Legg Mason deal upsized, prices; Bank of America taps market; Vanguard Natural units drop

By Stephanie N. Rotondo

Seattle, March 7 – The preferred stock market’s primary space was kicking the week off with not one, but two new issues.

In the $25-par space, Legg Mason Inc. announced and priced a $250 million offering of 6.375% $25-par junior subordinated notes due 2056. The deal was upsized from $150 million and came tighter than the 6.5% to 6.625% initial price talk.

Just prior to pricing, a market source saw the issue offered at $24.82.

Earlier in the session, a trader said he saw a less 40-cent bid in the gray market for the new notes. However, he didn’t expect the deal to trade “too crazy,” as the issue is not QDI/DRD eligible.

“People are looking for the DRD,” he said, referring to the Dividends Received Deduction allowed for corporate tax purposes.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC ran the books.

Meanwhile, in the $1,000-par arena, Bank of America Corp. brought $1 billion of 6.3% series DD fixed-to-floating rate noncumulative perpetual preferred stock.

Price talk was around 6.625%, a source said.

Shortly before the market closed, a source saw the issue trading around 101.375.

BofA Merrill Lynch led that deal.

Dividends will be fixed and payable semiannually through March 10, 2026. At that time, the dividend will begin to float at Libor plus 455.3 basis points and will be payable quarterly.

“That’s a lot of bps,” a source said, which he noted was “good for investors, maybe not so good for the issuer.”

As the primary has picked up in the last week, a trader commented that a new report in Barron’s over the weekend indicated that utilities might soon be tapping the markets. With many banks slated to issue redeterminations over credit facilities in April, the sector could be looking to “start raising a lot of cash.”

But away from the day’s new issues – as well as new deals from last week – a source said there was “not a lot of volume” in Monday trading.

“But you did have the underwritings going on,” he added.

Vanguard beaten down

Late Friday, Vanguard Natural Resources LLC announced that its board of directors had voted to suspend distributions on its 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP).

Come Monday, those units took a hefty hit, even as oil prices rallied.

The units fell $2.07, or 36.19%, to $3.65.

By comparison, sector peer Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) rose 68 cents, or 33.33%, to $2.72.

Legacy made a similar announcement on Jan. 21.

For its part, Vanguard intends to use the cash it will save to pay down its revolving credit facility.

Domestic crude oil meantime flourished in trading, rising over 5% to $37.85 a barrel. The commodity has been steadily gaining since Russia and OPEC proposed a production freeze. Hopes that such a deal could actually be reached were increased Monday, as Ecuador announced that it was hosting a meeting of Latin American oil producers “to reach consensus over oil, especially prices.”

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