Lehman prices principal protected notes linked to crude oil; Barclays sells $4.5 million notes linked to USG

By Sheri Kasprzak

New York, Oct. 20 - Lehman Brothers Holdings led structured products news as the past week wound to a close with word that it plans to price 100% principal-protected range notes linked to light sweet crude oil.

"This is what principal protection is for," said one market source when asked about the Lehman notes Friday.

"Crude oil is a shaky thing to be investing in right now, but if there is principal protection, the investors have that added insurance that they're not blowing their entire investment if [crude] oil continues down the path it's on now."

Another market source said oil may not be the perfect thing to invest in right now, but it could be before maturity.

"You never know what will happen," he said. "The principal protection is a good thing for these notes because the investors can at least get back what they put into them."

Lehman notes due 2007

The notes are due Feb. 6, 2007 and pay 102 at maturity if crude oil prices stay within the range of 88% and 111% of its level at the time the notes are priced on each business day during the observation period - from the trade date to maturity. The level of crude at the time of pricing will be drawn from the first nearby month futures contract.

The investors will receive par if crude oil prices move outside the range on any day during the observation period.

Other oil-linked notes

Lehman Brothers is not the only investment bank linking principal-protected notes to crude oil.

Barclays Bank plc intends to price 0% principal-protected digital plus notes linked to equal weights Brent crude oil, silver, copper, nickel and zinc. Those notes, due Oct. 27, 2011, are set to price Oct. 24.

On Oct. 27, Royal Bank of Canada plans to price 0% principal-protected senior multi-asset class-linked notes linked to equal weights of S&P 500 index, Dow Jones Euro Stoxx 50 index, Nikkei 225 index, West Texas intermediate crude oil, copper and gold through RBC Capital Markets.

Barclay's USG-linked notes

Elsewhere in structured products news Friday, Barclays priced $4.5 million in 10.85% reverse convertible notes linked to USG Corp.

The notes are due Oct. 24, 2007 and carry a protection price equal to 70% of the initial price of $50.52.

USG makes building materials for use in home and commercial construction - a sector many in the structure products market believe is ripe for reverse convertibles because of the poor condition of the housing market.

Homebuilding-related notes

Most of the notes being priced linked to homebuilding companies have been reverse exchangeables or the like.

JPMorgan Chase & Co. will price on Oct. 24 bearish reverse exchangeables inversely linked to the best-performing stock of Centex Corp., D.R. Horton Inc., K.B. Home, Lennar Corp. and Pulte Homes Inc. The notes are due Oct. 30, 2007 and the coupon will not be less than 20%.

Also, Citigroup Funding Inc. plans to issue equity linked securities linked to the stock of Toll Brothers, Inc. The six-month notes are expected to have a coupon between 15% and 16%.

In late September, Barclays priced $2 million in reverse convertibles linked to Toll Brothers. The 13.75% notes are due Sept. 28, 2007.

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