Bear launches product tied to vice companies; Lehman limits offering's payout within range of gold prices

By Kenneth Lim

Boston, Jan. 10 - Bear Stearns Cos. Inc. raised a few eyebrows on Wednesday with a new product linked to the ISE SINdex, which makes being bad very good for investors.

Meanwhile, Lehman Brothers priced a $3 million offering tied to the spot price of gold that will turn a profit if gold prices increase within a fixed range.

Bear's original SINdex deal

Bear Stearns plans to offer notes due January 2010 that are linked to the performance of the ISE SINdex relative to the Standard & Poor's 500 index.

Maintained by Standard & Poor's, the ISE SINdex comprises 20 stocks issued by companies that own or operate casinos, product alcoholic beverages or manufacture tobacco products. The heaviest weighted components of the index are MGM Mirage, Penn National Gaming Inc., Wynn Resorts and Loews Corp.-Carolina Group.

Payout at maturity will be par plus 150% of any positive return of the ISE SINdex relative to the S&P 500. Investors will participate fully in any negative return.

Bear, Stearns & Co. Inc. will be the agent.

"There's something you don't see every day," a distributor not involved in the deal said. "I suppose some people may have some moral issues with this, but for everyone else you'll be smiling every time somebody lights up or has a beer."

The distributor said the offering was essentially an investment in the consumer discretionary sector.

"But there's also relative performance, so you need the sector to outperform the rest of the market," the distributor said.

Lehman prices gold-linked issue

Lehman Brothers' new $3 million offering of 0% principal-protected notes due Jan. 16, 2008 is linked to gold spot prices, but will yield a significant positive return only if gold prices rise within a range.

The offering will pay par plus an increase in the spot price of gold at maturity unless the price equals or exceeds the upper limit price of $754.60 at any time during the life of the notes, according to a free-writing prospectus. The initial spot price was $609.60.

But if the gold price meets or passes the upper limit at anytime, the payout drops back down to 105% of par. If the price of gold declines and the upper limit is not exceeded, investors will receive par.

Lehman Brothers is the agent of the offering.

The Lehman deal is the second by the bank in as many days tied to the spot price of a commodity. On Tuesday, Lehman set a $2.5 million offering of one-year zero-coupon notes linked to the price of crude oil.

For that earlier offering, the notes will pay the principal and a 10.10% fixed return at maturity, but the payout will be reduced by a principal adjustment amount if the price of crude oil falls to or below $47.5725 during the life of the notes. The principal adjustment amount will be the principal multiplied by the crude oil return or 0%, whichever is lower.

© 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.