Lehman's baht-linked notes may be popular following coup; Morgan Stanley prices currencies-linked notes

By Sheri Kasprzak

New York, Sept. 25 - Lehman Brothers Holdings Inc.'s planned sale of one-year principal protected notes linked to the Thai baht could see popularity despite the coup in Thailand earlier this month, some structured products market sources said Monday.

"The baht is already seeing some recovery," said one market source when asked about why these notes would be popular given political strife in Thailand.

"I think that's a good indication of where things are going looking forward. Investors need to keep in mind all sorts of things, including political instability, when they look at notes linked to emerging market currencies and the savvy ones already know that."

Another market source, an equity structurer based in New York, said he feels the high profile Thailand is receiving following the coup there may actually make these notes more appealing to investors.

"I don't think anyone really expects there to be permanent damage from this [the coup]," he said. "And when something is out there [in the news] so much, people are going to take notice. I think it will help push these even more."

The one-year notes pay par plus any percentage gain on the currency multiplied by a leverage rate between 140% and 160%, to be determined at pricing. Regardless, investors can expect to receive at least par at maturity. There are no coupon payments.

Morgan Stanley's currency-linked notes

On a related note, Morgan Stanley & Co. priced $16,118,000 in notes based on the performance of a basket of four currencies relative to the U.S. dollar - the Brazilian real, the Russian ruble, the Indian rupee and the Chinese renminbi.

The notes are due April 3, 2009. Each currency carries a 25% weight in the basket.

At maturity, the notes pay par if the basket loses versus the U.S. dollar. If the basket performance is greater than zero, the notes pay the greater of $200 or par times the basket performance times the participation rate, which is equal to 200%.

These notes are the most recent in a slate of offerings connected to emerging market currencies, including the real and the ruble.

Last Friday, Citigroup Funding Inc. announced its plans to price notes linked to the Australian dollar, Canadian dollar, Mexican peso and Brazilian real.

Late last week, Credit Suisse Securities (USA) LLC announced its plans to price ProNotes linked to a basket of global exchanges and exchange rates on behalf of Credit Suisse (USA), Inc.

Ruble notes price

Meanwhile Monday, terms emerged on a $30.866 million sale of 95% principal protected ruble basket notes due November 2007 by AB Svensk Exportkredit, put together by Goldman, Sachs & Co.

The payout at maturity will be based on the appreciation or depreciation in the value of the Russian ruble relative to the dollar and the euro, with each exchange rate pair making an equal contribution. The exact sum will equal 95 plus 5.5 multiplied by 100 minus the percentage change in the indexes.

The payout has a floor of 95 and a cap of 117.

Also from Goldman, Eksportfinans ASA priced $10.437 million of leveraged notes due October 2007 to the Russian ruble/dollar exchange rate and the dollar/euro exchange rate.

The payout a maturity will be par plus a "bonus" amount of 4.8% plus:

• Twice par multiplied by the decrease in the Russian ruble/dollar exchange rate divided by the final value of the exchange rate; and

• Par multiplied by the percentage decrease in the dollar/euro exchange rate.

Investors will not receive less than par plus the bonus.

Morgan Stanley's Sparqs

Elsewhere at Morgan Stanley, the investment bank priced two Stock Participation Accreting Redemption Quarterly-pay securities.

The largest, for $41,500,019 in 11% Sparqs, is linked to Tellabs, Inc. The smaller offering, for $31,000,012 in 8% Sparqs, is linked to Starbucks Corp.

The Tellabs-linked Sparqs are due Oct. 20, 2007

At maturity, the notes pay at maturity one share of Tellabs' stock for every $11.00 in Sparqs purchased. The Sparqs are callable after April 20, 2007 with a yield to call of 24%.

The Sparqs linked to Starbucks are due Oct. 20, 2007.

Those notes pay out one share of Starbucks stock for every $17.005 in Sparqs. The Sparqs are also callable after April 20, 2007 with a yield to call of 18%.

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