Realty Income brings upsized deal; Aegon preferreds rise; Ally sinks; RBS deemed a worthy bet

By Stephanie N. Rotondo

Portland, Ore., Jan. 31 - The preferred stock market was on the subdued side going into month-end trading, traders reported Tuesday.

"[Investors] had a good month," a trader said. "So everybody is just chilling."

Overall, "the whole market was kind of mixed to flat-ish," another market source said, and volume was "light to moderate."

Yet another new issue priced on Tuesday, adding to the already hefty list of deals that have come in January. Realty Income Corp. brought a $325 million offering of 6.625% monthly income class F cumulative redeemable preferreds to market. The deal was larger than originally expected and was trading relatively well.

Aegon NV's recent $500 million issue of 8% $25-par notes was "cleaning up and moving in the right direction," a source remarked. Another source opined that JPMorgan's recent "buy" rating on the common stock might have helped.

Sources were also discussing the new issue calendar and expectations for its performance for the first half of 2012. One source noted that if the calendar continues to churn out deals like it has been doing, total issuance for the year could top 2008 levels.

Away from new issues, Ally Financial Inc.'s preferreds were on the decline after the company said it will take a hefty charge for the fourth quarter. The charge is due to regulatory penalties.

Also, Royal Bank of Scotland Group plc paper was active and steady. A source said Barclays plc recently said that some currently non-paying issues could have significant upside in the next 12 to 18 months, which might be encouraging investors to take a second look.

Realty Income sells preferreds

Realty Income priced a $325 million offering of 6.625% monthly income class F cumulative redeemable preferred stock, according to a press release issued Tuesday.

The deal came at the low end of price talk.

The underwriters have a 1.95 million share over-allotment option.

"It was certainly larger than what they went out with," a market source said of the deal's size. Originally, the company was looking to issue just $150 million of the preferreds.

Shortly before the close on Tuesday, a trader saw the securities trading at $24.88.

Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, RBC Capital Markets LLC and UBS Securities LLC were the bookrunners.

Dividends are payable on the 15th day of each month.

The preferreds are callable beginning Feb. 15, 2017.

The Escondido, Calif.-based real estate investment trust intends to list the preferreds on the New York Stock Exchange. Settlement is expected Feb. 7.

Proceeds will be used to redeem the trust's class D preferreds. The remaining proceeds will be used to repay borrowings under the company's $425 million acquisition credit facility.

Aegon issues rise

A trader said JPMorgan issued a "buy" rating on Aegon's common stock, which might have helped its recent issue head into higher territory.

The trader saw the 8% $25-par notes trading at $24.77 before the bell, with offers hitting $24.80.

Another market source said the notes closed at $24.77 and had a volume-weighted average price of $24.80. On Monday, the paper closed at $24.83, but its VWAP was lower at $24.70.

"It's cleaning up and moving in the right direction," he said.

The source also noted that about 1.4 million of the notes changed hands Tuesday, versus about 1 million on Monday.

The deal priced Jan. 24. It has yet to list on an exchange.

Among the company's other preferreds, the 6.375% perpetual capital securities (NYSE: AEH) closed up 11 cents at $21.61.

Aegon is an insurance and financial services provider based in the Hague, the Netherlands.

New issues: Full speed ahead

The new issue calendar has been hopping ever since January kicked off this year, leaving some to speculate about what is to come.

According to one source, the total issuance of $25-par and $1,000-par issues has hit over $4 billion in January alone - about a quarter of the total issuance of 2011. If the rate of new issues continues, he said, total issuance for 2012 could easily hit $50 billion - the biggest since 2008, when Freddie Mac and Fannie Mae defaulted and the entire financial system was in disarray.

Another source opined that a majority of new deals, at least in the next six months, will come from REITs.

"I think we'll see a rush of a lot of deals in the first half of the year," he said.

"Until they clear up the banking regulations, whenever that might be," REITs will likely be predominant in the market, another source said.

However, once the regulations are proposed and in play, "that will lay the foundation for large [bank] issuance down the road."

Ally declines on charge

Ally Financial's 8.5% fixed-to-floating rate series A perpetual preferreds (NYSE: ALLYPB) dominated secondary trading, with nearly 3.6 million shares turning over. They fell 16 cents to $20.90.

The 8.125% trust preferreds (NYSE: ALLYPA) meantime lost a nickel, closing at $22.19, with just over 147,000 shares trading.

On Tuesday, Ally said it is taking a $270 million charge in the fourth quarter for regulatory penalties. The charge is mostly related to its Residential Capital LLC unit and "foreclosure related matters." The charge will also result in the lowering of ResCap's tangible net worth to below $250 million, which will create a covenant breach. As such, ResCap is having to seek waivers from its lenders.

The charge is also expected to result in a net loss for the quarter. Results are expected Thursday.

Ally is a Detroit-based bank. ResCap is its Minneapolis-based mortgage lending unit.

RBS could have upside

Royal Bank of Scotland's 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) ended the day flat at $17.20, but they were one of the day's more actively traded issues.

Over 316,500 shares changed hands.

A trader said that issue - and others under the RBS umbrella that will have a mandatory no-pay clause turned off in April - was "highlighted" by Barclays recently. "The potential return on those is quite large" if the dividend is turned back on in the next 12 to 18 months.

The dividends were previously turned off after the Edinburgh-based bank received a government bailout.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.