Public Storage's planned new issue fizzles ahead of pricing; broad market ends fairly mixed

By Stephanie N. Rotondo

Phoenix, June 5 - The preferred stock market was "looking for direction out of Europe again," a trader said Tuesday.

Alas, "that's not happening," he said.

Another market source commented that there was not a lot of news driving the market "other than that things are frozen in Europe."

In the primary arena, Public Storage, a regular issuer in the preferred stock market, announced plans for a sale of series U cumulative perpetual preferreds. But low price talk - 5.625% to 5.75% - did not have investors grappling for paper, markets sources said.

"The gray market is telling me this thing is a pig," one such source commented.

In the secondary, the day was fairly mixed between up and down and recent new issues and older issues, according to a source.

"Volume was a little better than [Monday], but not a lot," he said.

Public Storage deal 'a pig'

Public Storage intends to price an offering of series U cumulative perpetual preferred stock.

Price talk is 5.625% to 5.75%, a trader said.

The trader commented that the yet-to-be priced deal was "doing relatively well" in the gray market, trading around $24.60.

"For that coupon, I'm surprised it was trading at all," he said.

After the close, a source pegged the issue at $24.62 bid, $24.67 offered.

"They're usually a little more reasonable," he said, pointing to the low dividend. "Maybe they'll not be able to get much done and they'll have to put it on the wider end."

The source noted that the Glendale, Calif.-based real estate investment trust's last new issue was back in March. That came at 5.65%, he said, but the market was doing much better at that time.

"Somebody's clearly trying to push this one," he said, adding that Wells Fargo Securities LLC - the lead bookrunner on the deal - is "not the best of underwriters. It's kind of like you are wearing out your welcome."

Still, there was hope for the issue.

"If they price it towards the wide end and don't upsize it" - the offering is expected to be between $150 million and $250 million - "maybe it starts trading a little better," he said.

Public Storage will apply to list the new preferreds on the New York Stock Exchange under the symbol "PSAPU."

Bank of America Merrill Lynch, Morgan Stanley & Co. LLC, UBS Securities LLC and Wells Fargo are the joint bookrunning managers. J.P. Morgan Securities LLC and RBC Capital Markets, LLC are the co-managers.

Proceeds from the sale will be used to redeem $172.5 million of 7% series N cumulative preferred shares. Any remaining funds will be used for general corporate purposes, which may include investments in self-storage facilities and other possible redemptions.

The 7% preferreds (NYSE: PSAPN) closed down a penny at $25.42, though on thin trading.

The securities will be redeemed July 2.

Broad market mixed

In the rest of the preferred market, recent issues such as Charles Schwab Corp.'s 6% series B noncumulative perpetual preferreds and U.S. Bancorp's 6% series G fixed-to-floating noncumulative perpetual preferreds were among the day's most actively traded securities, according to a market source.

The Schwab deal, which has yet to list, closed up 13 cents at $24.85. U.S. Bancorp's securities ended the day down 11 cents at $26.06.

Away from recent issues, names like Ally Financial Inc. and Bank of America Corp. dominated.

Ally's 8.125% series 2 fixed-to-floating-rate trust preferreds (NYSE: ALLYPA) weakened by 9 cents, closing at $22.62.

Bank of America issues were mixed. The 8.2% series H noncumulative preferreds (NYSE: BACPH) earned a nickel to end at $24.96, while the Merrill Lynch 8.625% series 8 noncumulative preferreds (NYSE: BMLPQ) dropped a nickel to $25.06.

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