CommonWealth sells upsized deal, expected to do well; Endurance dips as investors 'swap' paper

By Stephanie N. Rotondo

Portland, Ore., May 26 - Some preferred market players elected to get a head start on the three-day holiday weekend, which resulted in a lackluster day for preferred stocks on Thursday.

"Everybody has left for the weekend," lamented one trader who was still stuck at his desk. With no one around, it was harder to get things done and, as a result, many issues were pressured.

Another trader remarked that there was a "late-day sell-off" that weighed on the market.

Despite the empty desks and weaker marketplace, CommonWealth REIT priced an issue of series E cumulative redeemable perpetual preferreds. The deal was upsized to $250 million from $150 million, and the dividend came in below price talk.

"That will piss everybody off," said one trader. "They ramped up the size and dropped the coupon a quarter-point when nobody is around."

Another trader, however, held a much more positive view of the deal.

Meanwhile, Endurance Specialty Holdings Ltd.'s recent new issue - a $230 million issue of 7.5% non-cumulative series B perpetual preferreds that came Tuesday - dipped some, leaving a trader to opine that accounts were getting out of Endurance to buy CommonWealth.

On Wednesday, Fifth Third Bancorp announced that it would provide relief for those who bought or sold its 8.875% series C trust preferreds between May 16 and May 18. A spike in trading volume ahead of a redemption announcement led some to cry foul, and the Securities and Exchange Commission is reportedly investigating the matter. On Thursday, two traders gave Prospect News their viewpoints on the debacle.

CommonWealth deal prices

Newton, Mass.-based real estate investment trust CommonWealth REIT priced a $250 million new issue on Thursday at 7.25%.

Original talk had been 7.5% to 7.625%, according to a trader.

Another trader said there was "big institutional demand" for the paper.

"The deal was run well," he said. "It comps out very well. It's a name I like, and I think it will do very well."

The first trader placed the issue at $24.58 before the market closed. The second trader saw the shares at $24.70 by day's end.

"It will probably start trading near par before it lists," the second trader speculated.

Endurance new issue slips

A trader said investors were "swapping out of" Endurance Specialty Holdings' new issue for the CommonWealth deal Thursday, which put pressure on the 7.5% series B preferreds.

He quoted the issue at $25.05 bid, $25.10 offered in the gray market, down from $25.25 the day before.

"It's got good support around par," he said.

Another trader said the shares had traded up to $25.20 bid, $25.30 offered on Wednesday only to fall back to $25.07 on Thursday.

The second trader noted that a temporary trading symbol had been given to the issue, "ENHSF."

Endurance is a Pembroke, Bermuda-based insurance company.

Fifth Third faces investigation

Cincinnati-based Fifth Third said Wednesday it would reimburse those who bought or sold its 8.875% series C trust preferreds after 2:16 p.m. ET on May 16 and before trading was halted on May 18 due to a potential mistake that might have resulted in an incident of insider trading.

On May 16, the bank told its trustee that it was planning to call the series C preferreds early at $25.18. Between then and May 18 - when the company filed an 8-K with the SEC - trading volume in the preferreds spiked.

"Clearly the information was leaked," a trader said. The bank is claiming that it had no part in any potential insider trading - which the SEC is reportedly investigating - and the trader pondered that its attempt to make investors whole was a ploy to avoid any potential lawsuits.

"If I was a shareholder, I'd be pretty pissed off," he said. "The SEC is definitely looking into the insider-trading aspect of it."

And, while he was "glad that they are taking investors out that were hurt on it," he also noted that if any wrongdoers are found, "I'd like to see [them] strung up."

At another desk, a trader was a bit more optimistic about the situation.

"It supported my theory that there is good value in beaten up higher yield stock," he said.

Fifth Third estimates that it will cost $1.5 million to compensate those that were affected by the situation.

The series C preferreds closed 2 cents higher at $25.18 (NYSE: FTBPC).

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