Risk Factors
For a discussion of the risk factors affecting Morgan Stanley and its business,
including market risk, credit risk, operational risk, liquidity risk, legal, regulatory and compliance risk, risk management, competitive environment, international risk and acquisition, divestiture and joint venture risk, among others, see “Risk
Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and our current and periodic reports filed pursuant to the Securities Exchange Act of 1934, as amended (file number 001-11758) that are
incorporated by reference into this pricing supplement and the accompanying prospectus supplement and prospectus.
This section describes certain selected risk factors relating to the notes.
Please see “Risk Factors” in the accompanying prospectus for a complete list of risk factors relating to the notes.
SOFR has a very limited history; the future performance of SOFR cannot be predicted based
on historical performance.
You should note that publication of SOFR began on April 3, 2018 and it therefore has a very limited history. In addition, the future performance of SOFR cannot be predicted based on the limited historical
performance. The level of SOFR during the term of the notes may bear little or no relation to the historical level of SOFR. Prior observed patterns, if any, in the behavior of market variables and their relation to SOFR, such as correlations, may
change in the future. While some pre-publication historical data have been released by the Federal Reserve Bank of New York (the “
New York Federal Reserve”)
, such analysis inherently involves
assumptions, estimates and approximations. The future performance of SOFR is impossible to predict and therefore no future performance of SOFR or the notes may be inferred from any of the historical simulations or historical performance.
Hypothetical or historical performance data are not indicative of, and have no bearing on, the potential performance of SOFR or the notes. Changes in the levels of SOFR will affect the Base Rate and, therefore, the return on the notes and the
trading price of such notes, but it is impossible to predict whether such levels will rise or fall. There can be no assurance that SOFR or the Base Rate will be positive.
Any failure of SOFR to gain market acceptance could adversely affect the notes.
SOFR may fail to gain market acceptance. SOFR was developed for use in certain U.S. dollar derivatives and other financial contracts as an alternative to U.S. dollar LIBOR in part because it is considered a good representation of general funding
conditions in the overnight Treasury repo market. However, as a rate based on transactions secured by U.S. Treasury securities, it does not measure bank-specific credit risk and, as a result, is less likely to correlate with the unsecured
short-term funding costs of banks. This may mean that market participants would not consider SOFR a suitable substitute or successor for all of the purposes for which LIBOR historically has been used (including, without limitation, as a
representation of the unsecured short-term funding costs of banks), which may, in turn, lessen market acceptance of SOFR. Any failure of SOFR to gain market acceptance could adversely affect the return on the notes and the price at which you can
sell such notes.
The composition and characteristics of SOFR are not the same as those of LIBOR and there
is no guarantee that either SOFR or the Base Rate is a comparable substitute for LIBOR.
In June 2017, the
New York Federal Reserve
’s Alternative Reference Rates Committee (the “ARRC”)
announced SOFR as its recommended alternative to U.S. dollar LIBOR. However, the composition and characteristics of SOFR are not the same as those of LIBOR. SOFR is a broad Treasury repo financing rate that represents overnight secured funding
transactions. This means that SOFR is fundamentally different from LIBOR for two key reasons. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR represents interbank funding over
different maturities. As a result, there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility
or global or regional economic, financial, political, regulatory, judicial or other events. For example, since publication of SOFR began on April 3, 2018, daily changes in SOFR have, on occasion, been more volatile than daily changes in comparable
benchmark or other market rates. For additional information regarding SOFR, see “Secured Overnight Financing Rate” below.
The secondary trading market for notes linked to SOFR may be
limited.
Since SOFR is a relatively new market rate, the notes will likely have no established trading market when issued and an established trading market may never develop or may not be very
liquid. Market terms for debt securities linked to SOFR (such as the notes) such as the Spread may evolve over time and, as a result, trading prices of the notes may be lower than those of later-issued debt securities that are linked to SOFR.
Similarly, if SOFR does not prove to be widely used in debt securities similar to the notes, the trading price of the notes may be lower than that of debt securities linked to rates that are more widely used. Investors in the notes may not be
able to sell such notes at all or may not be able to sell such notes at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Further, investors wishing to sell the notes in the
secondary market will have to make assumptions as to the future performance of SOFR during the Interest Payment Period in which they intend the sale to take place. As a result, investors may suffer from increased pricing volatility and market
risk.
