Ally preferreds gain as ResCap misses coupon; U.S. Bancorp preferreds price, trade at premium

By Stephanie N. Rotondo

Portland, Ore., April 17 - Preferred stocks "faded just a bit before the close," a market source reported Tuesday.

Early on in the session, decent bank earnings and a reasonably well-received Spanish debt auction had helped push the market up, though not by much.

"It started a slow decline just before 3 [p.m. ET]," the source said. As the close ticked closer, the decline sped up and most of the day's overall gains were erased.

Some, however, did manage to hold on to their gains.

Ally Financial Inc. preferreds were gaining ground after the company announced that its Residential Capital LLC unit missed a coupon payment. The news added fuel to chatter that a bankruptcy filing - whether by Ally itself or just the money-losing mortgage lending unit - is on the horizon.

In the primary arena, U.S. Bancorp announced and then priced a $1.09 billion sale of fixed-to-floating-rate series G noncumulative perpetual preferreds. The deal was instantly trading at a premium, one trader said around midday. The preferreds then freed to trade and gained even more traction.

Ally gains on ResCap news

Ally Financial preferreds climbed higher during Tuesday trading despite news that its Residential Capital unit missed a coupon payment on its 6½% notes due 2013.

The 8.5% fixed-to-floating-rate series A perpetual preferreds (NYSE: ALLYPB) were the most-traded security in the secondary arena, with over 536,000 shares changing hands. The paper gained 12 cents, ending at $22.06.

The 8.125% trust preferreds (NYSE: ALLYPA) were not quite as active but did manage to put on 2 cents, closing at $23.27.

"They had a higher dollar price anyway," a source said of the latter issue.

Minneapolis-based ResCap did not make its $20 million interest payment on Tuesday, giving rise to chatter that the company could soon be filing for bankruptcy. Though technically a default has not yet occurred, the skipped coupon could be yet another sign that Ally is lining ResCap up for Chapter 11.

Last week, Ally gave ResCap an extension on $2.1 billion of secured financing until May 14. The shorter-than-usual extension also indicated that perhaps a filing could come within the next few weeks.

"It could end up being very good news for Ally," a preferred stock market source said of the missed payment. "If they pay [within the 30-day grace period], everybody is all fine and dandy at least from a legal standpoint."

However, if the payment goes unpaid, thus triggering a default, it will then have to be decided if ResCap is separate enough from its parent that Ally itself can avoid falling into bankruptcy.

The source said creditors will probably attempt to go after the "deeper pockets" of the parent company but noted that, unlike the Bank of America Corp./Countrywide Financial Corp. debacle, there is a "reasonable argument" that "ResCap is much more on an arm's length basis."

As previously reported, Ally has been struggling to figure out what to do with ResCap for some time. In recent months, talk of a bankruptcy has escalated, though other options - such as selling the unit whole or in pieces - have also gained traction. Fortress Investment Group has been touted as the most likely buyer and the deal has been valued at over $1 billion.

Ally is based in Detroit.

U.S. Bancorp deal 'on fire'

U.S. Bancorp brought a $1.09 billion offering of fixed-to-floating-rate series G noncumulative perpetual preferred stock on Tuesday. There is a $162.75 million over-allotment option.

The preferreds have a liquidation preference of $25,000 each. They were sold in the form of $25.00 depositary shares that each represent 1/1,000th of an interest in a preferred.

"They started trading at a premium," a trader said around midday, seeing paper trade at $25.35 in the gray market. After the bell, a trader said the new preferreds were "on fire," quoting them at $25.50 bid, $25.57 offered.

"That's quite the performer," he said.

Dividends will be fixed at 6% until April 15, 2017, at which time the rate will be calculated yearly at Libor plus 486.125 basis points.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. and U.S. Bancorp Investments Inc. are the joint bookrunners. Mesirow Financial Inc., Oppenheimer & Co. Inc., Raymond James & Associates Inc., RBC Capital Markets LLC and Stifel, Nicolaus & Co. Inc. are co-managers.

The company will apply to list the preferreds on the New York Stock Exchange under the ticker symbol "USBPN." Settlement is expected April 20.

Proceeds will be used for general corporate purposes, which may include the redemption of some callable trust preferred securities including, but not limited to, the USB Capital XI 6.6% TRUPs and the USB Capital XII 6.3% trust preferreds.

U.S. Bancorp is based in Minneapolis.

Trading tidbits

Among other recent deals, CapLease Inc.'s $50 million issue of 8.375% series B cumulative redeemable preferreds was not performing as well as U.S. Bancorp despite coming out the day before.

A trader said he saw 5,000 CapLease preferreds trade at $24.73 early on in the day's session but not much after that.

Meanwhile, Pennsylvania Real Estate Investment Trust's $100 million of 8.25% series A cumulative redeemable preferreds, an issue that priced Friday, were seen at par.

Also, MFA Financial Inc.'s $100 million of 8% $25-par senior notes due April 15, 2042, which priced April 3, officially listed on the New York Stock Exchange under the ticker symbol "MFO." The notes closed at $24.75.

Wells Fargo call approved

A trader said that a federal court judge dismissed a lawsuit against Wells Fargo & Co. regarding its plan to call trust preferreds early.

Wells Fargo had said it planned to call certain TRUPs due to the Dodd-Frank bill, as such types of securities will no longer be deemed tier 1 capital. The company claimed that the terms of the trust preferreds allowed it to make such a call, citing a "capital treatment event."

The trader said the decision was "interesting."

"If that was going to be a hang-up, banks wouldn't be able to call these issues early," he explained. Because the case was dismissed, it has "opened the door" for more banks to begin making similar redemptions.

The decision was made Thursday.

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