Lehman reveals terms of $5 million in oil-linked Wedding Cake notes; Citigroup prices two ELKS

By Sheri Kasprzak

New York, Dec. 19 - Structured products action Tuesday was led by Lehman Brothers Holdings Inc., which priced $5 million in an additional offering of "Wedding Cake" notes linked to light sweet crude oil. The investment bank priced two offerings linked to the price of light sweet crude earlier this year.

Even though oil prices have been making a comeback, the prices have been in a pretty narrow range and that might be making these types of notes popular now, at least according to one equity structurer based out of New York.

"In an environment when you've got oil up $2 [a barrel] one day and down $2 the next or all over the map, you obviously wouldn't be looking at something like this," he said.

"You want a narrow range because that's where you get the biggest payout for your investment. Just because it [oil prices] is up now, doesn't necessarily mean we're in for huge gains and it doesn't necessarily mean it's going to fall off a great deal either. It is a matter of studying where it's been and circumstances that will tell you where it may be going."

On Tuesday, oil prices jumped 94 cents to end the session at $63.15 per barrel.

Terms of the notes

The one-year notes are 100% principal protected.

The notes pay par plus 18% if crude oil remains between the narrowest barriers of $52.8785 to $71.5415, par plus 11% if crude oil remains between the middle barriers of $51.0122 to $73.4078 and par plus 5% if crude oil remains within the broadest barriers of $45.4133 to $79.0067.

If crude oil moves outside of the ranges, the payout at maturity will be par.

November's notes

This is not the first time Lehman has priced Wedding Cake notes linked to the price of light sweet crude oil.

The investment bank priced $3 million in 100% principal-protected Wedding Cake notes on Nov. 20. The terms were almost identical to the terms of the most recent offering, paying par plus 18% in the narrowest barrier, par plus 11% in the middle barrier and 5% plus in the broadest barrier.

Also in November, Lehman priced $1.37 million in single-barrier synthetic reverse convertibles linked to light sweet crude. Those one-year notes will pay out par plus 9.05% at maturity and if crude oil prices fall below the barrier during the life of the notes and finishes below the initial price, a percentage equal to the final decline will be subtracted from the payout.

Citigroup's ELKS

Citigroup Funding Inc. hit the market Tuesday two Equity LinKed Securities. The investment bank priced $133.7 million in ELKS linked to Best Buy Co., Inc. and $52.125 million in ELKS linked to Yahoo! Inc.

The 10% Best Buy notes have a two-year term and a 75% trigger price.

The 13% Yahoo! notes have a two-year term and an 80% trigger price.

Citigroup last priced ELKS linked to Best Buy in November 2005. The $68.4 million in ELKS recently matured on Dec. 7.

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