Morgan Stanley plans portfolio trigger securities offering; Rabo plans slate of knock-in reverse convertibles

By Sheri Kasprzak

New York, Aug. 17 - Morgan Stanley caught attention in the structured products market Thursday, with plans to price 0% corporate portfolio trigger securities linked to the common stocks of 100 North American companies.

The notes, due Sept. 20, 2013, will price at par of $200, according to the preliminary prospectus, filed late Wednesday with the Securities and Exchange Commission.

A trigger will occur if any of the companies in the portfolio experiences a bankruptcy or if the closing price of any stock in the portfolio falls by 85% or more from that stock's initial price during the life of the securities.

At maturity, investors receive $1,000 if there is no trigger event, $800 if there is one trigger event, $600 for two trigger events, $400 for three, $200 for four and nothing if there are five or more trigger events.

The stocks are well known mid-size to large companies.

"It's not something you see very often," said one equity structurer when asked about the Morgan Stanley deal and a similar offering announced by JPMorgan Chase & Co. earlier this week.

"There's an enormous risk because if enough of the companies' stocks perform poorly, there goes your whole investment. On the upside, though, you can expect to reap some pretty substantial gains.

"The reason to structure this way is that you're not dependent upon the performance of just one company's stock. Of course, the reason not to structure this way is that you're not dependent upon just one company's stock."

The market source noted he'd only seen maybe one or two securities linked to stocks of this many companies.

"It's rare, I'd say," he added.

JPMorgan announced an offering along similar lines earlier this week - 30% reverse exchangeable notes linked to the least-performing common stock in the Dow Jones Industrial Average during the life of the notes.

Those notes are due Aug. 29, 2007 and expected to price Aug. 24.

Noteholders will receive par unless any stock included in the Dow Industrials falls below its protection price during the life of the notes, in which case the payout will be the physical delivery amount: a number of shares of the least-performing stock in the Dow Industrials equal to $1,000 divided by the stock's initial share price. If the cash value of the physical delivery amount is greater than $1,000, investors will receive par in cash in lieu of the shares.

Rabo's knock-in notes

Elsewhere, Rabo Financial Products BV announced plans to price several knock-in reverse convertible notes.

Underlying stocks include ConocoPhillips, Diamond Offshore Drilling, Inc., Hewlett-Packard Co., NYSE Group Inc., Peabody Energy Corp., United States Steel Corp.

For all the notes, the payout at maturity is par in cash unless a knock-in price is hit during the life of the notes, in which case investors receive a number of shares equal to par divided by the initial stock price.

The ConocoPhillips deal matures in six months, pays a 10.25% annualized coupon and has a trigger level of 85%. Pricing is scheduled for Aug. 18.

The Diamond Offshore notes mature in a year, pays an 11.1% coupon and has a trigger level of 70%. Pricing is scheduled for Aug. 18.

The Hewlett-Packard issue matures in a year, pays a 10.1% coupon and has a trigger level of 80%. Pricing is scheduled for Aug. 18.

The NYSE deal matures in six months, pays a 15% annualized coupon and has a trigger level of 70%. Pricing is scheduled for Aug. 18.

The Peabody offering matures in three months, pays a 23% annualized coupon and has a trigger level of 80%. Pricing is scheduled for Aug. 25.

The U.S. Steel deal matures in three months, pays a 20% annualized coupon and has a trigger level of 80%. Pricing is scheduled for Aug. 25.

Both the Hewlett-Packard and Diamond Offshore deals are callable quarterly at par.

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