Fifth Third redemption causes sell-off; Alabama Power calls three issues; UMH paper on tap

By Stephanie N. Rotondo

Portland, Ore., May 18 - The preferred stock market was jolted Wednesday with news of what one trader called a "premature call" by Fifth Third Bancorp.

As a result of that news, there was "pressure" on the preferreds, said Allen Hassan, managing director of BTIG's preferred products unit.

The call "kind of took everybody by surprise," Hassan said.

As a result of the news and the ensuing pressure, Fifth Third's preferreds dropped.

On the back of that redemption, Alabama Power Co. announced a call of its own after the bell.

In new issue news, UMH Properties Inc. came out with a small deal during the day. It was expected to price by end of business but had not yet done so at press time.

Fifth Third redemption hurts

Shortly before midday, Cincinnati-based Fifth Third announced that it was redeeming early $450 million of trust preferred securities through the end of June.

But a trader said that even ahead of the news, "there was huge sell pressure" on the bank's preferreds, which were trading at a premium.

"This is what investors need to be aware of," he said. "It's a premature call. The original call date was May 15, 2013.

"If you bought it yesterday, you paid $26.68 a 5.37% to the two-year call," he continued. "But now it's a minus 18.3% annualized loss. Now you have to think any bank can do this. Buyer beware!"

"Lots of guys walked in and were robbed of $1-plus of G&L," said Hassan. He noted that the language in the preferreds allows for the company to call the securities early, though he added that it was "obscure language."

"It's very unique," he said.

Fifth Third is calling $400 million of its 8.875% capital trust VII securities at par plus accrued and unpaid dividends of $0.1848958 through the June 15 redemption date.

The bank is also calling $40 million of floating-rate capital securities linked to First National Bankshares on June 30 and $10 million of R&G Capital Trust II LLT's floating-rate capital securities on June 26.

The 8.875% series C preferreds (NYSE: FTB-PC) fell $1.48 to $25.20. The 7.25% series A and B preferreds (NYSE: FTB-PA and FTB-PB) - which are not being called - were also weaker, losing 6 cents and 11 cents to close at $25.38 and $25.34, respectively.

Alabama Power heralds call

After the bell, Alabama Power, a unit of Southern Co., said it planned to redeem $450 million of its $25-par capital securities on June 20.

Like Fifth Third, the bonds traded downward.

The 5 7/8% series GG senior notes due Feb. 1, 2046 (NYSE: ALQ) - a $100 million issue - traded down 12 cents, or 0.47%, to $25.50. Alabama's $200 million issue of 5.875% series II senior notes due March 15, 2046 (NYSE: ALZ) dropped 16 cents, or 0.61%, to $25.66.

The $150 million issue of 6.375% series JJ senior notes due June 15, 2046 closed unchanged at $25.94.

The securities will be redeemed at par plus accrued and unpaid dividends through the redemption date.

The Birmingham, Ala.-based power company sold $450 million of debt in two tranches on Wednesday. Proceeds from the sale will be used to fund the redemption.

UMH to bring new deal

UMH Properties released plans to sell $25 million of series A cumulative redeemable perpetual preferreds on Wednesday.

Price talk was 8.25% to 8.375%, according to a trader. It was expected to price by the end of business, but had not done so by press time.

BTIG's Hassan said the deal had not yet priced, nor had he seen any gray markets for the deal.

J.P. Morgan Securities LLC is the deal's bookrunner, which Hassan said was "interesting."

"They don't get involved in a lot of deals," he said.

UMH is a Freehold, N.J.-based real estate investment trust.

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