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London, 22 October 2001 -- On Friday, 19 October, Morgan Stanley and BNP Paribas priced the inaugural € 315 million fund for BNP Paribas' Leveraged Funds Group. The fund, called Leveraged Finance Europe Capital I B.V., will invest in a managed portfolio of senior and mezzanine LBO debt across Europe for the benefit of a diversified set of institutional investors. LBO debts, including senior loans, mezzanine loans, and high yield debt securities, are issued in connection with leveraged buy-outs of companies.

The fund has been structured as a Collateralized Debt Obligation ("CDO"), allowing investors in the fund to access term leverage on their investment. While still nascent in Europe, CDO funds have provided significant sources of capital to the leveraged loan market in the United States. BNP Paribas is one of the first European banks to make this step. Commenting on the transaction, Jean Bergeret, Head of Leveraged Finance Europe at BNP Paribas, said: "The development of our fund business is a strategic step for us, as we believe institutional investors will be a major force in the years to come in the European credit market. Our Leveraged Funds Group will allow institutional investors to participate in BNP Paribas' expertise in leveraged finance across Europe."

Indeed, European institutional investors have been looking for years at ways to get exposure to sub-investment grade credits in Europe, with the challenge that this requires a major investment in infrastructure and people. Being able to buy notes issued by these funds gives investors the opportunity to benefit from the expertise of a third party to manage these exposures.

Lincoln Benet, a Managing Director in Morgan Stanley's Credit Products Group, said: "We are proud to have sponsored BNP Paribas' Leveraged Funds Group in its inaugural fund. Through European CDOs, Morgan Stanley aims to offer its clients interesting investment opportunities with the leading European credit managers."

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NOTES FOR EDITORS


Collateralized Debt Obligations explained

Collateralized debt obligations (CDOs) are securities issued by special purpose vehicles that invest in a diversified portfolio of assets. The purchase of the assets is funded by the issuance of several classes of securities, the eventual repayment of which is linked to the performance of the underlying collateral. The technology is similar to that used by banks for securitizing their loan portfolios; however, CDOs tend to be used as a leveraged investment instrument rather than a capital management tool.

The portfolio of assets is dynamically managed by an investment manager. The CDO securities are issued in several tranches or classes; the tranches are ranked by priorities, from the most senior to the most subordinated. The most subordinated tranches would be most exposed to the performance of the underlying portfolio. Investors are therefore able to choose the risk/return profile they prefer. Typically, all tranches except the most junior one, are assigned a rating, which varies from AAA to BB- according to the seniority of the tranche and the underlying portfolio. The underlying portfolios typically consist of non-investment grade debt instruments, which may include high yield bonds, leveraged loans and other similar instruments.


Overview of the markets for Collateralized Debt Obligations and High Yield Bonds

The market for CDOs is the fastest growing sector of the asset backed securities market. The first CDO was created over ten years ago, and it is now an established instrument for investors and an attractive vehicle for asset managers. Moody's estimates(1) that from the first CDO in 1988 through year end 2001, more than 750 CDOs totalling more than $450 billion will have been issued in the market.

The earliest CDOs were backed by portfolios of US high yield bonds. Later transactions introduced additional asset classes. While the high yield bond market for European borrowers is a more recent development, the European leveraged loan market has been growing for over the past 10 years. Because leveraged loans tend to display a more stable risk & return profile than high yield bonds, many financial institutions have participated or are participating in this market.

(1)Source: "Second Quarter 2001 Global CDO Review", 27 July 2001, Moodys' Investor Services


BNP Paribas

BNP Paribas is one of the world's largest banking groups, active in 87 countries, with 80,000 employees across the globe. It is the No.1 continental bank with market capitalisation of 42 billion euros. BNP Paribas is a major player in retail banking, corporate and investment banking, international private banking, asset management and global custody.

BNP Paribas Leveraged Finance Europe ("LFE") is a leader in European LBO finance serving nearly 100 sponsor clients with 40 professionals in Paris, London, Frankfurt, Madrid and Milan. In 2001, LFE underwrote over 2 billion € in senior and mezzanine debt for financial sponsor clients in France, Germany, Italy, Spain, the Netherlands and the UK.


Morgan Stanley

Morgan Stanley is a global financial services firm and a market leader in securities, asset management and credit services. With more than 700 offices in 28 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations.

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This announcement has been issued by, and is the sole responsibility of, Leveraged Finance Europe Capital I B.V. and has been approved by Morgan Stanley & Co. International Limited and BNP Paribas, each of whom is regulated in the United Kingdom by The Securities and Futures Authority Limited. Morgan Stanley & Co. International Limited and BNP Paribas are acting for Leveraged Finance Europe Capital I B.V. and are not acting for any other person in connection with the proposed offer of securities, and will not be responsible for providing to any other person the protections afforded to customers of Morgan Stanley & Co. International Limited and BNP Paribas respectively or for providing advice in relation to the proposed offer. This announcement is not for publication or distribution or release in the United States of America (including its territories and possessions, any State of the United States and the District of Columbia). This announcement does not constitute or form part of an offer or solicitation of an offer to purchase or subscribe for securities in the United States or any other jurisdiction. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States. Not for distribution in the United States, Canada and Japan