New issues the focus in preferred market; Realty Income to price, trader sees 'strong demand'

By Stephanie N. Rotondo

Portland, Ore., Jan. 30 - The preferred stock market got off to a rocky start Monday, market sources reported.

"It's pretty quiet," a trader said, adding that overall things were trading "slightly to the down bias."

Another trader said the market lost up to 100 points in early trading but rallied to finish "almost flat."

The new issue market remained somewhat active. Southern California Edison Co. brought a deal, and Realty Income Corp. announced plans for a new issue.

For its part, Southern California priced an add-on to its $1,000-par fixed-to-floating-rate class E preferreds. The issue originally priced Jan. 17.

Traders saw little goings-on in that issue.

Conversely, Realty Income's deal, which is expected to price Tuesday, was gaining a fair bit of attention. A trader said there was "strong demand" for the preferreds and that he expected the size to grow.

"This is the most active [new issue] calendar we've had since Freddie and Fannie were taken under," a trader said of the recent surge in new deals.

Realty Income to price

Realty Income announced plans to sell monthly income class F cumulative redeemable preferred stock.

The $25-par preferreds were said to be "going fine" in the gray market, according to a trader. He gave price talk of 6.625% to 6.75%.

Shortly before the close, the trader quoted the issue at less 20 bid, less 15 offered.

Another trader said the paper was experiencing "strong demand."

"The deal's in good shape," he said. "It should upsize."

He pegged the preferreds around $24.85.

Dividends are payable monthly, and the preferreds can be redeemed beginning in 2017 at the company's option.

Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, RBC Capital Markets LLC and UBS Securities LLC are the bookrunners.

The Escondido, Calif.-based real estate investment trust intends to list the preferreds on the New York Stock Exchange.

Proceeds will be used to pay accrued dividends on the company's class D preferreds and to redeem said issue. Remaining funds will be used to repay borrowings under the company's $425 million acquisition credit facility.

Aegon rises, Ares falters

Among other recent deals, a trader said Aegon NV's $500 million of 8% $25-par notes were "up a little bit." He noted that the new issue had "seemed very weak" but was finally gaining ground.

He placed the issue at $24.70.

Ares Capital Corp.'s $125 million of 7% $25-par senior notes due 2022, which priced Thursday, were meantime faltering again on Monday after losing a bit on Friday.

A trader quoted the notes at $24.60 bid, $24.70 offered.

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