Lehman plans Wedding Cake notes linked to oil; Barclays prices Whole Foods-linked reverse convertibles

By Sheri Kasprzak

New York, Nov. 16 - Crude oil-linked notes once again grabbed structured products headlines Thursday as Lehman Brothers Holdings Inc. announced its plans to issue 100% principal-protected "Wedding Cake" notes linked to light sweet crude.

The offering comes just a day after Lehman priced $1 million in single-barrier synthetic reverse convertibles linked to light sweet crude, a deal that the bank upsized to $1.37 million on Thursday.

"It's fair to say that the market is expecting oil [prices] to remain in a range not far from where it is now," said one market source familiar with commodities.

The market source noted that Wedding Cake notes, by their very definition, anticipate prices to remain within a certain range.

Under the terms of these notes, investors will receive par plus 18% if, during the life of the notes, crude oil prices remain within the narrowest barrier range - expected to be 90% to 110% of the initial value. If crude oil remains within a middle barrier range - expected to be 85% to 115% of the initial level - investors will receive par plus 11%. If prices remain within the broadest barrier range - expected to be between 75% to 125% of initial value - investors will receive par plus 5%. The exact barriers will be determined at pricing on Nov. 22.

Lehman priced other oil notes

On Wednesday, Lehman priced the $1 million - now upsized - in single-barrier synthetic reverse convertibles linked to light sweet crude.

At the time, a market source said crude oil is a good candidate for reverse convertibles because it has entered a range between $58 and $61 per barrel.

As previously announced, these notes pay par plus a 9.05% return unless oil falls below 75% of the initial price during the life of the notes. If oil prices fall below that 75% barrier, investors will share in any losses.

Oil prices dropped on Thursday, losing $2.11 to close at $56.65 per barrel.

Barclays' reverse convertibles

In other structured products news Thursday, Barclays Bank plc priced $3 million in reverse convertibles linked to Whole Foods Market Inc. on behalf of JPMorgan Chase & Co.

The investment bank also priced reverse convertibles linked to Countrywide Financial and Ameritrade Holding.

With regard to the Whole Foods notes, one market source said it may be an indicator that the stock has fallen as much as it will for now.

"I don't know how much you know about Whole Foods, but their stock has begun sinking," said the market source, who was not directly familiar with the Barclays offering. "I think this means basically that the stock has fallen as much as it's likely to, at least in the short term."

On Thursday, the stock gave up 42 cents, or 0.82%, to close at $49.46 (Nasdaq: WFMI). Throughout October, the stock traded between $58.64 and $65.40. So far this November, the stock has traded between $63.16 and $46.26.

Terms of the deal

The six-month 12.5% Whole Foods notes have a 75% protection level.

Whole Foods is also linked to another reverse convertibles offering coming up this month.

On Nov. 27, ABN Amro Bank NV intends to price 10.5% knock-in reverse exchangeable notes linked to Whole Foods. Those notes have a 75% trigger.

Earlier this month, Barclays priced $1.25 million in 15.25% in reverse convertibles linked to Whole Foods.

Other Barclays notes

Elsewhere, Barlcays also priced $1 million in reverse convertible notes linked to Countrywide and $1 million in reverse convertibles linked to Ameritrade.

The Countrywide notes bear interest at 10.7% annually and the Ameritrade notes at 12% annually.

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