Midday Commentary: Discover Financial's new issue frees to trade; CBL's called issue trades actively

By Stephanie N. Rotondo

Phoenix, Oct. 10 - Discover Financial Services' new 6.5% series B noncumulative perpetual preferreds were running up significantly in Wednesday trading, according to a preferred stock trader.

The $500 million issue that priced Tuesday freed from the syndicate early in the session Wednesday, the trader said, seeing paper trade at $25.50, leaving them at $25.45 bid.

"I'm not seeing a lot of offerings out there, just bids and then they get hit," he said. He added that he believes several funds were picking up the securities, speculating that the gains were due to managers covering shorts.

Meanwhile, CBL & Associates Properties Inc.'s 7.375% series D cumulative redeemable preferreds (NYSE: CBLPD) were trading actively at midday, falling a penny to $25.45.

The issue was called on Friday. The company will use funds from its recent sale of 6.625% series E cumulative redeemable preferreds, a $150 million issue that priced Sept. 28. The $22.5 million greenshoe was exercised Friday.

The recent deal listed on the New York Stock Exchange on Tuesday under the ticker symbol "CBLPE." The preferreds were trading at $25.30 at midafternoon, up 11 cents.

Bank of America Corp. put out a research report at midweek noting that preferred stocks are reaching peak pricing levels. Though yields are at record lows, preferred paper still has a "respectable income advantage over Treasuries," the report said.

Furthermore, the report encourages investors who bought preferred securities for their price gains to sell given the belief that prices could soon face a decline, though not a substantial one.

"Although the potential upside for preferreds may be limited, we don't expect the market to decline meaningfully over the near term," the report said.

Preferreds are also not overvalued in relation to Treasuries, it said.

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