Citigroup prices $12 million in euro/Swiss franc-linked notes; Lehman plans euro-linked notes

By Sheri Kasprzak

New York, June 25 - Kicking off the week in structured products was a $12 million offering of principal-protected notes linked to the euro/U.S. dollar exchange rate and the Swiss franc/U.S. dollar exchange rate from Citigroup Funding, Inc.

Lehman Brothers Holdings Inc. also announced an offering of principal-protected notes linked to the euro/U.S. dollar exchange rate on Monday.

"Obviously, there's a big difference between the two," said one market insider not affiliated with either offering.

"On the one hand, you've got a note that clearly expects the euro and the [Swiss] franc to fall against the dollar. And on the other, you've got a range note. As long as the exchange rate stays within a certain range, you get a payout at maturity. Not to mention, the terms are very different."

The Citigroup note has a one-year term and the Lehman note has a two-month term.

Terms of the notes

The Citigroup offering pays par a maturity but the coupon pays out if there is a decline in the euro and the Swiss franc against the U.S. dollar.

The rate is equal the absolute value of any decline in the basket currencies relative to the dollar, multiplied by a 200% participation rate. The interest rate will not be less than zero.

The starting exchange rate is 1.3399 for the euro and 0.8061 for the Swiss franc.

Lehman's note

The foreign exchange range notes planned by Lehman Brothers have a two-month term and pay par plus the principal times 1.12% if the exchange rate trades within the reference range from the start date to the end date. The annualized coupon, if paid, is 6.72%.

If the exchange rate trades outside of the range over the specified period, the investors receive par at maturity.

The start date is the trade date and the end date is two months thereafter.

Exchange rate data

Over the past month, the highest euro/U.S. dollar exchange rate was 1.3603 and the lowest was 1.3295. On June 25, the exchange rate was 1.345.

The highest Swiss franc/U.S. dollar exchange rate over the past month was 0.824 on May 15 and the lowest was 0.803 on June 14. The exchange rate on June 25 was 0.8126.

Lehman prices metals deals

Elsewhere in structured products news, Lehman priced two of its previously announced metals-linked offerings.

The investment bank priced $7.426 million in principal-protected notes linked to equal weights of copper, aluminum, zinc and nickel and $1.051 million in non principal-protected notes linked to equal weights of the same metals.

As previously reported, the principal-protected notes pay par plus any positive return on the basket if the basket return is greater than 30%. Investors will receive par plus 30% if the basket return is better than a loss of 8.00% but less than or equal to 30%. Investors will receive par if the basket loses more than 8.00%.

The non-principal protected offering of basket metals basket bonus notes pay par plus the basket return if the basket gains more than 50%. If the return is better than a loss of 25% and less than or equal to 50%, the investors receive par plus 50%. The payout will be par plus the basket return plus 25% if the basket loses 25% or more.

Both notes have a three-year term.

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