The administrator of SOFR may make changes that could change
the value of SOFR or discontinue SOFR and has no obligation to consider your interests in doing so.
The New York Federal Reserve (or a successor), as administrator of SOFR,
may make methodological or other changes that could change the value of SOFR, including
changes related to the method by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR, or timing related to the publication of SOFR. In addition, the administrator may alter, discontinue or suspend
calculation or dissemination of SOFR (in which case a fallback method of determining the interest rate on the notes during the Floating Rate Period as further described under “Determination of SOFR” will apply). The administrator has no
obligation to consider your interests in calculating, adjusting, converting, revising or discontinuing SOFR.
If SOFR is discontinued, the notes will bear interest during
the Floating Rate Period by reference to a different base rate, which could adversely affect the value of the notes, the return on the notes and the price at which you can sell such notes during the Floating Rate Period; there is no guarantee
that any Benchmark Replacement will be a comparable substitute for SOFR.
If we or our designee determine that a Benchmark Transition Event and its related Benchmark Replacement Date have occurred
in respect of SOFR, then the interest rate on the notes during the Floating Rate Period will no longer be determined by reference to SOFR, but instead will be determined by reference to a different rate, which will be a different benchmark than
SOFR, plus a spread adjustment, which we refer to as a “Benchmark Replacement,” as further described under “Determination of SOFR” below.
If a particular Benchmark Replacement or Benchmark Replacement Adjustment cannot
be determined, then the next-available Benchmark Replacement or Benchmark Replacement Adjustment will apply. These replacement rates and adjustments may be selected, recommended or formulated by (i) the Relevant Governmental Body (such as the
ARRC), (ii) ISDA or (iii) in certain circumstances, us or our designee. In addition, the terms of the notes expressly authorize us or our designee to make Benchmark Replacement Conforming Changes with respect to, among other things, changes to
the definition of “Interest Payment Period,” timing and frequency of determining rates and making payments of interest and other administrative matters. The determination of a Benchmark Replacement, the calculation of the interest rate on the
notes during the Floating Rate Period by reference to a Benchmark Replacement (including the application of a Benchmark Replacement Adjustment), any implementation of Benchmark Replacement Conforming Changes and any other determinations,
decisions or elections that may be made under the terms of the notes in connection with a Benchmark Transition Event could adversely affect the value of the notes, the return on the notes and the price at which you can sell such notes.
Any determination, decision or election described above will be made in our or
our designee’s sole discretion.
In addition, (i) the composition and characteristics of the Benchmark Replacement
will not be the same as those of SOFR, the Benchmark Replacement will not be the economic equivalent of SOFR, there can be no assurance that the Benchmark Replacement will perform in the same way as SOFR would have at any time and there is no
guarantee that the Benchmark Replacement will be a comparable substitute for SOFR (each of which means that a Benchmark Transition Event could adversely affect the value of the notes, the return on the notes and the price at which you can sell
such notes), (ii) any failure of the Benchmark Replacement to gain market acceptance could adversely affect the notes, (iii) the Benchmark Replacement may have a very limited history and the future performance of the Benchmark Replacement cannot
be predicted based on historical performance, (iv) the secondary trading market for notes linked to the Benchmark Replacement may be limited and (v) the administrator of the Benchmark Replacement may make changes that could change the value of
the Benchmark Replacement or discontinue the Benchmark Replacement and has no obligation to consider your interests in doing so.
The interest rate on the notes during the Floating Rate Period
is based on a daily compounded SOFR rate, which is relatively new in the marketplace.
For each Interest Payment Period during the Floating Rate Period, the interest rate on the notes is based on a
daily compounded SOFR rate calculated using the specific formula described in this pricing supplement, not the SOFR rate published on or in respect of a particular date during such Interest Payment Period or an average of SOFR rates during such
period. For this and other reasons, the interest rate on the notes during any Interest Payment Period within the Floating Rate Period will not be the same as the interest rate on other SOFR-linked investments that use an alternative basis to
determine the applicable interest rate. Further, if the SOFR rate in respect of a particular date during an Interest Payment Period within the Floating Rate Period is negative, the portion of the accrued interest compounding factor specifically
attributable to such date will be less than one, resulting in a reduction to the accrued interest compounding factor used to calculate the interest payable on the notes on the Interest Payment Date for such Interest Payment Period.
