Eksportfinans HOLDRs offering unusual, analyst says; Svensk sells more outperformers tied to bank index

By Kenneth Lim

Boston, Feb. 25 - Eksportfinans ASA's planned enhanced growth securities linked to Oil Service HOLDRs via Wachovia Capital Markets LLC are unusual because of their underlying and the bearish strategy, a structured products analyst said.

Eksportfinans plans to price 0% enhanced growth securities with bearish returns linked to Oil Service HOLDRs. The securities will pay par plus 200% of the absolute value of any decline in the HOLDRs, capped at a maximum payout between 130% and 134% of par, if the final price of the HOLDRs is no more than the initial price. Otherwise the payout will be par minus any percentage increase in the HOLDRs.

The notes are expected to price in February.

"HOLDRs are not very common as an underlying," the analyst said. "I think it's just a function of how common they are compared to indexes, for example, but I think it serves the same purpose. What you're getting here is exposure to a particular sector, as opposed to the entire market or a single company."

The analyst noted that the securities yield a positive return only if the underlying falls, which was an interesting position to take.

"I think it's interesting that these notes have a bear strategy," the analyst said. "Oil and gas prices are near record highs and oil services have really benefited up to now from that trend. The oil producers were rushing to step up production to take advantage of the prices, and I suppose there's some thought that the building phase may be leveling off, so the growth that's already been priced into these companies' stocks may not be there anymore and without an upward catalyst the prices may come down a little.

"But that's only if you think the sector is slowing down, and I don't think there's a consensus either way at this time," the analyst added.

The analyst pointed out that oil services names were usually volatile, and the volatility adds a bit of gamble to the product.

"The payout is based on the final price of the HOLDRs versus the initial price, so there's a bit of a risk there," the analyst said. "The underlying could be down near maturity but it could easily spike when the securities mature. There's no principal protection, so although you're unlikely to lose all your capital, you could lose some of it. Of course, it could work the other way around. The underlying could be up most of the way and then drop at the right time, and it would work out for you."

Svensk sells more banks, sector notes

AB Svensk ExportKredit said it sold another $23.26 million of its 0% outperformance notes due August 2009 linked to a long position in the S&P 500 Banks Index and a short position in the S&P Financial Select Sector Index.

The bank has now sold about $125 million of the product.

Svensk ExportKredit previously sold $101.76 million of its 0% outperformance notes tied to a long position in the S&P 500 Banks index and a short position in the S&P Financial Select Sector index via Goldman, Sachs & Co.

The notes will pay par plus the difference between the two index returns if the long index outperforms the short index. The payout at maturity will be par minus the difference between the two index returns if the long index underperforms the short index.

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