Preferred market rallies but comes off highs; City Office deal prices; Deutsche Bank soft

By Stephanie N. Rotondo

Seattle, Sept. 27 – Preferred stocks were rebounding from Monday’s lows in Tuesday trading, though they did settle down from the session’s highs.

The Wells Fargo Hybrid and Preferred Securities index was up 16 basis points at mid-morning but went out up only 6 bps. The index closed down 31 bps on Monday.

Though the primary space did see a deal hit the tape – City Office REIT Inc. priced $100 million of 6.625% series A cumulative redeemable preferreds – the story of the day continued to be troubled German Bank Deutsche Bank AG.

The trust preferreds continued to lose ground, as investors pondered the financial health of the firm.

The 7.6% trust preferred securities (NYSE: DTK) traded down 97 cents, or 4.02%, to $23.15. Nearly 2.13 million of the preferreds were exchanged during the day, making it easily the most active security of the day.

The 8.05% TruPS (NYSE: DKT) were meantime off 63 cents, or 2.57%, at $23.80, on over 1.63 million preferreds traded.

The 6.55% TruPS (NYSE: DXB) dropped 72 cents, or 3.06%, to $22.79. Over 753,000 of the preferreds changed hands.

Recently, the U.S. Department of Justice proposed a $14 billion settlement to the bank in regards to an investigation tied to the bank’s role in the subprime mortgage crisis. Deutsche has said it will not accept that offer but instead will negotiate to a settlement amount similar to those given to its U.S. peers.

But as capital standards are becoming tighter and tighter, and profits have waned, the additional legal costs are fueling speculation that Deutsche Bank will need to raise capital – especially as it has been reported that the German government has no intention of providing a bailout to the bank.

City Office upsized

In the primary, City Office REIT priced its previously announced offering of series A cumulative redeemable preferreds. The deal came upsized at $100 million – versus the expected $75 million – and priced at 6.625%, in the middle of the 6.5% to 6.75% talk.

The new issue was seen around $25.05 at day’s end. A trader had quoted the issue at $24.96 bid, $25.02 offered at mid-morning.

Raymond James & Associates Inc., Wunderlich Securities Inc., D.A. Davidson, Janney Montgomery Scott LLC and Compass Point ran the books.

Dividends are payable on the 25th day of January, April, July and October, beginning Jan. 25, 2017. The preferreds become redeemable on or after Oct. 4, 2021 at par plus accrued dividends.

There is also a change-of-control feature.

Proceeds will be used in part to finance acquisitions, with the remainder going toward general working capital purposes. That includes possible future acquisitions, creating reserves for capital expenditures, tenant improvements and leasing commissions.

City Office is a real estate investment trust with offices in Dallas and Vancouver, B.C.

AmTrust to list

Among other recent deals, AmTrust Financial Services Inc.’s $287.5 million of 6.95% series F noncumulative preferred stock is expected to hit the New York Stock Exchange on Thursday, a market source said.

The deal is trading under a temporary symbol, “AMTRP.” The new symbol is “AFSIPF.”

That paper was trading at $25.30 at mid-morning, up a dime. However, it lost a dime by the close, ending at $25.10.

The deal priced Sept. 20.

Price talk was 7% to 7.125%.

Morgan Stanley & Co. LLC, UBS Securities LLC, RBC Capital Markets and Keefe Bruyette & Woods Inc. were the joint bookrunners.

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