More plaintiffs are expected to join a lawsuit against Morgan Stanley & Co. and May Department Stores Co. for their alleged role in a bid to improperly call high-cost debt, one of the original plaintiffs said yesterday.

Morgan Stanley "told us to ~go to hell and sue us,' so we're just trying to accommodate them on that," David Bronner, chief executive officer of the Retirement Systems of Alabama fund, the plaintiff, said yesterday.

Bronner was describing the response his fund allegedly received from Morgan Stanley when it asked the investment bank to prove the bonds were properly called.

In the suit filed Friday in a Montgomery, Ala., court, the Alabama fund, state pension programs in California and Montana, and several other plaintiffs are seeking $24 million in compensatory damages from Morgan Stanley and the retailer, Bronner said. They are also seeking $100 million in punitive damages.

Those figures will grow if more plaintiffs join the suit as expected this week and next. Bronner declined to name those potential plaintiffs yesterday.

The suit alleges that Morgan Stanley committed fraud and breach of contract when it used a $200 million bond issue priced Oct. 6 to pay off the high-priced debt, he said.

Bronner said May Department Stores in 1988 issued $250 million of 10 3/4% bonds and $175 million of 10 7/8% bonds. Bronner's funds holds $140 million of the two series of bonds.

Both issues mature in 2018 and are nonrefundable until 1998. However, the bonds could be called under certain circumstances before 1998, but only with "clean cash," according to Bronner. He described such cash as funds obtained by selling stock or assets, or from "internally generated funds." The company is prohibited from using proceeds from a lower-cost offering call the bonds, Bronner noted.

"We can't prove that they don't have clean cash," Bronner said, adding that checks of company fillings with the Securities and Exchange Commission and other documents show no signs of such clean cash. He suspects the cash stems from the $200 million offering.

"It's either that or they grew it somewhere," Bronner said. He added that, ironically, the clean cash exception was established during a lawsuit filed years ago by Morgan Stanley against a company called Archer Daniels Midland.

Morgan Stanley tried to "schmooze" the Alabama fund by adding 1/4 point to the price at which it was calling the bonds, but Alabama refused, he said.

Bronner said other investment banks besides Morgan Stanley have used such tactics over the past three or six months. Because they are hungry for fees and companies have already refinanced all the debt they can through proper channels, investment bankers are going after debt that should be protected from such calls, he alleged.

The Securities and Exchange Commission has been notified of the suit against Morgan Stanley and May, Bronner said.

A Morgan Stanley spokeswoman said her firm had no comment on the suit. A spokesman for May could not be reached for comment.

In market news yesterday, the Tennessee Valley Authority announced it will sell $1 billion of 30-year bonds by competitive bid today, accelerating the offering originally planned for early next year.

William F. Malec, chief financial officer of the authority, yesterday said he expects today's deal, which has five-year call protection, to carry an interest rate of less than 8%.

An opportunity to price such a deal at that rate has only surfaced twice since 1975, once that year and once in 1986, he said yesterday. Although it is possible rates may drop further next year, he said "it's better, I guess, to have a bird in the hand than two in the bush."

Malec said the authority decided to move up the offering last week. He expects six or seven syndicate groups to compete for the offering.

The authority plans to use proceeds from the sale to repay a portion of its outstanding short-term debt incurred in financing its power program, according to an authority release.

These costs are linked to improving the dependability and availability of the utility's fossil and hydroelectric plants, expenditures for the authority's Clean Air compliance initiatives, and nuclear plant construction.

Today's offering marks the seventh time this year the authority has tapped the public financial markets and brings the amount of debt it has issued this year to about $7 billion.

Since the authority returned to the public market in 1989, it has sold over $15 billion of bonds.

"We have been extremely pleased with the reception TVA has received from the investment community," Malec said in the release. "In addition to supplying new capital funds, the public markets have provided TVA with the flexibility to refinance about $13 billion of higher cost debt at a savings of about $200 million annually."

In other news yesterday, high-yield bonds ended a quiet day unchanged to 1/8 lower. High-grade bonds mirrored the government market, which ended slightly lower. In such issues, Federal Home Loan Banks issued $110.5 million of 5.47% debentures due 1995 at par. Noncallable for a year, the debentures were priced to yield 18 basis points over comparable Treasuries. Bear, Stearns & Co. sole-managed the offering.

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