Morgan Stanley preps Brent crude oil-linked bonds that rely upon lookback observation period

By Sheri Kasprzak

New York, Sept. 26 - Brent crude oil has been a popular underlying for structured products recently, and an interesting structure featured the commodity on Wednesday.

Morgan Stanley plans to price 0% lookback entry jump securities linked to the performance of Brent blend crude oil, according to a 424B2 filing with the Securities and Exchange Commission.

The initial commodity price will be equal to the lowest price during the lookback observation period, which is every trading day beginning on the pricing date and ending in December.

If the commodity return is positive, the payout at maturity will be par plus the greater of the commodity return and an upside payment of 20% to 22%, subject to a maximum payment of $2,000 per $1,000 principal amount.

Investors will be fully exposed to any decline in the oil price.

The notes (Cusip: 617482P81) will price in October and settle in November.

Morgan Stanley & Co. LLC will be the agent.

Barclays preps deal

Earlier in the week, Barclays Bank plc announced plans to bring 0% leveraged contingent barrier-enhanced notes linked to Brent crude oil.

Brent crude is particularly sensitive to instability in the Middle East and other regions, said one market source familiar with commodities.

"Here lately, Brent crude has been struggling," said the market source, who is not directly connected to either of the offerings.

"Due to the risk involved, investors might be looking at a bigger payout given the higher volatility and the uncertainty around the underlying. It really depends upon the life of the notes."

One-year term

The Barclays notes are due Oct. 9, 2013 and pay par plus three times the increase if the final price of Brent crude oil is greater than the initial price, subject to a maximum return of at least 30% that will be set at pricing.

If the price declines by 20% or less, investors receive par at maturity.

If the price declines by more than 20%, investors will be exposed to the decline from the initial price.

The offering is scheduled to price Friday.

Barclays is the agent with JPMorgan Chase Bank, NA and J.P. Morgan Securities LLC as the dealers.

Deutsche Bank prices

Last week, Deutsche Bank AG, London Branch priced $3.81 million of one-year phoenix autocallable securities linked to Brent crude oil through JPMorgan.

The issue pays a contingent coupon of 15% per year if the price of oil on the quarterly observation date is at least 80% of the initial price.

The notes will be automatically called at par plus the contingent coupon if the price of oil is greater than or equal to the initial price on a quarterly observation date.

At maturity, investors will be fully exposed to the decline if the price of oil drops by more than 20%. Otherwise, they will receive par plus the contingent coupon.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.