Lehman gears up to price notes linked to 10 commodities, two indexes

By Sheri Kasprzak

New York, Aug. 29 - Lehman Brothers Holdings Inc. led structured products news on Wednesday with several offerings, including a planned deal linked to 10 commodities and two commodities indexes.

The investment bank also priced $103,000 in notes linked to a basket of Asian indexes and priced $1 million in notes linked to a currency basket.

The commodities-linked offering, according to one market insider, is merely a response to demand.

"These types of deals are probably going to become more and more popular," said the market source, an equity structurer.

"I have heard some investors say they are interested in moving into commodities but they don't exactly know where to start. Notes like this are the way in. It's diversified, it's a way to get into several different commodities and I really think more banks will be offerings things like this."

Notes linked to oil, gas, others

The notes are linked to a 15% weighting of light sweet crude oil; 5% weighting of reformulated gasoline blendstock for oxygen blending; 5% weighting of No. 2 fuel heating oil; 7% weighting in high-grade primary aluminum; 7% weighting in grade A copper; 6% weighting of primary nickel; 5% weighting of special high-grade zinc; 5% weighting in standard lead; 5% weighting in gold; 10% weighting of S&P GSCI Livestock Index Excess Return; and 20% weighting of S&P GSCI Agriculture Index Excess Return.

The notes have a four-year term. Assuming the final basket level is greater than the initial level, the notes pay par plus the principal amount times the basket return times the upside participation rate - expected to be between 170% and 200%.

If the final basket level is equal to or less than the initial level but greater than the 20% buffer, investors receive par at maturity.

If the final basket level is less than the initial level and below the buffer, the investors receive par plus the principal amount times the basket return plus the 20% protection percentage.

Lehman's Asian index notes

In other news at Lehman, the investment bank priced $103,000 in principal-protected enhanced participation notes linked to a basket of Asian indexes.

The offering is the latest in several notes linked to Asian indexes this past week.

"Asian stocks have not been performing that well right now," said one market source on Wednesday afternoon. "I think this offering indicates there is an expectation that these particular indexes will improve over the next five years. All of these indexes have, historically, improved over the past year so they do seem poised for gains."

The notes have a five-year term and pay par plus the greater of zero or the principal amount times the basket return times the 125% participation rate.

Index performance

On Tuesday, the MSCI Taiwan index 291.79, compared with 305.73 on July 28.

The MSCI Singapore Free index closed at 539.35 on Tuesday. A month before, on July 28, the index ended at 566.06.

The Nikkei 225 gave up 274.66 on Wednesday to end at 16,012.83. The index closed at 17,283.81 a month prior, on July 27.

Lehman's currency-linked notes

Elsewhere, Lehman priced $1 million in principal-protected notes linked to three currencies.

The three-year notes are linked to equal weights of the British pound, the Canadian dollar and the euro, all relative to the U.S. dollar.

The notes pay par plus the greater of zero or the principal amount times the basket return times the 330% participation rate.

The notes, according to derivatives products analyst Tim Mortimer, indicate that investment banks are looking to offer notes that take an optimistic view of the U.S. dollar to investors.

Mortimer said in a recent interview that the notes, which are in stark contrast to recent notes that take a rather negative view of the U.S. dollar, are a product for investors who believe the U.S. dollar will appreciate.

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