Fed's QE3 could be good for preferreds; Apollo prices upsized new issue; BNY Mellon frees

By Stephanie N. Rotondo

Phoenix, Sept. 13 - The big news of the day on Thursday was the Federal Reserve's announcement that it will launch a third round of quantitative easing.

That could be a boon for preferreds, one trader said.

"It's interesting in the sense that it could force Treasury rates to stay at these levels," he said. As such, "people are going to start rushing out for yield." Because preferred stocks are relatively cheap when compared to the rest of the markets, that could cause some action in the space.

However, there is a potential downside, he said. Mortgage rates will likely hold at their current low levels, which in turn could be a problem for real estate investment trusts.

"They can't pay these high dividends when 30-year mortgage rates are at 3.5%," the trader said.

Still, it might be more of an issue for the common stock than the preferreds, he said.

Of the day's goings-on, New York-based Apollo Residential Mortgage Inc. announced an offering of at least $75 million of series A cumulative redeemable perpetual preferreds. The deal priced later in the day at 8% with a $150 million issue size.

Meanwhile, Bank of New York Mellon Corp.'s new $550 million of 5.2% series C noncumulative perpetual preferreds freed from the syndicate in the early afternoon, according to a market source.

The deal priced Wednesday. Pricing was revised from 5.25%. The issue was originally expected to be around $250 million, but the rumor mill had it growing to anywhere from $400 million to $1 billion, according to a market source.

Apollo prices new issue

Apollo Residential Mortgage priced a $150 million offering of 8% series A cumulative redeemable perpetual preferreds.

The deal came in line with talk and upsized from $75 million.

At midday and ahead of pricing, a trader saw the issue offered at $24.82 in the gray market. He also remarked that he had heard the book was sold out early.

"They may increase it. They may just put it away," he said.

Morgan Stanley & Co. LLC, UBS Securities LLC and J.P. Morgan Securities LLC are the joint bookrunning managers. The co-managers are Credit Suisse Securities (USA) LLC, RBC Capital Markets LLC, Stifel Nicolaus & Co. Inc. and JMP Securities LLC.

Proceeds will be used to acquire agency residential mortgage-backed securities, non-agency RMBS and other residential mortgage assets included in the company's investment strategy.

Apollo is a New York-based real estate investment trust.

BNY Mellon frees to trade

A market source said there was "decent volume" in BNY Mellon's new 5.2% series C noncumulative perpetual preferreds.

The deal priced Wednesday and freed in the early afternoon on Thursday.

Before the deal freed up, a trader quoted the issue at $24.90 bid, $24.92 offered.

After freeing and after the bell, another market source said the issue traded as high as $24.95, leaving it at $24.89 bid, $24.94 offered by day's end.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Goldman Sachs & Co., JPMorgan and BNY Mellon Capital Markets LLC are the joint bookrunning managers. Barclays and Deutsche Bank Securities Inc. are the co-managers.

Proceeds will be used for general corporate purposes. Some of the proceeds might be contributed to subsidiaries to be used for general corporate purposes.

BNY Mellon is a New York-based financial services firm.

Public Storage doing well

Public Storage's $450 million of 5.375% series V cumulative perpetual preferred shares of beneficial interest were seen trading at $24.85 at midday. The deal priced Tuesday.

A market source said the paper finished at $24.90, though he noted that the volume-weighted average price was $24.81.

Public Storage is using proceeds from the recent sale to redeem other outstanding series of preferreds.

The REIT is based in Glendale, Calif.

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