Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings.
The facility will be the first of its kind.
The investment bank plans to sell $87 million in securities that it expects to be rated AAA and $42.9 million in notes rated Baa2 by Moody’s Investors Service, according a Bloomberg report.
Morgan Stanley will create the securities from Greywolf CLO I, a CDO that Goldman Sachs arranged in January 2007. The CDO is currently managed by Greywolf Capital Management.
The sale would be a landmark in the market’s return to large structure finance vehicles, as it is the first to involve corporate loans. Banks have been doing the same with commercial mortgage-backed securities in recent weeks. Structured credit failures are responsible for almost $1.5 trillion in worldwide losses.
A Morgan Stanley spokeswoman was not immediately available for comment.