Svensk plans two offerings linked to S&P GSCI Energy index, additional notes linked to index, basket

By Sheri Kasprzak

New York, Aug. 14 - AB Svensk Exportkredit led structured products headlines on Tuesday with two offerings of notes linked to the S&P GSCI Reduced Energy Excess Return index and another offering of outperformance notes linked to a basket of 57 shares and the S&P Consumer.

Elsewhere, Lehman Brothers Holdings, Inc. priced $10 million in performance notes linked to Intel Corp.

Volatility in the energy sector may be making notes linked to the GSCI energy index interesting to investors, a market source said.

"Certainly, it's a volatile sector," the market insider said, but added that having both the principal-protected notes and non principal-protected notes makes sense because it gives investors the ability to choose just how much risk they are willing to take.

The index itself is made up mostly of energy components - in fact, energy components account for 53.9% of the index. Crude oil comprises 27.72% of the index and Brent crude oil makes up 11.24%. RBOB gasoline is 0.98%, heating oil 4.46% and gas oil makes up 3.98%. Natural gas's share is 5.51%. The rest of the index is composed of industrial metals, precious metals, agriculture and livestock.

Oil prices, on Tuesday, fell by 17 cents to close at $71.45 per barrel.

Svenk's GSCI Energy notes

One of the notes linked to the S&P GSCI Reduced Energy Excess Return index is principal-protected and the other is not.

The non-principal-protected notes have an 18-month term and the principal-protected notes have a one-year term.

At maturity, the investors of the principal-protected notes will receive the greater of par plus the principal amount times the upside participation times the final ratio minus the initial ratio and par. The upside participation rate is expected to be between 1.20 and 1.40.

Assuming the final ratio is greater than the initial ratio, the investors in the non-principal-protected notes will receive par plus the principal amount times the upside participation times the final ratio minus the initial ratio. The upside participation rate is expected to be between 1.60 and 1.80. If the final ratio is equal to or less than the initial ratio, the investors will receive the principal amount times the final ratio divided by the initial ratio.

Svenk's new notes

After pricing an upsized $106.819 million in the outperformance notes linked to the stock basket and S&P Consumer Staples Sector Select index, the investment bank announced that it will price another offering of the notes.

The notes are linked to a combination of consumer staples through the index and luxury-item manufacturers through the basket.

The new offering of outperformance notes linked to the S&P Consumer Staples Select Sector index in the long position versus a short position of 57 stocks derived from the S&P Consumer Discretionary Select Sector index have a 13-month term.

In late July, Goldman sold $69.891 million in the notes for Svensk.

Earlier this week, Tim Mortimer, managing director of Future Value Consultants, said the structure makes sense because the index and the stock basket are both made up of consumer sector stocks.

The stocks within the index, Mortimer said, are made up of staples - but the biggest companies, like Coca Cola. The basket includes more luxury-type stocks in the consumer sector like Black & Decker and Gap.

Stocks in the same sector

Keeping the stocks within the same sector as the index, according to Mortimer, plays it more defensive in terms of low volatility stocks against the luxury end stocks.

"If you picked consumer [stocks] versus technology [stocks], there could be something around the corner that might disrupt that play," Mortimer said. "So having two types of consumer stocks makes it more of a bear market type of situation."

The stock basket takes the short position and the index the long position.

Payout at maturity on the 14-month notes will be par plus the amount, if any, by which the index return is greater than the stock basket return. Investors can expect to lose 1% for every 1% the stock basket return exceeds the index return.

Svensk is pricing the notes through Goldman, Sachs & Co. Goldman priced $69.891 million in the notes on July 31.

Components of index, basket

The S&P Consumer Staples Select Sector index includes, in the top 10, Procter & Gamble Co.; Altria Group Inc.; Wal Mart Stores Inc.; Pepsico Inc.; Coca Cola Co.; Cvs Caremark Corp.; Kraft Foods Inc.; Walgreen Co.; Anheuser Busch Cos. Inc. and Colgate Palmolive Co.

The index also includes 29 other stocks in the consumer staples sector. As of July 31, the index was valued at 271.80.

The notes are also linked to a basket of 57 stocks. The top 10 of the stocks in the basket are McDonald's Corp.; Target Corp.; Kohls Corp.; Amazon.com Inc.; Carnival Corp.; Johnson Controls Inc.; Nike Inc.; Starbucks Corp.; Best Buy Co. Inc.; and Coach Inc.

Lehman's Intel-linked notes

The 1% performance notes linked to Intel from Lehman Brothers have a seven-year term and pay the greater of par or par times the final value of the stock divided by the exchange premium of $27.4373 or 114.37% of the price that Lehman paid to hedge the notes. The payout may be in cash or stock.

Lehman has a greenshoe for $1.5 million of the notes.

The notes may be converted at the holder's option.

On Tuesday, Intel's stock closed down 22 cents to close at $23.80 (Nasdaq: INTC). So far this month, the stock has traded between $23.80 on Aug. 1 and $24.68 on Aug. 8. Last month, the stock ranged between $23.54 on July 27 and $26.33 on July 17.

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