In addition, very limited market precedent exists for securities that use SOFR as
the interest rate and the method for calculating an interest rate based upon SOFR in those precedents varies. Accordingly, the specific formula for the daily compounded SOFR rate used in the notes may not be widely adopted by other market
participants, if at all. If the market adopts a different calculation method, that would likely adversely affect the market value of such notes.
The amount of interest payable with respect to each Interest
Payment Period during the Floating Rate Period will be determined near the end of the Interest Payment Period.
The level of the Base Rate applicable to each Interest Payment Period during the
Floating Rate Period and, therefore, the amount of interest payable with respect to such Interest Payment Period will be determined on the Interest Payment Period End-Date for such Interest Payment Period (or the Rate Cut-Off Date for the final
Interest Payment Period). Because each such date is near the end of such Interest Payment
Period, you will not know the amount of interest payable with respect to each such Interest Payment Period until shortly prior to the related Interest Payment Date and it may be difficult for you to reliably estimate the amount of interest that
will be payable on each such Interest Payment Date.
The price at which the notes may be sold prior to maturity
will depend on a number of factors and may be substantially less than the amount for which they were originally purchased.
Some of these factors include, but are not limited to: (i) actual or
anticipated changes in the level of SOFR, (ii) volatility of the level of SOFR, (iii) changes in interest and yield rates, (iv) any actual or anticipated changes in our credit ratings or credit spreads and (v) the time remaining to maturity of
such notes. Generally, the longer the time remaining to maturity and the more tailored the exposure, the more the market price of the notes will be affected by the other factors described in the preceding sentence. This can lead to significant
adverse changes in the market price of securities like the notes. Depending on the actual or anticipated level of SOFR, the market value of the notes is expected to decrease and you may receive substantially less than 100% of the Issue Price if
you are able to sell your notes prior to maturity.
The issuer, its subsidiaries or affiliates may publish
research that could affect the market value of the notes. They also expect to hedge the issuer’s obligations under such notes.
The issuer or one or more of its affiliates may, at present or in the
future, publish research reports with respect to movements in interest rates generally, or the LIBOR transition or SOFR specifically. This research is modified from time to time without notice and may express opinions or provide recommendations
that are inconsistent with purchasing or holding the notes. Any of these activities may affect the market value of such notes. In addition, the issuer’s subsidiaries expect to hedge the issuer’s obligations under the notes and they may realize
a profit from that expected hedging activity even if investors do not receive a favorable investment return under the terms of such notes or in any secondary market transaction.
The calculation agent (or, if applicable, we or our designee)
will make determinations with respect to the notes.
The calculation agent will make certain determinations with respect to the notes as further described in this pricing supplement. In addition,
if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred, we or our designee will make certain determinations with respect to the notes in our or our designee’s sole discretion as further described under
“Determination of SOFR” below. Any of these determinations may adversely affect the payout to investors. Moreover, certain determinations may require the exercise of discretion and the making of subjective judgments, such as with respect to the
Base Rate or the occurrence or non-occurrence of a Benchmark Transition Event and any Benchmark Replacement Conforming Changes. These potentially subjective determinations may adversely affect the payout to you on the notes. For further
information regarding these types of determinations, see “Supplemental Information Concerning Description of Debt Securities—Floating Rate Debt Securities” and “Determination of SOFR” and related definitions below.
In determining the Base Rate for the final Interest Payment
Period in the Floating Rate Period, the level of SOFR for any day from and including the Rate Cut-Off Date to but excluding the Maturity Date will be the level of SOFR in respect of such Rate Cut-off Date.
For the final Interest Payment Period, because the level of SOFR for any day from and including the Rate Cut-off Date to but excluding the Maturity Date will be the level of SOFR in respect of such Rate Cut-Off Date, you will not
receive the benefit of any increase in the level in respect of SOFR beyond the level for such date in connection with the determination of the interest payable with respect to such Interest Payment Period, which could adversely impact the amount
of interest payable with respect to that Interest Payment Period.
