Merrill prices $116.5 million in notes linked to MSCI EAFE index; Lehman plans crude-oil linked notes

By Sheri Kasprzak

New York, Dec. 7 - Merrill Lynch & Co. once again led structured products headlines, pricing a $116.5 million issue of 0% accelerated return notes linked to the MSCI EAFE index.

"It's a relatively easy way to invest in international securities," explained one market source.

"You have a greater deal of transparency with an index like this. You can track the performance and these are all developed countries so you don't have the risk that you would with emerging markets. Also, you're not relying on the performance of one [security]. Some investors don't like the risk of investing in just one stock."

The index measures the international equity performance of about 1,000 stocks of 21 developed markets outside of North America, including Japan, United Kingdom, France, Switzerland, Germany, Australia, Italy, Spain, the Netherlands, Sweden, Hong Kong, Finland, Belgium, Singapore, Denmark, Ireland, Norway, Greece, Austria, Portugal and New Zealand.

Earlier this month, the American Stock Exchange began trading Merrill's accelerated return notes linked to the MSCI EAFE index. The notes linked to the index closed unchanged on the exchange Thursday at $9.90.

The 14-month notes pay triple any gain on the index with a cap of $11.42 per $10.00 in principal. The investors are exposed to any decline on the index.

Lehman's crude oil notes

Elsewhere in structured products news, Lehman Brothers Holdings Inc. announced its plans Thursday to price another issue of 100% principal-protected Wedding Cake notes linked to the price of light sweet crude oil.

Over the past month, the investment bank has priced several offerings linked to oil prices.

These latest notes pay par plus 18% if, at all times during the life of the notes, crude oil remains within the narrowest barrier, 11% if oil prices remain within a middle barrier range and 5% if crude oil remains within the broadest barrier range. The barrier ranges will be set at pricing.

Earlier notes

In November, Lehman priced $3 million in 100% principal-protected Wedding Cake notes linked to light sweet crude. Those notes had similar terms as the notes proposed Thursday.

The notes priced Nov. 20 pay par plus 18% if crude oil remains within the narrowest barrier range - $47.4385 to $64.1815. The notes pay par plus 11% if oil remains within the middle barrier range of $45.7642 to $65.8558 and 5% if oil remains within the broadest barrier range - $40.7413 to $70.8787.

If crude oil moves outside that range, payout at maturity will be par.

Earlier in November, the investment bank priced $1.37 million in single-barrier synthetic reverse convertible notes linked to light sweet crude.

The one-year notes pay par plus a fixed return of 9.05%. If crude oil falls to or below the lower barrier during the life of the notes and finishes below the initial price, a percentage equal to the final decline in the price of crude oil will be subtracted from the payout.

Other oil notes

At the beginning of November, Lehman priced $4.35 million in 0% range notes linked to light sweet crude.

Those three-month notes pay 102% of par if the price of crude oil remains within the reference range of $52.2697 to $65.1903 per barrel - 88% to 111%, inclusive, of the price of the first nearby futures contract of crude oil on the pricing date. If crude oil falls outside the reference, payout will be par at maturity.

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