shares of Pentair traded between $30.40 and $32.79 in April. Republic's stock traded between $27.19 and $28.56 while Ormat's stock traded between $36.49 and $41.99. Waste Connection's stock ranged between $30.14 and $32.05 during April and Waste Management's stock between $33.98 and $35.57 for the month.

Lehman prices real-linked notes

Elsewhere, Lehman Brothers Holdings, Inc. priced $4 million in 100% principal-protected FX Digital Notes linked to the Brazilian real/U.S. dollar exchange rate.

The notes allow investors to take a long position in the real against a short position in the U.S. dollar.

"Demand for [Brazilian real]-linked investments has been quite consistent over the past few years," said one source on Lehman's FX desk when asked if he has seen a drop in the number of real-linked offerings lately. "We haven't seen the lull you mention."

"The FX notes we've recently traded pay the investor a coupon of 2.60% if the [U.S. dollar-Brazilian real exchange rate] is below 2.0159 on Aug. 6, 2007 [the valuation date], with full protection of U.S. dollar principal," the Lehman source noted.

Even though the real offering was not part of a basket, the Lehman source went on to say that he feels there is still investor appetite for basket-linked offerings.

Note terms

The notes pay a U.S. dollar amount equal to par plus 2.60% if the settlement rate is less than or equal to the 2.0159 reference level. If the settlement level is greater than the reference level, the notes pay par at maturity.

On Tuesday, the exchange rate was 2.0245 reals per U.S. dollar.

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