The notes have early redemption risk
. In addition to the optional make-whole redemption discussed above under “—Other Provisions,” we retain the option to redeem the notes, in whole but not in part, on July
, 2024, on at least 10 but not more than 60 days’ prior notice. It is more likely that we will redeem the notes prior to the stated maturity date to the extent that the interest
payable on such notes is greater than the interest that would be payable on other instruments of ours of a comparable maturity, of comparable terms and of a comparable credit rating trading in the market. If the notes are redeemed prior to the
stated maturity date, you may have to re-invest the proceeds in a lower interest rate environment.
Optional Redemption
In addition to the optional make-whole redemption discussed above under “—Other
Provisions,” we may, at our option, redeem the notes, in whole but not in part, on July
, 2024, on at least 10 but not more than 60 days’ prior
notice, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest on the notes to but excluding the redemption date.
On or before the redemption date, we will deposit with the trustee money
sufficient to pay the redemption price of and accrued interest on the notes to be redeemed on that date. If such money is so deposited, on and after the redemption date interest will cease to accrue on the notes (unless we default in the payment
of the redemption price and accrued interest) and such notes will cease to be outstanding.
For information regarding notices of redemption, see “Description of Debt
Securities—Redemption and Repurchase of Debt Securities—Notice of Redemption” in the accompanying prospectus.
The notes do not contain any provisions affording the holders the right to
require us to purchase the notes after the occurrence of any change in control event affecting us.
Secured Overnight Financing Rate
SOFR is published by the New York Federal Reserve and is intended to be a broad
measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. The New York Federal Reserve reports that SOFR includes all trades in the Broad General Collateral Rate and bilateral Treasury repurchase agreement (repo)
transactions cleared through the delivery-versus-payment service offered by the Fixed Income Clearing Corporation (the “FICC”), a subsidiary of the Depository Trust and Clearing Corporation (“DTCC”), and SOFR is filtered by the New York Federal
Reserve to remove some (but not all) of the foregoing transactions considered to be “specials.” According to the New York Federal Reserve, “specials” are repos for specific-issue collateral, which take place at cash-lending rates below those for
general collateral repos because cash providers are willing to accept a lesser return on their cash in order to obtain a particular security.
The New York Federal Reserve reports that SOFR is calculated as a volume-weighted
median of transaction-level tri-party repo data collected from The Bank of New York Mellon as well as General Collateral Finance Repo transaction data and data on bilateral Treasury repo transactions cleared through the FICC’s
delivery-versus-payment service. The New York Federal Reserve also notes that it obtains information from DTCC Solutions LLC, an affiliate of DTCC.
If data for a given market segment were unavailable for any day, then the most
recently available data for that segment would be utilized, with the rates on each transaction from that day adjusted to account for any change in the level of market rates in that segment over the intervening period. SOFR would be calculated
from this adjusted prior day’s data for segments where current data were unavailable, and unadjusted data for any segments where data were available. To determine the change in the level of market rates over the intervening period for the missing
market segment, the New York Federal Reserve would use information collected through a daily survey conducted by its Trading Desk of primary dealers’ repo borrowing activity. Such daily survey would include information reported by
Morgan
Stanley & Co. LLC, a wholly owned subsidiary of Morgan Stanley, as a primary dealer.
The New York Federal Reserve notes on its publication page for SOFR that use of
SOFR is subject to important limitations, indemnification obligations and disclaimers, including that the New York Federal Reserve may alter the methods of calculation, publication schedule, rate revision practices or availability of SOFR at any
time without notice.
Each U.S. Government Securities Business Day, the New York Federal Reserve
publishes SOFR on its website at approximately 8:00 a.m., New York City time. If errors are discovered in the transaction data provided by The Bank of New York Mellon or DTCC Solutions LLC, or in the calculation process, subsequent to the
initial publication of SOFR but on that same day, SOFR and the accompanying summary statistics may be republished at approximately 2:30 p.m., New York City time. Additionally, if transaction data from The Bank of New York Mellon or DTCC
Solutions LLC had previously not been available in time for publication, but became available later in the day, the affected rate or rates may be republished at around this time. Rate revisions will only be effected on the same day as initial
publication and will only be republished if the change in the rate exceeds one basis point. Any time a rate is revised, a footnote to the New York Federal Reserve’s publication would indicate the revision. This revision threshold will be
reviewed periodically by the New York Federal Reserve and may be changed based on market conditions.
