Ally's call of 7.25% notes viewed as 'interesting'; preferreds down amid holiday slowdown

By Stephanie N. Rotondo

Phoenix, Dec. 24 - A preferred stock trader called Ally Financial Inc.'s redemption of $704 million of 7.25% $25-par senior notes due 2033 "interesting."

The call was announced late Monday. The Detroit-based bank will pay par plus 37.26 cents of accrued interest.

The redemption date is Jan. 21.

The news took the trader by surprise, given the low coupon.

"For a company with that credit rating, that's probably cheap cash right now," he said. If the company intends to replace it with a new issue, the new paper could carry a higher interest rate.

He wasn't sure what the rationale for calling the issue was, though he said it could be a covenant situation or that "maybe it's a good sign that people think it's getting better [as a company]."

Also on Monday, Ally was granted government approval to change its holding company status from a financial holding company to a bank holding company. The move will allow the company - the former financing arm of General Motors Corp. - to keep an insurance subsidiary and a vehicle-auction website.

Post-news of the redemption and the status change, the 7.25% notes (NYSE: GKM) - the most active in the preferred world, with nearly 1.8 million notes changing hands - fell 3 cents to $25.33.

The 8.125% series 2 fixed-to-floating rate trust preferreds (NYSE: ALLYPA) meantime put on 8 cents to close at $26.53. The 8.5% series A fixed-to-floating rate perpetual preferreds (NYSE: ALLYPB) - an issue with almost 1 million shares trading during the session - was also up 8 cents, ending at $26.78.

Overall, the preferred stock market was soft during the Christmas Eve session. A trader attributed the pressure, as well as a general lack of liquidity, to there being a "lack of people" around to get deals done.

He also noted that there really wasn't any news out to cause any radical movements.

"There's nothing one way or another that's pushing [the market]," he said.

The Wells Fargo Hybrid and Preferred Securities index finished the shortened trading day down 27 basis points.

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