Morning Commentary: Preferreds firm; Capitala’s $25-par notes steady as new deal launched

By Stephanie N. Rotondo

Seattle, May 22 – The preferred stock market had a slightly firm tone as the new week began.

The Wells Fargo Hybrid and Preferred Securities index was up 6 basis points at mid-morning. The U.S. iShares Preferred Stock ETF was up 19 bps.

However, liquidity continued to be limited.

Capitala Finance Corp.’s $70 million of 6% $25-par notes due 2022 were seen holding around par bid, $25.15 offered, according to a trader.

The notes will list on the Nasdaq Global Select Market on Tuesday under the ticker symbol “CPTAL.”

The deal priced on May 10, coming upsized from $50 million.

A trader noted that the Charlotte, N.C.-based business development company had announced a $50 million offering of $25-par unsecured convertible notes due 2022 on Monday. Proceeds from the convertibles offering, as well as the baby bond deal, will be used to redeem all of the outstanding 7.125% notes due 2021.

“It makes no sense,” the trader said of the new issue. “They should have just done a larger baby bond deal and saved themselves a lot of money.”

As for the preferred stock calendar, the trader said he was hearing a small BDC could hit the books on Tuesday, while another mid-size deal was slated for Wednesday.

He added that he did not know which sector the midweek deal was coming from.

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