Because SOFR is published by the New York Federal Reserve based on data received
from other sources, we have no control over its determination, calculation or publication. See “Risk Factors” above.
The information contained in this section “Secured Overnight Financing Rate” is
based upon the New York Federal Reserve’s Website and other U.S. government sources.
Supplemental Information Concerning Description of Debt Securities—Floating Rate
Debt Securities
During the Floating Rate Period, the provisions set forth below shall apply to
the notes.
Formula for Interest Rates.
Notwithstanding the terms set forth in the third sentence under “Description of Debt Securities—Floating Rate Debt Securities—Formula for Interest Rates” in the accompanying prospectus, the following
provisions apply to the notes during the Floating Rate Period instead of the provisions of such sentence. The “Spread” is the number of basis points (one one-hundredth of a percentage point) specified above to be added to the accrued interest
compounding factor for an interest payment period. Accrued interest on the notes will be calculated by multiplying the principal amount of the notes by an accrued interest factor. This accrued interest factor will be computed by adding the
interest factors calculated for each day in the Interest Payment Period for which interest is being paid. The interest factor for each day is computed by dividing the interest rate applicable to that day by 360. The interest rate applicable to
a given day is the sum of the accrued interest compounding factor plus the Spread, as discussed in more detail below.
How Floating Interest Rates Are Reset.
The terms set forth in the accompanying prospectus under “Description of Debt Securities—Floating Rate Debt Securities—How Floating Interest Rates Are Reset” shall not apply to the notes.
How Interest is Calculated.
Notwithstanding the terms set forth under “Description of Debt Securities—Floating Rate Debt Securities—How Interest Is Calculated” in the accompanying prospectus, the following provisions apply to the notes
during the Floating Rate Period instead of the provisions of such subsection. On each Interest Payment Date, accrued interest will be paid for the most recently completed Interest Payment Period. Interest on the notes will accrue from and
including the most recent Interest Payment Period End-Date to which interest has been paid or duly provided for, or, in the case of the first Interest Payment Period during the Floating Rate Period, from and including July , 2024.
Interest will accrue to but excluding the next Interest Payment Period End-Date.
The calculation agent will notify the paying agent of each determination of the
interest rate applicable to the notes promptly after the determination is made.
Accrued interest on the notes during the Floating Rate Period will be calculated
by multiplying the principal amount of such notes by an accrued interest factor. This accrued interest factor will be computed by adding the interest factors calculated for each day in the Interest Payment Period for which interest is being
paid. The interest factor for each day is computed by dividing the interest rate applicable to that day by 360. The interest rate applicable to a given day is the sum of the accrued interest compounding factor plus the Spread. The accrued
interest compounding factor will be computed as follows:
“d
0
”, for any Interest Payment Period, is the number of U.S. Government Securities Business Days in the relevant Interest Payment Period.
“i” is a series of whole numbers from one to d
0
, each representing the relevant U.S. Government Securities Business Days in chronological order from, and including, the first U.S. Government Securities
Business Day in the relevant Interest Payment Period.
“SOFR
i
”, for any day “i” in the relevant Interest Payment Period, is a reference rate equal to SOFR in respect of that day.
“n
i
” is the number of calendar days in the relevant Interest Payment Period on which the rate is SOFR
i
.
“d” is the number of calendar days in the relevant Interest Payment Period.
For these calculations, the interest rate in effect on any U.S. Government
Securities Business Day will be the applicable rate as reset on that date. The interest rate applicable to any other day is the interest rate from the immediately preceding U.S. Government Securities Business Day.
All percentages used in or resulting from any calculation of the rate of interest
on the notes will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with 0.000005% rounded up to 0.00001%, and all U.S. dollar amounts used in or resulting from these calculations on the notes will be rounded
to the nearest cent, with one-half cent rounded upward.
Alternative Interest Accrual Calculation in Case of an Event
of Default.
