The Notes
The notes are debt securities of Morgan Stanley. From the original issue date until March 14, 2028, interest on the notes will accrue and be payable quarterly, in arrears, at 6.00% per annum, and thereafter, during the floating interest rate period, interest on the notes will accrue and be payable quarterly, in arrears, at a variable rate per annum equal to the base rate plus 0.35%, subject to the minimum interest rate of 0.00% per annum and the maximum interest rate of 7.00% per annum, as determined on the interest payment period end-date for the relevant interest payment period (or the rate cut-off date for the final interest payment period). The base rate is SOFR, compounded daily over a quarterly interest payment period, as further described under “Description of Debt Securities—SOFR Debt Securities” in the accompanying prospectus.
We describe the basic features of the notes in the section of the accompanying prospectus supplement called “Description of Notes,” subject to and as modified by the provisions described herein. In addition, we describe the basic features of the notes during the fixed interest rate period in the section of the accompanying prospectus called “Description of Debt Securities—Fixed Rate Debt Securities” and during the floating interest rate period in the section of the accompanying prospectus called “Description of Debt Securities—Floating Rate Debt Securities,” in each case subject to and as modified by the provisions described herein.
We describe how interest is calculated, accrued and paid during the fixed interest rate period under “Description of Debt Securities—Fixed Rate Debt Securities” in the accompanying prospectus. We describe how interest is paid during the floating interest rate period under “Description of Debt Securities—Floating Rate Debt Securities” in the accompanying prospectus, subject to and as modified by the provisions described under “Description of Debt Securities—SOFR Debt Securities” in the accompanying prospectus with respect to the compounding method used to calculate accrued interest during the floating interest rate period and the application of the spread to such method.
All payments on the notes are subject to the credit risk of Morgan Stanley.
The stated principal amount and issue price of each note is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently, the estimated value of the notes on the pricing date will be less than the issue price. We estimate that the value of each note on the pricing date will be approximately $961.60, or within $41.60 of that estimate. Our estimate of the value of the notes as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the notes on the pricing date, we take into account that the notes comprise both a debt component and a performance-based component linked to SOFR. The estimated value of the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to SOFR, instruments based on SOFR, volatility and other factors including current and expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the notes?
In determining the economic terms of the notes, including the interest rate, the spread, the minimum interest rate and the maximum interest rate applicable to each interest payment period during the floating interest rate period, we use an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the pricing date and the secondary market price of the notes?
The price at which MS & Co. purchases the notes in the secondary market, absent changes in market conditions, including those related to interest rates and SOFR, may vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type, the costs of unwinding the related hedging transactions and other factors.
MS & Co. may, but is not obligated to, make a market in the notes and, if it once chooses to make a market, may cease doing so at any time.
