Citigroup prices $350 million ELKS linked to Comcast; Bear, Barclays plan BRIC-linked notes

By LLuvia Mares and Sheri Kasprzak

New York, Nov. 19 - Heading up structured product action to kick off the week ahead of the Thanksgiving holiday, Citigroup Funding Inc. priced $350 million in 8.5% Equity LinKed Securities linked to the stock of Comcast Corp.

A market insider said Monday that the deal stood out for its large size but otherwise the structure seems rather commonplace.

"It seems pretty standard to me," he said. "Other than the fact that it's a large deal, it doesn't seem to be that complicated. Standard issue of ELKS. The coupon isn't particularly astounding. Just seems like there was a lot of demand for this particular product."

The payout at maturity is one share of Comcast common stock per $19.7649 principal amount, capped at $22.71, 114.90% of the initial price, in cash or stock, at holder's option.

RBC deals show impact of volatility

Two separate but similar deals from Royal Bank of Canada demonstrate the impact of changing the knock-in barrier for a reverse convertible when the underlying stock has a high volatility.

"One is 23% reverse convertible with 30% barrier and the other one is 27.65% coupon with 20% barrier, both over three months," said a market specialist.

"So that's a pair of products linked to the same underlying, same maturity.

"So 23% per annum is still pretty ambitious but that gives you a 30% barrier, which you can cut the barrier to 20% and try to get 27.65%. It's an interesting comparison of the effect of moving the barrier, it's pretty sensitive at such a high volatility as you might imagine."

The stock for both deals is Force Protection, Inc.

RBC announced Friday that it was pushing back the maturity on both offerings to Feb. 29, 2008 from Feb. 26, 2008.

The deal with a 23% coupon has a 30% barrier while the planned 27.65% transaction has a 20% threshold. In both cases, if the stock falls by more than the barrier percentage during the notes' life and ends at less than the initial share price, the payout will be a number of Force Protection shares equal to $1,000 divided by the initial share price or the equivalent to cash value, at the bank's option. Otherwise the payout at maturity is par.

The notes are expected to price Nov. 26 and close Nov. 30.

Bear plans leveraged lookback notes

In other news, Bear Stearns Cos. Inc. plans to price principal-protected leveraged lookback notes linked to four currencies.

The two-year notes are linked to equal weights of the U.S. dollar against the Brazilian real, the Russian ruble, the Indian rupee and the Chinese yuan.

The basket return will be determined on each of four semiannual observation dates. The payout at maturity will be based on the highest of those basket returns.

Assuming the highest basket performance is greater than 0% at maturity, the investors receive $1,000 plus the product of $1,000 multiplied by the 170% participation rate multiplied by the highest basket performance.

If the highest basket performance is less than or equal to 0%, the investors receive par.

Barclays' BRIC notes

In a somewhat similar deal, Barclays Bank plc intends to price principal-protected notes linked to a BRIC basket as well.

The principal-protected notes are linked to the Brazilian real, the Russian ruble, the Indian rupee and the Chinese yuan.

The two and a half-year notes pay par plus the principal amount times the product of the participation rate and the basket performance. The participation rate is expected to be 260%, assuming the basket performance is equal to or greater than 0%.

If the basket performance is less than 0%, investors receive par at maturity.

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