In case an event of default with respect to each $1,000 principal amount of the notes shall have occurred and be continuing, the amount declared due and payable for the notes (the
“Stated Principal Amount”) upon any acceleration of the notes shall be determined by the calculation agent, after consultation with us, and shall be an amount in cash equal to the Stated Principal Amount plus accrued and unpaid interest thereon
calculated as if the date of such acceleration were the Maturity Date, final Interest Payment Period End-Date (if applicable) and final Interest Payment Date.
If a Payment Date is Not a Business Day.
The terms
set forth in the accompanying prospectus under “Description of Debt Securities—Floating Rate Debt Securities—If a Payment Date Is Not a Business Day” shall not apply to the notes.
Determination of SOFR
The notes will bear interest at the interest rate specified in such note and this
pricing supplement. During the Floating Rate Period, that interest rate will be based on SOFR with the Index Maturity specified above.
“SOFR” means, with respect to any U.S. Government Securities Business Day:
(1) the Secured Overnight Financing Rate in respect of such
U.S. Government Securities Business Day as provided by the New York Federal Reserve, as the administrator of such rate (or a successor administrator) on the New York Federal Reserve’s Website on or about 5:00 p.m. (New York time) on the U.S.
Government Securities Business Day immediately following such U.S. Government Securities Business Day; or
(2) if the Secured Overnight Financing Rate in respect of such
U.S. Government Securities Business Day does not appear as specified in paragraph (1), unless both a Benchmark Transition Event and its related Benchmark Replacement Date have occurred, the Secured Overnight Financing Rate in respect of the last
U.S. Government Securities Business Day for which such rate was published on the New York Federal Reserve’s Website; or
(3) if a Benchmark Transition Event and its related Benchmark
Replacement Date have occurred:
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the sum of: (a) the alternate rate of interest that has been selected or recommended by the Relevant
Governmental Body as the replacement for the then-current Benchmark for the applicable Corresponding Tenor and (b) the Benchmark Replacement Adjustment; or
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the sum of: (a) the ISDA Fallback Rate and (b) the Benchmark Replacement Adjustment; or
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the sum of: (a) the alternate rate of interest that has been selected by us or our designee as the
replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to any industry-accepted rate of interest as a replacement for the then-current Benchmark for U.S. dollar-denominated floating
rate notes at such time and (b) the Benchmark Replacement Adjustment.
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“Benchmark” means the Secured Overnight Financing Rate with the Index Maturity
specified above; provided that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to the Secured Overnight Financing Rate with the Index Maturity specified above or the then-current Benchmark,
then “Benchmark” means the applicable Benchmark Replacement.
“Benchmark Replacement” means the first alternative set forth in the order
presented in clause (3) of the definition of “SOFR” that can be determined by us or our designee as of the Benchmark Replacement Date. In connection with the implementation of a Benchmark Replacement, we or our designee will have the right to
make Benchmark Replacement Conforming Changes from time to time.
“Benchmark Replacement Adjustment” means the first alternative set forth in the
order below that can be determined by us or our designee as of the Benchmark Replacement Date:
(1) the spread adjustment, or method for calculating or
determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected or recommended by the Relevant Governmental Body for the applicable Unadjusted Benchmark Replacement;
(2) if the applicable Unadjusted Benchmark Replacement is
equivalent to the ISDA Fallback Rate, then the ISDA Fallback Adjustment;
(3) the spread adjustment (which may be a positive or negative
value or zero) that has been selected by us or our designee giving due consideration to any industry-accepted spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the then-current Benchmark
with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated floating rate notes at such time.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark
Replacement, any technical, administrative or operational changes (including changes to the definition of “Interest Payment Period,” timing and frequency of determining rates and making payments of interest and other administrative matters) that
we or our designee decide may be appropriate to reflect the adoption of such Benchmark Replacement in a manner substantially consistent with market practice (or, if we or our designee decide that adoption of any portion of such market practice is
not administratively feasible or if we or our designee determine that no market practice for use of the Benchmark Replacement exists, in such other manner as we or our designee determine is reasonably necessary).
“Benchmark Replacement Date” means the earliest to occur of the following events
with respect to the then-current Benchmark:
(1) in the case of clause (1) or (2) of the definition of
“Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of the Benchmark permanently or indefinitely ceases to provide the
Benchmark; or
(2) in the case of clause (3) of the definition of “Benchmark
Transition Event,” the date of the public statement or publication of information referenced therein.
