Lehman prices $3 million in dual participation notes linked to oil; ETF-linked deals continue to abound

By LLuvia Mares and Sheri Kasprzak

New York, Nov. 8 - An offering of notes from Lehman Brothers Holdings Inc. linked to crude oil that pays off whichever way oil moves had some market insiders talking Thursday.

The investment bank priced $3.02 million in zero-coupon principal-protected dual participation notes linked to the price of crude oil. The notes pay if the price of oil increases or decreases.

One market source said he'd never seen an offering like this before but added that the recent upswing in oil prices has really gotten investors split on the next move for oil.

"There really isn't much in between," said the market insider. "People think either oil is going to continue to jump or it's going to have to fall so I guess I can see why something like this would be interesting."

The five-year notes pay par plus 1.5% for every 1% increase in the price of crude oil. If the price of crude oil decreases, the payout at maturity will be par plus 0.5% for every 1% decline in the price of crude.

Oil-linked offerings have been prevalent lately as oil prices continue to jump to record highs. On Wednesday, oil prices leapt above $100 per barrel and one market source said Thursday that this may mean more offerings linked to crude oil itself or to oil-tracking indexes.

"It will be interesting to see what happens but I do feel like oil prices are going up enough to encourage more notes linked to things like oil or even oil indexes," said the market insider.

ETF-linked note to be priced by Eksportfinans

Elsewhere in structured products news Thursday, exchange-traded funds appeared to continue making their mark on the landscape.

Eksportfinans ASA announced plans to price zero-coupon, 18-month enhanced participation notes linked to the iShares MSCI Emerging Markets index fund through Goldman Sachs & Co.

The offering is one of the latest in a long line of deals with ETF underliers in the structured products marketplace.

"It's interesting to me that we are starting to see in ETF-linked structured products and you need a certain amount of liquidity underlying the ETF for it to be of value," said one market specialist.

"Once again, it is Eksportfinans issuing with Goldman distributing and it looks like a terrific opportunity for investors to get structured products exposure to the ETFs market and structured products. So Goldman appears to be leading the way and it's not the first time they have done that."

Notes to pay 110% of gain

The 18-month ETFs pay par plus 110% of any increase in the fund's share price at maturity, capped at a maximum return of between 131.9% and 142.9%. The exact cap will be determined at pricing.

Investors will receive par if the share price declines by 20% or less and will lose 1.25% for every 1% decline beyond the 20% buffer.

Recent similar deals

Similarly, Barclays Bank plc announced plans last month to price ETF Plus notes linked to the iShares MSCI Emerging Markets index fund. Those one-year notes pay interest at a fixed percentage plus any apportioned dividends, which will be the stated dividends per share of the ETF times the number of reference shares represented by each note.

The fixed percentage is expected to be between 1.5% to 2.25%.

The payout at maturity will be par plus the share performance of the fund. Investors will share in any losses.

Also in October, JPMorgan Chase & Co. priced $1.6 million in zero-coupon knock-out return enhanced notes linked to the iShares MSCI Emerging Markets index fund.

Those 13-month notes pay par plus 27.5% at maturity if the closing price of the fund's shares close at or above the knock-out price of $207.825, or 127.5% of the initial share price, any time during the life of the notes.

Payout will be par plus double the share price return if the final share price is above the initial share price, subject to a maximum payout of par plus 55%. The investors will receive par minus the share price return if the final share price is below the initial share price.

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