Lehman plans deal for 'flat or bearish market' after stock drop

New York, June 8 - Towards the end of a rocky week in the stock market, Lehman Brothers Holdings Inc. announced a deal designed to perform well in a "flat or bearish market."

The 0% bearish return optimization securities due Aug. 29, 2008 are linked to the Dow Jones Industrial Average.

The payout at maturity will be par plus five times the absolute value of any decrease in the Dow industrials, subject to a maximum gain that is expected to be between 23.5% to 26.5% and will be determined at pricing.

If the index increases by 10% or less, investors will receive par. Investors will lose 1% for every 1% the index increases beyond 10%.

UBS Investment Bank and Lehman Brothers Inc. will bring the deal to market.

Down week for stocks

The deal, announced late Thursday, came after the Dow Jones Industrial average lost 198.94 points that day and 129.79 on Wednesday.

While Friday saw a rebound of 157.66, the index still finished lower by 1.78% on the week.

In its free writing prospectus for the offering, Lehman said it is "designed for investors who want to express a bearish view towards, and potentially hedge their exposure to, U.S. equities through an investment linked to the Dow Jones Industrial Average.

Lehman's deal will price on June 25.

Goldman upside deals

The investment banks are not counting on everyone being bearish, though.

Goldman Sachs Group, Inc. announced plans for two index-linked deals.

A sale of 0% enhanced-participation notes linked to the S&P 500 index will pay par plus between 1.32% and 1.5% for every 1% gain on the index, capped at a maximum appreciation of the index that will be at least 33%, with the exact percentages to be determined at pricing.

Investors will have full exposure to any decline.

In the same structure, Goldman announced an offering of 0% enhanced participation notes linked to the MSCI EAFE index.

In this case the payout at maturity will be par plus any index gain multiplied by the participation rate, which will be 125% to 130% and will be determined at pricing.

Again, investors will be fully exposed to any index decline.

For both notes, Goldman, Sachs & Co. will be the underwriter.

Lehman's towers deal

Also Friday, Lehman Brothers announced terms on a $5 million transaction linked to a basket of cellphone tower operator stocks.

At maturity, the 1.25% notes pay par plus any basket appreciation beyond the threshold value, which is 120.22% above the initial basket value. Investors will receive at least par.

The basket includes equal weights of the common stocks of American Tower Corp., Crown Castle International Corp. and SBA Communications Corp.

Lehman Brothers Inc. is the underwriter.

Merrill plans accelerated return notes

Back to upcoming deals, Merrill Lynch & Co., Inc. announced a range of 0% Accelerated Return Notes.

Offerings will be linked to an Asian basket consisting of equal weights of the Korea Stock Price Index 200, the MSCI Singapore Free index and the Nikkei 225 index; the Dow Jones Euro Stoxx 50 index; the MSCI EAFE index; and the Topix Small Cap index.

In each case the notes will pay triple of the index performance but with an upside cap. Investors will be fully exposed to any decline.

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