State Street sells new preferreds; Prudential notes free to trade; Principal ends mixed

By Stephanie N. Rotondo

Phoenix, May 14 – The preferred stock market continued to climb higher as the Wells Fargo Hybrid and Preferred Securities index rose 33 basis points in Thursday trading.

Still, a market source remarked that it “wasn’t exactly a heavy volume day.”

But State Street Corp.’s 5.9% series D fixed-to-floating rate noncumulative preferreds (NYSE: STTPD) were quite active, with more than 1 million shares trading. The activity – and subsequent weakness – in the issue came as the Boston-based bank brought a benchmark offering of series F fixed-to-floating rate noncumulative perpetual preferreds.

The issue ended at $25.66, off 8 cents.

A total of $750 million of the new $1,000-par preferreds were sold at par to yield 5.25%. The dividend will be fixed until Sept. 15, 2020, at which point they will begin floating at Libor plus a spread.

After pricing, a market source quoted that issue at 100.375 bid, 100.625 offered.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, Goldman Sachs & Co. and Wells Fargo Securities LLC are running the books.

Early in the session, a trader said he had yet to see any details or gray markets on the State Street deal, opining that the market was waiting for Prudential Financial Inc.’s new $1 billion of 5.375% $1,000-par fixed-to-floating rate junior subordinated notes due 2045 to clear out of the way.

The Prudential issue priced late Wednesday, though details did not emerge until Thursday morning. A trader said the notes freed to trade early in the session, seeing the paper at 100.75.

At the close, another source pegged the issue at 100.73.

Goldman Sachs, BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Morgan Stanley, HSBC and Mizuho Securities were the bookrunners on that deal.

Among other recent $1,000-par issues, Capital One Financial Corp.’s $1 billion of 5.55% series E fixed-to-floating rate noncumulative perpetual preferreds – a deal priced Monday via Barclays, Credit Suisse Securities, J.P. Morgan Securities LLC, Morgan Stanley, Wells Fargo Securities and Capital One Securities Inc. – were seen at 99.875.

Principal busy on redemption

Principal Financial Group Inc. announced late Wednesday that it was redeeming all of its outstanding 5.562% series A noncumulative perpetual preferreds as well as all of its 6.518% series B noncumulative perpetual preferreds on June 30.

Come Thursday, the series B shares (NYSE: PFGPB) were one of the day’s more active issues, ending off 8 cents at $25.35.

The series A preferreds (OTCBB: PFGZP) were meantime up 7 cents at $101.17.

Holders of series A paper will receive par plus $1.39075 in accrued and unpaid dividends. Holders the series B shares will get par plus 40.7375 cents.

The Des Moines-based investment management company said that the low interest rate environment allowed it to issue new debt at lower rates, thereby presenting an opportunity to redeem the outstanding preferreds.

The company expects that the transaction will result in a $10 million after-tax increase in corporate expenses for the second quarter, but after that the lower interest rates “will generate cost savings over time,” according to a press release.

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