New issue flow steady, Hospitality Properties, DuPont Fabros bring new deals; AT&T softens

By Stephanie N. Rotondo

Portland, Ore., Jan. 13 - Preferred stocks began Friday the 13th "significantly down," a market source said, but managed to recover most of the losses by the end of the day.

"At one point, [the market] was up slightly to breaking even," the source said.

Volume was "probably higher" than average, though not as active as it was on Wednesday.

"There was general weakness throughout our market," said another source. He said "mediocre to in-line" numbers from JPMorgan, stalled debt talks in Greece and European credit downgrades were helping push things downward.

In primary dealings, Hospitality Properties Trust Co. priced a $275 million offering of series D cumulative redeemable preferreds. The company announced the deal Thursday, and pricing came at the low end of talk.

After the bell, DuPont Fabros Technology, Inc. also priced a deal, a $65 million add-on to its 7.625% series B cumulative redeemable preferreds.

In the secondary market, AT&T Inc. was one of the most actively traded names of the day. The company's $25-par senior notes dropped on news the company will redeem the securities.

Royal Bank of Scotland Group plc also continued to trade busily and better despite a generally weaker market tone. Most of the preferreds that have been trading so actively under the RBS banner are currently non-paying, but sources noted that there is a strong belief that the dividends will soon be turned back on.

Hospitality Properties prices

Hospitality Properties sold $275 million of 7.125% series D cumulative redeemable perpetual preferred shares, the company said in an FWP filed with the Securities and Exchange Commission on Friday.

Price talk was 7.125% to 7.25%, according to a trader.

There is $41.25 million over-allotment option.

A trader saw the new preferreds trading at $24.75 in the gray market.

The public offering price is $25.00 per preferred.

Dividends are payable quarterly.

The company is not allowed to redeem the preferreds until Jan. 15, 2017. After that time, the company has the option to redeem them, in whole or in part, at par plus accrued dividends.

There is also a change-of-control feature that allows preferred holders to convert their holdings into common equity.

Settlement is expected Thursday.

Wells Fargo Securities LLC, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, RBC Capital Markets LLC and UBS Securities LLC are the joint bookrunning managers. Morgan Keegan & Co. Inc. and BB&T Capital Markets are the co-managers.

Proceeds will be used to redeem all of the outstanding 8.875% series B cumulative redeemable preferred shares, to reduce amounts outstanding under a revolving credit facility and for general business purposes, which may include funding potential future acquisitions.

The Newton, Mass.-based real estate investment trust intends to list the preferreds on the New York Stock Exchange under the symbol "HPTPD."

DuPont brings add-on

DuPont Fabros Technology brought a $65 million add-on to its 7.625% series B cumulative redeemable perpetual preferreds, according to an FWP filed with the SEC on Friday.

There is a $9.75 million over-allotment option.

The preferreds (NYSE: DFTPB) fell 15 cents to $24.80.

Liquidation preference is $25.00 per preferred. The reoffer price is also $25.00.

The company pays dividends on a quarterly basis. The first dividend payment for the reopening will occur April 16.

The preferreds are not redeemable until March 15, 2016, except in certain circumstances. There is a change-of-control feature.

Settlement for the reopening is expected Thursday.

Barclays Capital Inc., Raymond James & Associates Inc., Jefferies & Co. and Stifel, Nicolaus & Co. Inc. are the joint bookrunners. KeyBanc Capital Markets LLC is the co-manager.

Proceeds will be used to repay outstanding borrowings under the company's $100 million revolving credit facility and for corporate purposes.

DuPont Fabros is a Washington, D.C.-based REIT.

AT&T falls on redemption

AT&T said it will redeem all of its 6.375% $25-par senior notes due 2056 on Feb. 15. The news resulted in massive trading volume for the notes.

About 1.68 million of the notes (NYSE: ATT) changed hands, falling $1.30, or 4.86%, to $25.4499.

The notes traded down to the call price of par plus accrued interest.

"That's not uncommon," a source said of the move.

The Dallas-based telecommunications provider said it will spend about $1.219 billion for the redemption, which includes $1.2 billion of principal and about $19 million of accrued interest.

RBS momentum continues

Investors continued to push Royal Bank of Scotland preferreds higher, reacting in part to news out Thursday regarding the company's plans to cut 3,500 jobs and shutter many of its investment banking units.

The 6.08% noncumulative guaranteed trust preferreds (NYSE: RBSPG) were by far the most active securities of the day, with over 4.24 million trust preferreds trading. The issue gained 33 cents, or 2.8%, to close at $12.13.

The 5.9% noncumulative guaranteed trust preferreds (NYSE: RBSPE) were also active, with over 1.06 million turning over. The trust preferreds closed up 27 cents, or 2.28%, at $12.09.

Sources also noted that recent gains in RBS paper might have to do with the belief that dividends will be turned back on for some issues come April.

"We've seen a pretty good rebound in the preferreds," a trader said. Come April, it will be two years that some issues have not been paying. The Edinburgh-based bank has already said it hopes to start paying again once the two-year mark is hit.

If the dividends are in fact turned back on, there is "great IRR value," a market source said, given how cheap the preferreds are currently trading.

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