For the avoidance of doubt, if the event giving rise to the Benchmark Replacement
Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination.
“Benchmark Transition Event” means the occurrence of one or more of the following
events with respect to the then-current Benchmark:
(1) a public statement or publication of information by or on
behalf of the administrator of the Benchmark announcing that such administrator has ceased or will cease to provide the Benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor
administrator that will continue to provide the Benchmark;
(2) a public statement or publication of information by the
regulatory supervisor for the administrator of the Benchmark, the central bank for the currency of the Benchmark, an insolvency official with jurisdiction over the administrator for the Benchmark, a resolution authority with jurisdiction over the
administrator for the Benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for the Benchmark, which states that the administrator of the Benchmark has ceased or will cease to provide the
Benchmark permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Benchmark; or
(3) a public statement or publication of information by the
regulatory supervisor for the administrator of the Benchmark announcing that the Benchmark is no longer representative.
A “business day” means any day, other than a Saturday or Sunday, that is neither
a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
“Corresponding Tenor” with respect to a Benchmark Replacement means a tenor
(including overnight) having approximately the same length (disregarding business day adjustment) as the applicable tenor for the then-current Benchmark.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International
Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time.
“ISDA Fallback Adjustment” means the spread adjustment (which may be a positive
or negative value or zero) that would apply for derivatives transactions referencing the ISDA Definitions to be determined upon the occurrence of an index cessation event with respect to the Benchmark for the applicable tenor.
“ISDA Fallback Rate” means the rate that would apply for derivatives transactions
referencing the ISDA Definitions to be effective upon the occurrence of an index cessation date with respect to the Benchmark for the applicable tenor excluding the applicable ISDA Fallback Adjustment.
“New York Federal Reserve” means the Federal Reserve Bank of New York.
“New York Federal Reserve’s Website” means the website of the New York Federal
Reserve, currently at http://www.newyorkfed.org, or any successor source.
“Reference Time” with respect to any determination of the Benchmark means the
time determined by us or our designee in accordance with the Benchmark Replacement Conforming Changes.
“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal
Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.
“U.S. Government Securities Business Day” means any day except for a Saturday,
Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.
“Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the
Benchmark Replacement Adjustment.
If a Benchmark Transition Event and its related Benchmark Replacement Date have
occurred, any determination, decision or election that may be made by us or our designee pursuant to this section “Determination of SOFR,” including any determination with respect to a tenor, rate or adjustment or of the occurrence or
non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection:
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will be conclusive and binding absent manifest error;
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will be made in our or our designee’s sole discretion; and
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notwithstanding anything to the contrary in the documentation relating to the notes, shall become effective
without consent from the holders of the notes or any other party.
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United States Federal Taxation
In the opinion of our counsel, Davis Polk & Wardwell LLP, the notes should be treated as “variable rate debt instruments” for U.S.
federal tax purposes. The notes will be treated as providing for a single fixed rate followed by a single qualified floating rate (“QFR”), as described in the sections of the accompanying prospectus supplement called “United States Federal Taxatio
n―Tax Consequences to U.S. Holders―Floating Rate Notes―General” and “―Floating Rate Notes that Provide for Multiple Rates.” Under applicable Treasury Regulations, in order to determine the
amount of qualified stated interest (“QSI”) and original issue disc
ount (“OID”) in respect of the notes, an equivalent fixed rate debt instrument must be constructed for the entire term of the notes. The equivalent fixed rate debt
instrument is constructed in the following manner: (i) first, the initial fixed rate is converted to a QFR that would preserve the fair market value of the notes, and (ii) second, each QFR (including the QFR determined under (i) above) is converted
to a fixed rate substitute (which will generally be the value of that QFR as of the issue date of the notes). Under Treasury Regulations applicable to certain options arising under the terms of a debt instrument, in determining the amount of QSI
and OID, we will be deemed to exercise our optional redemption right if doing so would reduce the yield on the equivalent fixed rate debt instrument. For the purpose of determining
QSI and OID, the optional make-whole redemption should not be deemed to be exercised. However, if, as of the issue date, redeeming the notes on July
, 2024 would reduce the yield of the equivalent fixed rate debt instrument, the notes will be treated as fixed rate debt instruments maturing on July
, 2024 (the “instrument maturing July 2024”). Under those circumstances, if the notes are not actually redeemed by us on July
, 2024, solely for purposes of the OID rules, they will be
deemed retired for their principal amount and reissued, and will thereafter be treated as floating rate debt instruments with a term of one year (the “1-year instrument”). The instrument maturing July 2024 would be treated as issued without OID,
and all payments of interest thereon would be treated as QSI. Interest on the 1- year instrument should generally be taken into account when received or accrued, according to your method
of
tax accounting, but it is possible that the 1-year instrument could be subject to the rules described under “United States Federal Taxation―Tax Consequences to U.S. Holders―Short-Term Notes” in the accompanying prospectus supplement.
