Morgan Stanley 2009 Annual Report Download - page 196

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
June 2009, to maintain its pro rata share in the Company’s share capital, CIC participated in the Company’s
registered public offering of 85,890,277 shares by purchasing 45,290,576 shares of the Company’s common
stock. CIC is a passive financial investor and has no special rights of ownership nor a role in the management of
the Company. A substantial portion of the investment proceeds from the offering of the Equity Units was treated
as Tier 1 capital for regulatory capital purposes.
As described below, the Equity Units consist of interests in trust preferred securities issued by Morgan Stanley
Capital Trust A (“Series A Trust”), Morgan Stanley Capital Trust B (“Series B Trust”) or Morgan Stanley
Capital Trust C (“Series C Trust”) (each a “Morgan Stanley Capital Trust” and, collectively, the “Trusts”) and
stock purchase contracts issued by the Company. The only assets held by the Trusts are junior subordinated
debentures issued by the parent company.
Equity Units.
Each Equity Unit has a stated amount of $1,000 per unit consisting of:
(i) an undivided beneficial ownership interest in a trust preferred security of Series A Trust, Series B Trust or
Series C Trust with an initial liquidation amount of $1,000; and
(ii) a stock purchase contract relating to the common stock, par value of $0.01 per share, of the Company.
Junior Subordinated Debentures Issued to Support Trust Common and Trust Preferred Securities.
In the first quarter of fiscal 2008, the Company issued junior subordinated debt securities due no later than
February 17, 2042 for a total of $5,579,173,000 in exchange for $5,579,143,000 in aggregate proceeds from the
sale of the trust preferred securities by the Trusts and $30,000 in trust common securities issued equally by the
Trusts. The Company elected to fair value the junior subordinated debentures pursuant to the fair value option
accounting guidance. The common and trust preferred securities of the Trusts, totaling approximately $5,579
million, represent undivided beneficial ownership interests in the assets of the Trusts, have no stated maturity and
must be redeemed upon the redemption or maturity of the corresponding series of junior subordinated debt
securities—the sole assets of the respective Trusts. The Trusts will make quarterly distributions on the trust
common and trust preferred securities at an annual rate of 6%.
The trust common securities, which are held by the Company, represent an interest in the Trusts and are recorded
as an equity method investment in the Company’s consolidated statement of financial condition. The Trusts are
VIEs in accordance with current accounting guidance, and the Company does not consolidate its interests in the
Trusts as it is not the primary beneficiary of any of the Trusts.
The Company has directly guaranteed the repayment of the trust preferred securities to the holders thereof to the
extent that there are funds available in the Trusts. If the Company does not make payments on the junior
subordinated debentures owned by a Morgan Stanley Capital Trust, such Morgan Stanley Capital Trust will not
be able to pay any amounts payable in respect of the trust preferred securities issued by it and will not have funds
legally available for that purpose. In that event, holders of such series of trust preferred securities would not be
able to rely upon the guarantee for payment of those amounts. The guarantee will remain in place until the
redemption price of all of the trust preferred securities is paid, the amounts payable with respect to the trust
preferred securities upon liquidation of the Morgan Stanley Capital Trusts are paid or the junior subordinated
debentures are distributed to the holders of all the trust preferred securities. The trust preferred securities held by
the Equity Unit holders are pledged to the Company to collateralize the obligations of the Equity Unit holders
under the related stock purchase contracts. The Equity Unit holders may substitute certain zero-coupon treasury
securities in place of the trust preferred securities as collateral under the stock purchase contracts.
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