NextEra Energy brings $325 million $25-par notes to market; Schwab lists; JPMorgan calls TRUPs

By Stephanie N. Rotondo

Phoenix, June 12 - The preferred stock market reversed direction Tuesday, regaining most, if not all, of the ground lost in the previous session.

"It was probably a little more mixed than it would appear," a market source said. "But it was still an up day nonetheless."

NextEra Energy Capital Holdings Inc. priced its new issue of $25-par series H junior subordinated 60-year notes shortly before the market closed. The $325 million came in line with price talk at 5.625%.

However, "last I heard, it wasn't doing so well in the gray [market]," a source reported.

Also in the world of new issues, Charles Schwab Corp.'s recent 6% series B noncumulative perpetual preferred stock officially listed on the New York Stock Exchange.

In the secondary market, recently called issues from Citigroup Inc. and JPMorgan Chase & Co. were moving about. As previously reported, Citigroup said on Friday that it will redeem two of its trust preferred issues. SunTrust Bank Inc. also said Friday that it will redeem about $1.19 billion of trust preferred securities.

Late Monday, JPMorgan joined in, announcing that it will redeem nine preferred issues for a total of about $9 billion.

The "extraordinary" calls are taking place due to the recent unveiling of the Federal Reserve's proposed capital treatment rules. Under the new Fed rules, trust preferreds issued prior to May 19, 2010 will no longer be considered tier 1 capital.

"I think we'll see those continually running in," a trader said of the calls. "That should be relatively positive for domestic banks."

However, the redemptions beg the question: Where will accounts then put all that money?

"These amounts of products are not going to be replaced with the same type or quality of stuff," the trader said, adding that the new issue market likely cannot keep up either. "It will be interesting to see where the money goes."

He opined that cash could begin flowing into the hybrid market, like General Electric Capital Corp.'s new $2.25 billion issue of 7.125% series A fixed-to-floating-rate noncumulative perpetual preferred stock.

That $100,000-par issue was trading at "104 and change," the trader said at midday.

Money could also be put to work in more real estate investment trusts, he speculated, though even then supply might not be enough to meet demand.

NextEra prices

NextEra Energy Capital Holdings brought a $325 million offering of 5.625% $25-par series H junior subordinated debentures due June 15, 2072 on Tuesday.

Pricing was in line with talk.

Ahead of pricing, which occurred shortly before the bell, the paper was trading at $24.65 in the midday gray market.

After pricing and post-close, a market source said that "last I heard, it wasn't doing so well in the gray."

He quoted the notes at $24.67 bid, $24.77 offered.

NextEra Energy Inc. will unconditionally and irrevocably guarantee the notes.

The company is applying to list the notes on the NYSE. Settlement is expected Friday.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, UBS Securities LLC and Wells Fargo Securities LLC are the joint bookrunning managers. Raymond James & Associates Inc. and RBC Capital Markets LLC are the co-managers.

Proceeds from the offering will be contributed to NextEra's general fund. The company will then use the funds to repay a portion of its commercial paper obligations and for other general corporate purposes.

NextEra is a Juno Beach, Fla.-based energy provider.

Schwab lists on NYSE

Charles Schwab's $425 million of 6% series B noncumulative perpetual preferred stock officially listed on the NYSE on Tuesday under the ticker symbol "SCHWPB."

Upon listing, the issue traded down 6 cents to $24.97.

The deal priced May 30.

The San Francisco-based investment company will use the proceeds for general corporate purposes, which may include extending credit to or funding investments in subsidiaries and the possible refinancing of outstanding debt.

Citi, JPMorgan busy on calls

Citigroup and JPMorgan preferreds were trading actively Tuesday as investors reacted to news of upcoming redemptions.

As previously reported, Citigroup said late Friday that it will redeem its 8.5% fixed-to-floating-rate series J trust preferreds (NYSE: CPJ) and its 8.3% $1,000-par fixed-to-floating-rate enhanced trust preferreds.

The Js are not technically callable until March 30, 2015. However, because the new rules are considered a regulatory capital treatment event, the bank is able to redeem the securities early.

Both issues will be redeemed July 18.

The Js gained 4 cents in Tuesday trading, ending at $25.60. The preferreds are trading at a premium to the $25.10625 call price, which includes accumulated dividends.

Citi's 6% trust preferreds (NYSE: CPS) were also active, earning 27 cents, or 1.12%, to close at $24.36. A market source noted that the issue has "not yet" been called but added that there is "strong speculation that it might be."

"That's a lower coupon, so that's not going to be among the first they go after," he said, commenting that Citi's current strategy is to get the higher coupons off the books first.

Meanwhile, JPMorgan announced its own call late Monday.

Two of the nine called issues - the 8% fixed-to-floating series Z capital securities (NYSE: JPMPZ) and the 7.2% series BB fixed-to-floating capital securities (NYSE: JPMPB) - softened a bit but were trading at a premium to the call price.

Given the premium, the declines were "a perfectly normal market response," a source said.

The Zs closed down 13 cents at $24.50, and the BBs dipped 11 cents to $25.51.

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