Morgan Stanley Sells CLO to Fund Nicaraguan Potters

New York, United States, May, 31 2007 - Morgan Stanley sold a $110 million collateralized loan obligation that will help finance small businesses in developing economies from Nicaraguan potters to Peruvian shopkeepers.

The securities, which package loans and use the income to pay investors, were bought by about 21 banks, hedge funds insurance companies, money managers and mutual funds, Morgan Stanley said today.

Morgan Stanley and microfinance asset manager BlueOrchard Finance SA in Geneva widened the number of institutions that could invest in small loans to the developing world by structuring the CLO to get an investment-grade credit rating, putting it on a par with debt sold by Wal-Mart Stores Inc. in Bentonville, Arkansas, and drugmaker Eli Lilly & Co. in Indianapolis.

``The rating enabled a far greater range of institutions to participate,'' Ellen Brunsberg, head of the European securitized products group at Morgan Stanley in London, said in an e-mailed statement. ``This interest can only be good for the future expansion of microfinance.''

The deal is the second microfinance CLO that Morgan Stanley and BlueOrchard have sold following an unrated deal last year. It's the latest development for a microfinancing industry pioneered by Muhammad Yunus, who won last year's Nobel Peace Prize for his work in funding impoverished people in Bangladesh.

European investors bought 86 percent of the securities with the rest going to U.S. investors, Morgan Stanley said. The notes were sold through BOLD 2, a company set up to issue the securities and finance the loans.

Nicaraguan Borrower

The underlying loans are to 20 microfinance institutions in Azerbaijan, Bosnia, Cambodia, Colombia, Georgia, Kenya, Mongolia, Montenegro, Nicaragua, Peru, Russia and Serbia. Most of the loans are made in local currency.

The bonds pay an average interest rate of 1.37 percentage points over the London interbank offered rate, Morgan Stanley said. Three-month dollar Libor, an average of rates set daily by banks and used as a borrowing benchmark, is 5.36 percent.

Microfinance borrowers include Aura Rosa Andino, 50, who owns a craft shop selling pottery in the Mercado Central of Managua, Nicaragua, Morgan Stanley said. She got her first loan of $3,600 that enabled her to buy products from local craftsmen and hire two staff.

Three more microfinance CLOs will be sold this year, according to S&P. Annual sales of the securities could reach as much as $4 billion in coming years, Ian Callaghan, head of microfinance at Morgan Stanley told Bloomberg in an interview earlier this month.