Preferred market comes off week's highs; Citigroup prices upsized issue; secondary busy

By Stephanie N. Rotondo

Phoenix, Oct. 24 - The preferred stock market was "a little softer," a trader said Thursday.

However, he said the dip was "nothing material," pointing out that the market had been up early on in the session.

As of midday, the Wells Fargo Hybrid and Preferred Securities index was down 19 basis points. The index finished the day down 28 bps.

Citigroup Inc. announced an offering of at least $500 million of series K fixed-to-floating rate noncumulative perpetual preferreds.

Initial price talk was around 7%, but a trader said that was revised to 6.875%. The issue eventually priced at that level, coming upsized at $1.3 billion.

"There was a lot of demand for it; it was very active," a trader said. However, he noted that "they didn't price it as good as they should have."

At midday, one trader saw gray market quotes for the paper in the less a dime to less 15 cents range. Post-pricing, a trader quoted the preferreds at $24.90 bid, $24.92 offered.

Meanwhile, First Republic Bank's $200 million of 7% series E noncumulative perpetual preferreds "got shoved to the side" in the wake of the new Citi issue, the trader said. He said the preferreds - which priced Monday and freed to trade on Tuesday - were still trading around par.

"It's a bigger issue," the trader said of the Citi deal, explaining why investors were zeroing in on it instead of on First Republic.

Also, AdCare Health Systems Inc. said that it had priced a $12.5 million "best efforts" add-on to its 10.875% series A cumulative redeemable preferreds on Thursday. The preferreds were sold at par, which was a discount from Wednesday's $27.75 closing share price.

The preferreds (NYSE: ADKPA) traded off $2.79, or 10.05%, to $24.96. The paper had opened the day around par.

Secondary gets busy

Secondary trading liquidity was fairly heavy on Thursday, with at least four issues - at least among paying securities - seeing trades of over 1 million shares.

Citigroup's 7.125% series J fixed-to-floating rate noncumulative preferreds (NYSE: CPJ) saw 1.32 million shares change hands, likely due to investors swapping out of that issue and into the new deal. The paper fell 27 cents, or 1.04%, to $25.81.

Last month, a market source told Prospect News that there was a single investor that was ridding his portfolio of floating-rate securities. That divestment might be ongoing, as floating-rate issues from HSBC Holdings plc and U.S. Bancorp had high levels of activity.

HSBC's series F floating-rate noncumulative preferreds (NYSE: HBAPF) fell 22 cents, or 1.13%, to $19.29, with 1.03 million shares exchanged. U.S. Bancorp's series B floating-rate noncumulative perpetual preferreds (NYSE: USBPH) meantime declined by 16 cents, ending at $19.70.

About 1.24 million shares changed hands.

And, CBL & Associates' 7.375% series D cumulative redeemable preferreds (NYSE: CBLPD) were also busy, with over 1 million shares trading. The paper dropped 9 cents on the day to $25.20.

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