Wells Fargo brings upsized $675 million offering of 5.2% preferreds; UBS plans 'coco' deal

By Stephanie N. Rotondo

Phoenix, Aug. 9 - A new issue and plans for a second kept investors in the preferred world occupied on Thursday.

First, Wells Fargo & Co. announced and then soon priced $675 million of 5.2% class A noncumulative perpetual preferred stock, series N, a trader told Prospect News.

Price talk was originally 5.375% to 5.5%, the trader said. However, it was then revised to 5.2%, he said, opining that greater-than-expected demand was the cause.

The deal was upsized from $250 million.

Paper was already trading around par ahead of pricing and held there for the day.

Second, UBS AG said it plans to sell $1,000-par hybrid capital bonds. The issue is a dollar-denominated deal but will be available to global investors. A market source deemed the deal a "coco," or a contingent convertible security, which he dubbed "the future of the market."

Price talk is around the 8% area, and the deal could be anywhere between $1 billion and $5 billion.

Wells Fargo upsizes

Wells Fargo brought a $675 million offering of 5.2% class A noncumulative perpetual preferreds, series N, on Thursday.

A trader said the issue was already trading around par in the gray market at midday.

After the bell, and after pricing, a source said he saw the issue offered between $24.95 and par.

"Last I heard, it was doing quite well despite that horrendous coupon," the source said. "It was so low.

"There's just a lot of people scrapping for yield. And it's one of the better bank names."

The source further remarked that the trading levels seen Thursday were "indicative of a good deal."

Wells Fargo Securities LLC is the bookrunning manager. Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC are the joint lead managers.

There was no selling group, according to a trader.

Each preferred has a $25,000 liquidation preference. The securities will be issued as $25 depositary shares each representing a 1/1,000th interest in a preferred.

Settlement is expected Aug. 16.

Proceeds will be used for general corporate purposes, including investments in or advances to existing or future subsidiaries, repayment of obligations that have matured and reducing outstanding commercial paper and other debt.

Wells Fargo is based in San Francisco.

UBS planning 'coco' deal

UBS is expected to price as much as $5 billion of $1,000-par dollar-denominated hybrid capital bonds, a market source told Prospect News on Thursday.

Talk is around 8%, and the size of the deal could be anywhere between $1 billion and $5 billion, the source said.

Pricing is expected Friday.

The issue will be sold to U.S. investors as well as investors abroad, thus the structure of the deal.

"Outside the U.S., people aren't going to be able to issue preferreds in the bank world," the source said. "Coco" is the "future of the market," he said.

Furthermore, the structure could be compelling for preferred investors.

"The face value can be written down to zero," the source explained. In this instance, the notes can be marked down in the event that the Zurich-based bank's regulatory capital falls below 5%.

"It would be a low probability event," the source said.

"People are expecting it to do well," he added.

The 10-year subordinated bonds (BBB-/BBB-) can be called at par upon a tax or regulatory capital treatment event. The bonds will be redeemed at 101% of par in the event of a reduction in progressive component capital requirements or in the event of an alignment event.

UBS Securities is the lead arranger. The joint bookrunners are Barclays, Citigroup Global Markets Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley, RBS Securities Inc. and Wells Fargo.

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