MS-sponsored trust plans debt-backed step up callable units linked to Bank of America's 5.625% notes

By Jennifer Chiou

New York, Sept. 24 - Bank of America Debt Backed Step Up Callables Series 2010-02 plans to price $5 million of step up callable units due July 1, 2020 linked to Bank of America Corp.'s 5.625% senior notes due July 2020, according to a 424B5 filing with the Securities and Exchange Commission.

The sponsor of the trust is MS Structured Asset Corp., a subsidiary of Morgan Stanley.

The units represent a beneficial interest in the underlying securities.

Interest will accrue at 4% until July 1, 2014, then 4.5% until July 1, 2018 and 7.25% until, but excluding, the maturity date. It will be payable semiannually.

Beginning on July 1, 2011, the units may be called at par in whole on any quarterly call option settlement date. If that occurs, the swap counterparty - Morgan Stanley & Co. Inc. as agent - will pay the trust a payment equal to the stated principal amount plus accrued interest.

If a trust wind-up event occurs, other than a call, the underlying securities will be sold at market value, any required payments to the swap counterparty will be made and then unitholders will be paid from any remaining amounts.

Therefore, if the units are redeemed prior to maturity due to a trust wind-up event, which may include, among other circumstances, an underlying security default or the early termination of the swap agreement, holders may receive less than the principal amount of the units.

The trust will make semiannual payments to the swap counterparty equal to the notional amount times a to-be-determined annualized rate of around 1.625% on each payment date up to but excluding July 1, 2014 and 1.125% from and including July 1, 2014 up to but excluding July 1, 2018.

From that point until the earlier of maturity and the call option settlement date, the swap counterparty will make semiannual payments to the trust equal to 1.625% per year times the notional amount.

The units are expected to settle flat, meaning that any accrued interest at closing will be reflected in the settlement price, the filing noted.

A total of $3 billion of the underlying securities was issued on June 2010. As of Sept. 23, the estimated market price of the underlying securities is 104.7.

The units (Cusip: 06427BAA5) will price and settle in October. The $5 million figure may be increased prior to the issue date.

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