Arch Capital deal moves above par, trades liquidly; Southern Community gains on sale news

By Stephanie N. Rotondo

Portland, Ore., March 27 - Preferred stocks ended higher on the day, a market source said, though "not by much."

"It was a very quiet day in the market," he said, adding that it was a "low news day."

Arch Capital Group Ltd.'s new $325 million issue of preferreds freed to trade, according to sources. The deal priced on Monday and was already straddling par by the end of that day. By Tuesday's end, the paper was climbing even higher.

Secondary dealings saw Southern Community Financial Corp.'s trust preferreds rise more than 30% on the day in active trading. The $10-par paper gained on news the bank is being acquired.

Arch deal trades higher

Arch Capital Group's $325 million offering of 6.75% series C noncumulative preferred shares continued to garner investor interest on Tuesday.

The deal priced Monday in line with price talk and was upsized from $250 million. Sources reported that the issue freed from the syndicate on Tuesday.

"It's been trading above $25.00 all day," a trader said before the close. He saw the issue trading around $25.10 in the gray market.

Another market source quoted the securities at $25.05 bid, $25.10 offered after the bell.

"That one was liquid," the source said.

The company intends to use proceeds from the sale to redeem its 7.875% series B noncumulative preferreds and 8% series A noncumulative preferreds.

The series B preferreds (NYSE: ARHPB) fell 6 cents to $25.33 on above-average volume. The series A preferreds (NYSE: ARHPA) gained a penny, closing at $25.35.

Arch Capital will apply to list the new preferreds on the New York Stock Exchange under the symbol "ARHPC."

Wells Fargo Securities LLC, Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC were the bookrunners. Barclays Capital Inc. and J.P. Morgan Securities LLC were the senior co-managers. Co-managers were BNY Mellon Capital Markets LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and U.S. Bancorp Investments Inc.

Arch Capital Group is a Hamilton, Bermuda-based reinsurance company.

Southern Community boosted

Southern Community Financial announced Tuesday that it will be acquired by Capital Bank Financial Corp. for $2.875 per common share.

The purchase price is a 31.8% premium over Monday's closing share price of $1.96. The common stock (Nasdaq: SCMF) closed up 69 cents, or 35.07%, at $2.65 on Tuesday.

The company's preferreds were also riding high. The 7.95% $10-par cumulative trust preferred securities (Nasdaq: SCMFO) rose $2.36, or 33.58%, to $9.40.

Shareholders can choose to receive their payment in cash or stock. The total consideration will consist of 40% cash and 60% new stock in Capital Bank.

Capital Bank did not return phone calls seeking comment about the treatment of preferred holders.

Upon completion of the transaction at the end of the second quarter of 2012 - pending shareholder and regulatory approval - the newly formed bank will have $8.1 billion of assets and 165 branches located in North Carolina, South Carolina, Tennessee, Virginia and Florida.

"This transaction maximizes value for our investors and creates growth opportunities for our employees," Southern Community's founding director, Dr. William G. Ward, said in a statement.

Southern Community Financial is a Winston-Salem, N.C.-based community bank.

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