Strong demand seen for Newtek baby bonds; preferreds improve; Sotherly opens for trade

By Abigail W. Adams

Portland, Me., Feb. 16 – There was “very strong retail demand” during the bookbuilding process for Newtek Business Services Corp.’s $25-par five-year fixed-rate notes, which priced after the market close Thursday with both the deal and greenshoe upsized, a market source said.

Newtek’s offering was the first and only new deal of the week, with the primary market relatively quiet amid volatility in the broader markets.

Sotherly Hotels LP’s 7.25% notes due 2021 were the only new paper to price last week. The 7.25% notes opened for trade on Nasdaq on Friday under the ticker “SOHOK.”

As the broader equity markets showed signs of improvement toward the end of the week, so too did the preferreds market. Both the Wells Fargo Hybrid & Preferred Securities Financial index and the U.S. iShares Preferred Stock ETF closed Friday with gains.

The Wells Fargo Hybrid & Preferred Securities Financial index was up 0.20% and the U.S. iShares Preferred Stock ETF was up 0.38% at Friday’s close.

AGNC Investment Corp.’s depositary shares representing the company’s 7% series C fixed-to-floating rate cumulative redeemable preferred stock and GMAC Capital Trust I’s 8.125% fixed-to-floating rate trust preferred securities both saw high volume trading on Friday.

However, GMAC’s securities saw gains while AGNC’s securities saw losses.

Newtek’s deal

Newtek priced an upsized $50 million of 6.25% five-year notes at par of $25 after the market close Thursday. Pricing came at the midpoint of talk for a coupon of 6.125% to 6.375%, according to a market source.

Keefe, Bruyette & Woods is the bookrunning manager for the deal, which carries an upsized greenshoe of $7.5 million. BB&T Capital Markets, Compass Point, D.A. Davidson & Co. and Ladenburg Thalmann are co-managers.

The initial deal size had been for $40 million with a greenshoe of $6 million. “Demand exceeded supply,” a market source said.

There was a two-day bookbuilding process for the deal, which was announced prior to the market open Thursday, but it was accelerated, according to a market source.

Newtek’s baby bond offering is the first new deal to price this week. While there have been rumors of deals in the pipeline, many expected the volatility in the broader markets to settle down before seeing new deals price.

The Newtek deal had been in the works for a few weeks but was placed on hold due to the volatility in the markets, a market source said. However, the initial price talk was adjusted to close the deal.

The new notes will be listed for trading on the Nasdaq Global Market under the ticker “NEWTI.”

Sotherly lists

Sotherly Hotels recently priced 7.25% baby bonds opened for trade on Nasdaq on Friday. The notes traded in a range of $25.50 to $25.568 before closing Friday at $25.56.

Sotherly Hotels priced $25 million of the 7.25% $25-par three-year notes on Feb. 8.

Sandler O’Neill + Partners, LP was left lead bookrunner and Stephens Inc. was passive bookrunner for the offering, which carries a greenshoe of $3.75 million, according to a company release.

The notes are freely callable on or after Feb. 15, 2019 at 101% of the principal amount plus accrued interest, according to the term sheet.

High Volume

GMAC’s 8.125% preferred securities saw high volume trading on Friday, which pushed the securities up. The securities closed Friday at $25.64, an increase of 12 cents, or 0.47%.

The securities are guaranteed by Ally Financial Inc. The notes have been callable since 2016. Several securities with exercisable call options have seen higher-than-average trading volume since GE’s recent decision to call two of its baby bonds, a market source said.

AGNC’s depositary shares also saw high trading volume on Friday, which pushed the shares down. The shares closed Friday at $25.48, a decrease of 3 cents, or 0.12%.

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