Bank of American prices $100 million notes linked to stock basket; Morgan Stanley sells CMS notes

By Sheri Kasprzak

New York, Feb. 15 - Bank of America led structured products news Thursday, pricing a $100 million offering of 0.25% optionally exchangeable senior notes linked to a basket of stocks.

The basket includes equal weights of The Coca-Cola Co., Coach, Inc. and Franklin Resources, Inc.

One market source said he couldn't find any common link between the stocks in the basket.

"Sometimes that's just what the investors are looking for so you put something together with those stocks," he said.

4.5% premium

The initial prices of the stocks are $48.0093 for Coca-Cola with a 6.63301 exchange ratio; $46.9431 for Coach with a 6.79434 exchange ratio and $122.1976 for Franklin with a 2.61010 exchange ratio.

The initial basket level is the sum of the initial values of the stocks, or $956.9385, which is $43.0615 less than par. The initial premium is 4.5%.

Investors will receive the greater of par or a number of shares equal to the exchange ratio at maturity if the five-year notes are not called.

The notes may be called from Feb. 15, 2009 onwards at the greater of par or the average basket gain.

On Thursday, Coca-Cola's stock climbed by $1.05 to end at $59.97 (Nasdaq: COKE), Coach's stock fell 9 cents to end at $49.29 (NYSE: COH) and Franklin's stock gained 51 cents to settle at $126.10 (NYSE: BEN).

Morgan Stanley's CMS notes

Elsewhere in structured products Thursday, Morgan Stanley negotiated the terms of $20 million in floating-rate notes linked to the 10-year constant maturity swap rate and the two-year CMS rate.

"I have seen a lot of them as well but we have no plans to do them any time soon," said one market source at another investment bank.

Earlier this month, Citigroup Funding Inc. priced similar notes to the Morgan Stanley notes - $12.7 million in zero-coupon principal-protected notes linked to the 10-year and two-year CMS rates.

Under the terms of those 18-month notes, payout is par of $10,000 plus 30 times the spread of the 10-year rate over the two-year rate on the valuation date.

Deutsche Bank AG announced plans earlier this month to price an offering of CMS spread range notes and the London Branch plans to price CMS slope steepener notes.

In January, Lehman Brothers Holdings, Inc. priced $200 million in Curve Trade Notes linked to the CMS rate.

Notes are floating-rate

Under the terms of the 30-year notes Morgan Stanley priced on Thursday, the notes pay interest at 8% annually until Feb. 23, 2012. After that, the interest rate will be reset quarterly at 4% plus the spread of the 10-year CMS rate over the two-year rate with a minimum interest rate of 3%.

The notes are callable at par on any interest payment date beginning Feb. 23, 2012.

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