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.

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