Citigroup, Eksportfinans link to energy sector as volatility spikes; Credit Suisse deal sizes move up a notch

By Kenneth Lim

Boston, April 22 - Structured products linked to energy names poured onto the market on Tuesday as oil prices reached a record high.

"That's where the volatility is right now," a structurer said.

Citigroup Funding Inc. announced a series of one-year 8% to 10% equity linked securities (ELKS) linked to the common stock of oil and gas services company Schlumberger Ltd. The coupon will be set at pricing.

The ELKS will return par at maturity unless Schlumberger stock falls by at least about 27.5% during the life of the notes. The exact barrier level will be set at pricing.

Eksportfinans links to energy sector

Eksportfinans ASA, through Wachovia Capital Market, LLC, also plans to sell 11% to 12% reverse exchangeables due Nov. 4, 2008 linked to Schlumberger common stock.

The Eksportfinans reverse notes will return par at maturity unless Schlumberger stock falls by at least 30% of its initial level during the life of the notes and finishes below the initial level. In that case, the investor will receive a number of shares of the underlying stock equal to par divided by the initial share price.

Eksportfinans also launched 11% to 12% reverse exchangeables due Nov. 4, 2008 linked to Peabody Energy Corp through Wachovia. The Peabody notes also have a knock-in level at 30% of the initial underlying stock price.

The coupon on both Eksportfinans notes will be set at pricing.

Volatility driving issuance

"There's a lot of volatility in the sector right now," the structurer said. "Oil prices are in the headlines, setting records, we're entering the summer months where demand has traditionally been active, so volatility could remain high."

The reverse convertible structure is targeted at investors with a positive to neutral view on energy names, the structurer said.

"Typically with reverse convertibles you come out better if your underlying improves or if it doesn't fall by too much," the structurer said. "If the energy sector does too well, you'll be worse off compared to owning the stocks. If the sector falls below your knock-in, you lose your principal. Anywhere else in between it's better for the investor."

Credit Suisse lands large deals

Credit Suisse, Nassau Branch has been pushing out a number of large deals, the latest of which were an accelerated note and a partially principal protected convertible.

Credit Suisse averaged $13.4 million per deal in the five offerings it sold in March 2008, based on figures from Prospect News. On Tuesday, it sold $310 million worth of structured products in two deals.

The bank priced $250 million of zero-coupon notes due April 30, 2009 linked to the S&P 500 index.

If the index finishes above its initial level, the payout at maturity will be par plus double any gain and a supplemental amount of $21 per $1,000 note, capped at 116.8% of par. If the index ends at or below its initial level but above the protection level of 98% of its initial level, investors will receive par plus the supplemental amount. Otherwise investors will receive par times the index performance plus 2% and the supplemental amount.

Credit Suisse links to Coca Cola

Credit Suisse also sold $60 million of 11% notes due March 16, 2009 linked to the common stock of Coca Cola Corp.

If the final share price of Coca Cola is less than the lower put strike price - or 80% of the initial price - the payout for each note will be the lower put strike price times 91.7431%, the downside participation rate.

If the final share price is between the lower put strike price and the upper put strike price - 109% of the initial price - the payout will be the final share price times the downside participation rate.

If the final share price is at least the upper put strike price and less than the call strike price - 116% of the initial price - the payout at maturity will be par.

If the final share price is at least the call strike price, the payout at maturity will be par plus 65% of the amount by which the final share price exceeds the call strike price.

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