Preferred market’s early gains erased by day’s end; CHS prices new cumulative preferreds

By Stephanie N. Rotondo

Phoenix, Sept. 8 – After declining most of last week, the preferred stock market was getting off to a positive start on Monday. However, the space was unable to hold its gains.

The Wells Fargo Hybrid and Preferred Securities index started the day strong, and at mid-morning it was up 9 basis points. But just after lunch, the index slid into negative territory, eventually finishing down 17 bps.

CHS Inc. added a deal to the pipeline early in the session, announcing an offering of series 3 class B reset rate cumulative redeemable perpetual preferred stock.

Pricing came near the close, with $475 million shares being priced at an initial 6.75% dividend.

At least $250 million shares were expected to price in a 6.75% to 6.875% context, according to a market source.

Ahead of the pricing, a source saw a gray market quote of $24.80 bid, $24.95 offered at mid-morning.

The preferreds begin to float on Sept. 30, 2024 at Libor plus 415.5 bps.

BofA Merrill Lynch and Wells Fargo Securities LLC are leading the deal.

In the company’s already-listed issues, the 7.875% series 1 class B cumulative redeemable preferreds (Nasdaq: CHSCO) fell 73 cents, or 2.47%, to $28.85.

Among recent deals, Bank of America Corp.’s $1 billion of 6.625% $25-par series W noncumulative preferreds were pegged at $24.80 bid, $24.82 offered early in the day. But after the bell, a source said the issue ended the session flat at $24.85.

The deal priced on Tuesday.

Also, Invesco Mortgage Capital Inc.’s $150 million of 7.75% series B fixed-to-floating rate cumulative redeemable preferreds – a deal that came late Thursday – were trading at $24.65 bid, $24.75 offered, a trader said.

As for the week’s calendar, a trader said he was hearing that Citigroup Inc., Morgan Stanley or Citizens Financial Group could be coming with a deal this week, “but nothing firm.”

RBS declines

Royal Bank of Scotland Group plc’s preferreds were weaker Monday on “conflicting news,” according to a market source.

The 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) were the busiest of the structure, ending the day off a dime at $25.47. The 6.6% series S noncumulative dollar preference shares (NYSE: RBSPS) were down the most, losing 28 cents, or 1.12%, to close at $24.72.

First off, the Edinburgh-based bank filed for an initial public offering for its U.S. unit, Citizens Financial Group. The IPO is expected to price at $23.00 to $25.00 per share, with 161 million shares being offered.

Though RBS would maintain 75% ownership in the company, “it ends up being a huge positive for them ultimately,” a source said.

But the asset sale might not be enough for the company to pass its stress test.

In a report out Monday, Mediobanco SpA posited that banks soon-to-be governed by the European Central Bank would see a $21 billion shortfall, in terms of dollars. The firm deemed the gap “a manageable number,” though it said that most of it would be “largely concentrated” in RBS.

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