Preferred investors focus in on KKR's new deal; traders hope for more new issues; Ally falls

By Stephanie N. Rotondo

Portland, Ore., Nov. 8 - Preferred stocks closed out Tuesday's session in positive territory, but it was a "bumpy ride" to get to that point, a trader said.

He said that the preferred market got hit around midday but managed to finish in the green.

Another trader said the market had experienced a mid-morning jump on news that Italian prime minister Silvio Berlusconi was intending to resign. After that, however, he saw things fading a bit before rallying back.

In the primary market, "everyone was focused on KKR [Financial Holdings LLC]," according to a trader. The investment firm priced a $225 million deal late Monday. The $25-par notes freed to trade Tuesday and were doing "really well," the trader said.

Among already listed preferreds, Ally Financial Inc.'s two series of preferreds were trending downward. The losses came as Ally was reported to be considering a bankruptcy filing for its Residential Capital LLC unit.

KKR new issue takes focus

New York-based investment firm KKR Financial Holdings priced $225 million of 8.375% $25-par 30-year notes late Monday. The terms were disclosed early Tuesday.

The new deal was getting a lot of attention, according to a trader. He said the issue "did really well" and that "retail guys loved it, but institutional guys did not."

When asked why institutional buyers were not as receptive to the deal, the trader said it was because the issuer is a subsidiary and not the parent. So the feeling was "why am I letting KKR borrow money at this rate?" the trader said.

KKR Financial is managed by a subsidiary of Kohlberg Kravis Roberts & Co. LP.

The trader quoted the paper at $24.85 bid, $24.87 offered.

At another desk, a trader was not as excited about the deal.

"It's doing OK," he said unenthusiastically, quoting it at $24.81 bid, $24.89 offered.

The second trader noted that the deal had freed to trade during the session.

A third trader pegged the notes at $24.85 bid, $24.90 offered.

The new deal has a $33.75 million over-allotment option, and proceeds will be used to repay existing debt and for general corporate purposes.

Traders hope for new deals

A trader remarked that General Electric Co. had filed a $20 billion shelf registration for mixed securities, including preferreds.

"It would be nice to see them bring something, but there's no news," he said.

Another trader said he had heard rumors of a small real estate investment trust deal in the works, but he did not have specifics.

Ally slips on ResCap news

Ally Financial's preferreds were on the decline following reports the company is considering putting its Residential Capital unit into bankruptcy.

The 8.125% series A trust preferreds (NYSE: ALLYPA) fell 38 cents, or 1.85%, to $20.17. The 8.5% series B trust preferreds (NYSE: ALLYPB) lost 53 cents, or 2.81%, to end at $18.35.

Ally has hired law firm Kirkland & Ellis and restructuring experts Evercore Partners Inc. to work on a restructuring of the money-losing mortgage unit, news outlets reported. During its most recent conference call, Ally warned that its support for ResCap might be limited.

ResCap has lost $555 million in the last two quarters.

For its part, ResCap is reportedly being advised by law firm Morrison Foerster and investment bank Centerview Partners LLP.

Ally is a Detroit-based bank holding company.

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