Digital Realty plans new issue, trader expects it to grow; Arch Capital gets busy, stronger

By Stephanie N. Rotondo

Portland, Ore., March 28 - Preferred stocks ended the midweek session about sideways, a market source said.

According to one index, he noted, the market was technically up "but not a lot," he said. There was more red among "the more liquid stuff" than there was green.

"So it's probably down to flat really," he said.

The primary market continued to be where the action was as Digital Realty Trust Inc. announced plans for a new deal. A trader said the new issue was supposed to be small originally but that the sellers were "letting everyone in."

Meanwhile, Arch Capital Holdings Ltd.'s new $325 million issue of 6.75% series C noncumulative preferreds continued to be active. The paper was also trading up yet again.

Because proceeds from Arch Capital's new issue will be used to redeem its two other series of preferreds, that was causing a stir in secondary trading as well. The 8% series A noncumulative preferreds were among the day's most actively traded securities.

Digital Realty plans deal

San Francisco-based Digital Realty Trust plans to issue series F cumulative redeemable perpetual preferred stock.

A trader said price talk was between 6.625% and 6.75%.

The trader also said that the deal was supposed to be small - just 4 million shares. "But they are letting everyone in," he said. "I bet this thing gets a lot bigger."

Overall, he said the paper was "doing well" in the gray market. He saw it trade at $24.80 shortly before the bell.

After the bell, a market source said the issue was doing "OK, not great" at $24.80 bid, $24.85 offered."

Digital Realty will apply to list the new preferreds on the New York Stock Exchange under the ticker symbol "DLRPF."

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and Wells Fargo Securities LLC are the joint bookrunning managers.

Proceeds will be contributed to the company's operating partnership, Digital Realty Trust, LP, which will then use the funds to temporarily pay down borrowings under a global revolving credit facility, to acquire additional properties, to fund development and redevelopment opportunities and for general corporate purchase, including the possible repurchase or redemption of outstanding debt or preferreds.

Arch preferreds get busy

The new 6.75% series C noncumulative preferreds from Arch Capital were again trading actively and higher on Wednesday, according to a source.

The deal priced Monday and has been trading at or above par ever since. The source quoted the issue at $25.07 bid, $25.12 offered on Wednesday.

"That's been pretty liquid," he said. "There's been a lot of activity in it, but it's still holding up pricewise, which is good."

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

For their part, the As (NYSE: ARHPA) made the day's most active list with over 605,000 shares changing hands. They ended 3 cents higher at $25.38.

Arch Capital will apply to list the new preferreds on the NYSE under the symbol "ARHPC."

Wells Fargo, Bank of America Merrill Lynch, Morgan Stanley 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.

No word on TARP auction

The Treasury Department's auction of the preferred stock of six banks that participated in the Troubled Asset Relief Program's Capital Purchase Program was slated to end Wednesday.

However, as of press time, no price results had been released.

The six banks were Banner Corp. of Walla Walla, Wash.; First Financial Holdings Inc. of Charleston, S.C.; MainSource Financial Group Inc. of Greensburg, Ind.; Seacoast Banking Corp. of Florida, located in Stuart, Fla.; Wilshire Bancorp Inc. in Los Angeles; and WSFS Financial Corp. of Wilmington, Del.

None of the firms will receive any of the proceeds raised in the auction.

For all the preferreds, the initial dividend is 5% until Feb. 14, 2014. After that, the rate increases to 9%. Dividends will only be paid upon regulatory approval.

The preferreds can be called at any time at par plus accrued dividends.

Bank of America Merrill Lynch is the auction agent and bookrunner for the First Financial offering. For the remaining offerings, Bank of America Merrill Lynch and Sandler O'Neill + Partners, LP are the auction agents and joint bookrunners. Drexel Hamilton, LLC, SL Hare Capital, Inc. and TBC Securities, LLC are the co-managers for each offering.

Houlihan Lokey Capital, Inc. is acting as financial adviser to the Treasury.

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