Morgan Stanley prices large deals, plans buy-write notes; Barclays ties offering to General Motors

By Kenneth Lim

Boston, March 26 - Morgan Stanley led the structured pipeline on Monday with a couple of large multimillion-dollar deals linked to the Standard & Poor's 500 index and an issue of medium-term notes with a variable coupon based on the buy-write strategy.

Meanwhile, Barclays Bank plc announced plans for 10% reverse convertibles linked to General Motors Corp., which has been reported to have bid for rival automaker DaimlerChrysler AG's Chrysler unit.

Morgan Stanley prices large deals

Morgan Stanley began the week with a number of sizable deals, two of which were linked to the S&P 500 index.

The largest deal was $50.25 million of zero-coupon protected absolute return barrier notes due Sept. 20, 2008. At maturity, the notes will pay par of $10 plus the absolute value of the index return, capped at 18.5%, if the index keeps within 81.5% and 118.5% during the life of the notes. The initial index level was 1,436.11 at pricing.

Morgan Stanley also priced $22.7 million of zero-coupon performance leveraged upside securities due April 20, 2008 inversely linked to the S&P 500. If the final index value is below the initial value at maturity, those notes pay par of $10 plus an enhanced downside payment of $40 multiplied by the index percent decrease. If the final index value is above the initial value at maturity, the notes pay par of $10 minus the index percent increase. The payout range $5 to $14.30 per note.

"These look like pretty straightforward structures," said a structured products distributor who does not sell for Morgan Stanley.

"You're going to get structures like these every once in a while and demand will probably be robust because they're simple to understand and there's a lot of research out there that lets many investors feel comfortable about taking a position on an index."

Other large deals that Morgan Stanley priced include $43.5 million of 8% mandatory exchangeable notes into Archer-Daniels-Midland Co. common stock due April 20, 2008, and $33.367 million of zero-coupon capital protected notes linked to a basket of four commodities and two commodity indexes due Dec. 30, 2010.

Variable-coupon deal in pipeline

Morgan Stanley also announced a series of floating-rate principal protected buy-write senior notes linked to the performance of the Russell 2000 index due April 27, 2012.

Upon maturity, the notes will pay par of $10 plus a supplemental redemption amount based on the percentage increase of the 2007-2 Dynamic Reference Index above 100. The payout at maturity and coupon payment will depend on the Dynamic Reference Index, which tracks the performance of a hypothetical investment in the Russell 2000, zero-coupon bonds and hypothetical borrowed funds that may be used to leverage the amount of the equity component in the reference index. The weighting of the three components will be set at pricing. Unlike ordinary debt securities, the notes pay a variable coupon.

A structurer explained that the basic purpose of the notes is to generate cash flow, which can be as high as 15% annualized and as low as 0% annualized, for investors. The initial coupon is expected to be about 8% annualized, depending on the initial conditions.

"It's a vehicle that generates cash flow based on the health of the Russell 2000," the structurer said. "Essentially, if the Russell 2000 does well and it goes up consistently then we're looking at decent cashflows over time."

Barclays offers General Motors-linked notes

Barclays Bank was also active on Monday, announcing a 10% reverse convertible linked to General Motors due April 9, 2008, which has been in the spotlight recently amid the possible sale of rival automaker DaimlerChrysler's U.S. arm.

The Barclays convertible will pay par of $1,000 at maturity provided General Motors stock is at least the initial stock price at maturity and traded above 60% of the initial stock price during the lifetime of the convertibles. Otherwise investors will receive cash or stock in line with the decrease in General Motors stock.

General Motors stock has closed between $21.27 and $33.26 at the end of quarter since the three months ended March 31, 2006. Recent reports also said that General Motors has bid for the Chrysler group, which DaimlerChrysler is trying to sell, although some analysts have called the General Motors offer a long shot.

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