Citigroup prices $100 million notes linked to Libor, Sifma municipal swap index

By Sheri Kasprzak

New York, May 9 - Citigroup Funding Inc. grabbed structured products headlines on Wednesday with a $100 million offering of principal-protected notes linked to the levels of one-month Libor and the Securities Industry and Financial Markets Association's municipal swap index.

The notes are one of three offerings tied to the index recently. Lehman Brothers Holdings Inc. priced two similar deals linked to Libor and the BMA municipal swap rate. The Sifma municipal swap index was previously known as the BMA municipal swap rate.

Interest on Citi's 30-year notes is equal to 7.5% plus four times the difference between 65% of the average weekly one-month Libor rate and the average Sifma index rate with a 0% floor.

Interest, which is payable semi-annually, is capped at the lesser of 17% per year and 1.9 times the sum of three-month Libor plus 20 basis points.

Index performance

The Sifma index was created in response to demand for a short-term index to reflect activity in the municipal variable-rate demand obligations market.

On May 2, the latest date available, the index value was 3.92%. The value was also 3.92% on April 25, the next-available reference date. On April 18, the level was 3.78% and on April 11, it was 3.70%. On April 4, the index level was 3.61%.

Lehman's offerings

In similar deals, Lehman priced $25 million in index spread notes linked to Libor and the BMA municipal swap rate on Tuesday.

The 10-year notes pay 8.7% interest up to, but excluding, May 22, 2008. After that date, interest will be 8.7% plus 10 times the difference between 65% of three-month Libor and the average BMA municipal swap index. The coupon is capped at 10.5%.

The investment bank also priced $10 million in index spread notes linked to Libor and the BMA municipal swap rate. Those 15-year notes pay 9.275% interest plus 10 times the difference between 65% of three-month Libor and the average BMA municipal swap index. The coupon is capped at 11.34%.

iPath FX notes start NYSE trading

Barclays Bank plc announced Wednesday that its offerings of iPath Exchange Rate Exchange Traded Notes began trading on the New York Stock Exchange.

The notes offer exposure to a single currency exchange rate relative to the U.S. dollar.

The iPath euro/U.S. dollar exchange rate ETNs will trade under the ticker ERO; the iPath Great Britain pound/U.S. dollar exchange rate ETNs will trade under the ticker GBB; and the iPath Japanese yen/U.S. dollar exchange rate ETNs will trade under the ticker JYN.

"The iPath Exchange Rate ETNs assist individual investors who would like to participate in each relevant currency market," said Philippe El-Asmar, managing director and head of investor solutions at Barclays, in a statement released Wednesday morning.

"Individual investors and their financial advisors increasingly recognize that currency exposure may constitute a separate asset class to provide portfolio diversification and add potential portfolio returns. The iPath Exchange Rate ETNS provide cost-effective and tax-efficient access to three major currencies."

On Wednesday, Barclays priced $250 million in zero-coupon iPath exchange traded notes linked to the euro/dollar exchange rate, $250 million in zero-coupon iPath ETNs linked to the pound/dollar exchange rate and $250 million in zero-coupon iPath ETNs linked to the yen/dollar exchange rate.

HSBC hits 25% on reverse convertibles

In other structured products news, HSBC USA Inc. announced plans to price reverse convertible notes linked to Spectrum Brands, Inc. with a fat 25% coupon.

The notes pay par at maturity unless the stock falls below the 70% protection price during the life of the three-month notes and finishes below the initial share price.

In that case, the notes pay a number of shares equal to $1,000 divided by the initial share price.

The notes are set to price May 24.

Spectrum's stock traded between $6.41, the closing stock price on April 2, and $7.11, the closing stock price on April 26. On April 30, the stock ended at $6.96.

Also, HSBC plans to price 20% reverse convertibles linked to Take-Two Interactive Software, Inc.

The notes pay par at maturity unless the stock falls below then 80% knock-in level during the life of the notes, which have a three-month term, and finishes below the initial share price.

The notes will then pay a number of shares equal to $1,000 divided by the initial share price.

The notes will also price May 24.

Take-Two's stock dipped over the course of April, trading between $19.17 - on April 30 - and $21.43 - on April 4. The stock traded at $20.56 on April 2.

One market source familiar with the offerings said Wednesday that the stocks are trading in a range and that's what investors should be looking for when investing in reverse convertibles.

"You want a reasonably tight range," he noted. "You don't want something that's all over the map, you don't want something that's up and then down and then jumping back up again. Reference shares are chosen because you don't expect them to trade too far off of their range."

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