Preferred Stock Midday Commentary: NextEra's $25-par notes talked at 5.625%; Citi calls TRuPs

By Stephanie N. Rotondo

Phoenix, June 11 - A preferred stock trader said that "everything is looking OK in the new issue world" around midday Monday.

NextEra Energy Capital Holdings Inc. announced plans for a sale of $25-par series H junior subordinated debentures due June 15, 2072.

Price talk is around 5.625%, according to a trader.

"I thought that was pretty good," he said. "I thought it was priced pretty well, so it should do well."

He said the paper was trading at $24.65 to $24.70 in the gray market.

The trader further speculated that the "new issue machine" - especially in the financial arena - was going to kick into high gear, now that the Federal Reserve has released its proposed new capital rules under Basel III.

"I would expect the new issue calendar and bank preferreds to start to pick up pretty soon," he said.

Additionally, he said that he expected banks to begin calling more issues, particularly high coupon trust preferreds. Citigroup Inc. has already jumped on the bandwagon, calling its 8.5% fixed-to-floating series J trust preferreds and its 8.3% $1,000-par fixed-to-floating rate enhanced trust preferreds.

Though the TRuPs were technically not callable, the new Fed rules are being argued as a regulatory capital treatment event, thus triggering the call, the trader said.

The securities will be called July 18. The Js (NYSE: CPJ) were trading down 20 cents at $25.60 at midday.

The call price is $25.10625, including accumulated dividends.

If more financial institutions do call issues affected by the new rules, said banks would likely then issue DRD paper to replace the TRUPs.

"That's an attractive way to replace the trust preferreds," he said.

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