If, as of the issue date, redeeming the notes on July
, 2024 would not reduce the yield on the equivalent fixed rate debt instrument, the rules under “United States Federal Taxation―Tax Consequences to U.S. Holders―
Discount Notes―General” must be applied to the
equivalent fixed rate debt instrument to determine the amounts of QSI and OID on the notes. Under those circumstances, the notes may be issued with
OID.
A U.S. holder is required to include any QSI in income in accordance with the U.S. holder’s regular method of accounting for U.S. federal
income tax purposes. U.S. holders will be required to include any OID in income for U.S. federal income tax purposes as it accrues, in accordance with a constant yield method based on a compounding of interest. QSI allocable to an accrual period
must be increased (or decreased) by the amount, if any, which the interest actually accrued or paid during an accrual period (including the fixed rate payments made during the initial period) exceeds (or is less than) the interest assumed to be
accrued or paid during the accrual period under the equivalent fixed rate debt instrument.
In addition, as discussed in the accompanying prospectus supplement, withholding rules commonly referred to as “FATCA” apply to certain
financial instruments (including the notes) with respect to payments of amounts treated as interest (including OID, if any) and to any payment of gross proceeds of a disposition (including retirement) of such an instrument. However, recently
proposed Treasury Regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition (other than amounts
treated as “FDAP income” as defined in the accompanying prospectus supplement).
Both U.S. and non-U.S. holders of the notes should read the section of the accompanying prospectus supplement entitled
“United States Federal Taxation.”
You should consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the
notes, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Moreover, neither this document nor the accompanying prospectus supplement address the consequences to taxpayers subject to special
accounting rules under Section 451(b) of the Internal Revenue Code of 1986, as amended.
The discussion in the preceding paragraphs under “United States Federal Taxation,” and the discussion contained in the
section entitled “United States Federal Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of
Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the notes.
Supplemental
Information Concerning Plan of Distribution; Conflicts of
Interest
On July
, 2019, we agreed to sell to the managers listed below, and
they severally agreed to purchase, the principal amounts of notes set forth opposite their respective names below at a net price of
%, plus accrued interest, if any, which we refer to as the
“purchase price” for the notes. The purchase price for the notes equals the stated Issue Price of
%, plus accrued interest, if any, less a combined management and underwriting commission of
% of the principal amount of the notes.
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Principal Amount of
Notes
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Morgan Stanley & Co. LLC
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Total
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$
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Morgan Stanley & Co. LLC is our wholly-owned subsidiary. This offering will be conducted in compliance with the
requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. In accordance
with Rule 5121 of FINRA, Morgan Stanley & Co. LLC may not make sales in this offering to any discretionary accounts without the prior written approval of the customer.
Notwithstanding the selling and other restrictions set forth in “Plan of Distribution (Conflicts of
Interest)” in the accompanying prospectus supplement, the following applies with respect to securities offered or sold in the EEA:
Prohibition of Sales to EEA Retail Investors
The notes may not be offered, sold or otherwise made available to any retail investor in the EEA. For
the purposes of this provision:
(a)
the expression “retail investor” means a person who is one (or more) of the following:
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(i)
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a retail client as defined in point (11) of Article 4(1) of MiFID II; or
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(ii)
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a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in
point (10) of Article 4(1) of MiFID II; or
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(iii)
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not a qualified investor as defined in the Prospectus Directive; and
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(b)
the expression “offer” includes the communication in any form and by any means of sufficient information on the terms of
the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe for the notes.