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Published on 5/7/2007 in the Prospect News Structured Products Daily.

Lehman plans slate of reverse exchangeable notes linked to GM, XM and JetBlue

By Sheri Kasprzak

New York, May 7 - Lehman Brothers Holdings Inc. led structured products news to kick off the week with the announcement of several reverse exchangeable offerings with substantial coupons.

The offerings include 19% reverse exchangeables linked to JetBlue Airways Corp., 17.5% notes linked to XM Satellite Radio Holdings Inc. and 17% notes linked to General Motors Corp.

Some market sources late last week noted that investors are hungry for yield and another equity structurer based in New York agreed on Monday.

"The coupons are high because investors want them to be high," he said. "You'll get a call from an investor saying, 'I need a 20% coupon.' So you structure in a way that will get them that big of a coupon."

"There are other structures out there that will get you a pretty good payout," said another market insider. "Reverse convertibles are just the most straightforward, the easiest way. They're common."

Terms of the notes

Heading the crop of new deals from Lehman is the 19% offering of reverse exchangeables linked to JetBlue.

JetBlue's stock suffered earlier in the year after major delays had the company shifting into damage-control mode. In April, the stock took a significant hit, slipping steadily throughout the month. The stock traded between $9.91 and $11.91 during April. So far this month, the stock has shown some improvement, traded in a range between $9.90 and $10.47. The stock gained 11 cents on Monday to settle at $10.47 (Nasdaq: JBLU).

The JetBlue notes have a six-month term and pay par at maturity unless the stock falls below the 80% trigger level during the life of the notes and ends below the initial share price. In that case, the notes pay a number of shares equal to $1,000 divided by the initial share price.

XM Satellite notes

Elsewhere at Lehman, the investment bank announced plans to price 17.5% reverse exchangeable notes linked to XM Satellite.

The six-month notes pay par at maturity unless the reference stock breaches the 70% trigger level during the life of the notes and ends below the initial share price.

Should that happen, the notes pay a number of shares equal to $1,000 divided by the initial share price.

XM's stock also made steady losses throughout the month of April. The stock traded between $12.39 and $10.93 for the month. The highest closing price - $12.39 - was on April 2 and the lowest - $10.93 - was on April 24.

In late April, ABN Amro Bank NV priced $1.075 million in 18% Knock-In Reverse Exchangeable Securities linked to XM. The notes had a six-month term and an 80% trigger level.

Lehman wasn't playing favorites in the satellite radio game. There are also plans to price a 16.5% reverse exchangeable note linked to XM competitor and planned merger partner Sirius Satellite Radio Inc.

Those notes also have a six-month term and a 70% trigger level. The terms of the payout are the same as the XM-linked notes.

Sirius's stock traded in a tight range in April - between $2.77 and $3.12.

Back in February, Royal Bank of Canada priced $2.464 million in 10% reverse convertibles linked to Sirius. Those notes have a one-year term and a 50% protection level.

Sirius and XM are currently hoping to have a planned merger approved by regulators.

Lehman's GM-linked notes

Finally, Lehman intends to price 17% reverse exchangeable notes linked to General Motors.

The six-month notes have a 70% trigger level.

The notes pay par at maturity unless the stock falls below the trigger level during the life of the notes and finishes below the initial share price. In that case, the notes pay a number of shares equal to $1,000 divided by the initial share price.

Late last week, ABN Amro announced plans to price 16.5% Knock-In Reverse Exchangeable Securities linked to GM. The six-month notes have an 80% knock-in level.

Also late last week, Barclays Bank plc priced $2.5 million in 12% reverse convertibles linked to GM. Those notes have a six-month term and a 65% knock-in level.

GM's stock traded in a tight range during April, between $30.67 and $32.13.


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