Barclays links to U.S. Oil Fund; notes have risky underlying, adviser says; Svensk postpones offerings

By Kenneth Lim

Boston, Dec. 23 - Barclays Bank plc's reverse convertible linked to an oil exchange-traded fund is a risky product because of the volatile underlying, an investment adviser said.

Meanwhile, AB Svensk ExportKredit has delayed a number of structured products.

Barclays plans to price a series of 20% callable reverse convertibles due June 26, 2009 linked to the common stock of United States Oil Fund, LP.

U.S. Oil Fund is an exchange traded fund that invests in oil futures to track the movements of light, sweet crude.

At maturity, investors will receive par unless the underlying share finishes below its initial level and closed below 60% of the initial level during the life of the notes. If the underlying share has closed below the barrier during the life of the notes and ends below its initial level, investors will receive the number of shares of the underlying equal to par divided by the initial stock price. The notes will be sold at par of $1,000.

The notes may be called on March 26, 2009 if the underlying stock closes above the initial stock price on that day.

Volatile underlying

U.S. Oil Fund has seen its volatility spike in the past few months as oil prices took a hit in the second half of the year, the investment adviser said.

"It looks like a proxy for crude prices, and as you know that's been quite volatile the past couple of months," the adviser said. "My guess is that's why they're offering investors a 20% coupon and a 60% barrier."

Investors in the product could be seeking monthly income and expecting that the underlying fund will not fall below 60% during the life of the notes.

"You don't really have to be concerned about whether the fund goes up," the adviser said. "Actually, depending on what you're looking for, maybe you don't really want it to go up because you might not want it to be called after three months.

"So with reverse convertibles, as long as it's above the barrier, you get back your principal and you collect on the coupon, so one way to describe the investor's position is the underlying doesn't fall below 60%. And with these short-dated reverse convertibles where the barriers are really low, once the barrier is broken, it's almost certain that you won't get back your full principal. That's because if it's down by 41%, meaning the barrier is broken, it's already pretty far from where it started, so for it to climb back up before the note matures is highly unlikely."

Svensk delays notes

Svensk on Tuesday announced that it will delay several structured notes that were expected to price in December or January.

The affected products include a series of zero-coupon 14-month accelerated return notes linked to the S&P 500 index that will now price in January or February instead of December or January.

Also delayed are zero-coupon 18-month capped leveraged index return notes linked to the S&P 500, to the Russell 2000, to the Nasdaq 100, to the MSCI EAFE and to the Dow Jones-AIG. All will price in January or February instead of December or January.

Merrill Lynch & Co. and First Republic Co., LLC are the underwriters for the deals.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.