Citigroup prices $103.6 million Qualcomm-linked ELKS; Bear Stearns plans reverse convertibles

By Sheri Kasprzak

New York, Oct. 30 - Citigroup Funding Inc. led structured products news to kick off the week, with the news that it priced $103.6 million in Equity Linked Securities linked to the stock of Qualcomm Inc.

"ELKS would be popular for the same reason that reverse convertibles are popular," said one market source familiar with the securities.

"Investors right now are looking for income-making vehicles and this is one of them. Investors want something that is going to pay a substantial coupon compared to the current yield."

Under the terms of the 11.25% ELKS, due Nov. 5, 2007, the investors will receive par in cash unless Qualcomm's stock drops below 75% of the initial level. In that circumstance, the investors will receive 0.2666 shares of Qualcomm for each $10.00 in ELKS. Terms on the offering were announced late Friday.

Throughout October, Qualcomm's stock has traded between $34.66 and $39.84 and in September, the stock traded between $36.35 and $39.19.

"For this particular stock, they're pretty range-bound," said the market source when asked about Qualcomm itself as a reference stock.

"They're not making substantial gains or losses, kind of staying within a particular range and that's what we're seeing over a long term."

Other Qualcomm-linked notes

Qualcomm has popped up as a reference stock linked to reverse convertibles and exchangeables recently, although not in anywhere near the size seen on the Citigroup deal..

In July, ABN Amro NV priced $1.55 million in 9.5% reverse exchangeables and in March priced $700,000 in 9% reverse exchangeables, both linked to Qualcomm. ABN Amro also priced $1.9 million in 12% knock-in reverse exchangeables linked to Qualcomm in July.

Bear Stearns' 19.75% reverse convertibles

Elsewhere in structured products news, The Bear Stearns Cos. announced its plans to price 19.75% reverse convertible notes linked to the stock of Joy Global Inc.

The notes are due in six months and carry a 70% knock-in price.

The investment bank priced $2,739,000 in reverse exchangeable notes linked to Joy back in August with a similar coupon. Those notes have a 19% coupon and are due Aug. 31, 2007.

UBS's $13.1 million notes

In other structured products news, one market source said the structure of $13.1 million in notes priced late last week by UBS AG makes sense given growth in the S&P 500 Health Care index.

The notes are linked to the S&P 500 Health Care index versus the S&P 500 Consumer Discretionary index. The health care index is the long index and the consumer discretionary index the short index.

"It just makes sense given the performance the [health care] index," he said. "It's beyond the fact that health spending outpaces [broad] economic growth. The [S&P 500 health care index] has been growing substantially over the past few years."

However, the market source did note that the performance of the notes is directly linked to the pace at which health care spending grows compared to broad economic growth.

As previously reported, payout at maturity is linked to the relative performance of the health care index versus the consumer discretionary index.

If the health care index beats the consumer discretionary index, investors will receive par plus 144% of the outperformance at maturity. If the health care index lags, the payout is par minus the underperformance.

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