Weak tone of general market holds Charles Schwab deal back; Armour's new issue fails to entice

By Stephanie N. Rotondo

Phoenix, June 1 - The preferred stock market was softer Friday, albeit in light volume, after a dismal jobs report came out.

Add to that continued concerns about Europe and falling oil prices and "the market is just dropping," a trader said.

The most active issue of the day, according to another trader, was Charles Schwab Corp.'s recently priced $425 million offering of 6% series B noncumulative perpetual preferreds. Despite the high level of activity, the securities continued to languish around the $24.70 area, where they've been since pricing.

Armour Residential REIT Inc.'s 8.25% series A cumulative redeemable perpetual preferreds remained quiet.

Market holds Schwab back

Charles Schwab's new 6% series B noncumulative perpetual preferreds were seen trading around $24.67 in the gray market at midday, a trader said.

After the bell, a trader said the preferreds were the day's most active issue, with about 1 million shares changing hands.

He pegged the securities at $24.65. When asked why the deal had failed to gain any traction since pricing on Wednesday, the trader surmised that it was "just a soft market in general."

As previously reported, however, one market source speculated that the new issue was not performing well because it was poorly underwritten.

"They pushed it a lot on size and price," he said on Thursday.

The San Francisco-based investment firm will use proceeds from the offering for general corporate purposes, which may include extending credit to or funding investments in subsidiaries and the possible refinancing of outstanding debt obligations.

Armour not enticing investors

Armour Residential's new deal - a $35 million issue of 8.25% series A cumulative redeemable perpetual preferred stock that priced late Thursday - remained on the quiet side, according to a trader.

He saw the paper at $24.60 in the gray market.

The deal came in line with price talk but was downsized from an expected $50 million.

Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Bank of America Merrill Lynch were the joint bookrunning managers. Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC were the co-managers. Junior co-managers were Ladenburg Thalmann & Co. Inc. and Sandler O'Neill & Partners, LP.

Proceeds will be used to acquire additional agency securities as market conditions warrant and for general corporate purposes.

Vero Beach, Fla.-based Armour invests primarily in hybrid adjustable-rate, adjustable-rate and fixed-rate residential mortgage-backed securities issued or guaranteed by U.S. government-chartered entities.

Broad market softens

Elsewhere in the preferred space, PNC Financial Group Inc.'s 6.125% series P fixed-to-floating noncumulative preferreds (NYSE: PNCPP) dropped 71 cents, or 2.76%, to $24.99.

Ally Financial Inc.'s 8.125% trust preferreds (NYSE: ALLYPA) were likewise down, losing 29 cents, or 1.27%, to end at $22.63.

And, a trader said that Southern California Edison Co.'s 5.625% trust preference securities (NYSE: SCEPF) were "one of the few in the green today."

However, the preferred stock came down in the final minutes of trading, slipping just a penny to close at $24.49.

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