Preferred stock market loses ground; Southern California Edison deal gets market buzzing

By Stephanie N. Rotondo

Portland, Ore., March 7 - After ending last week on a positive note, the preferred market took a turn on Monday, according to a market source.

"There's a whole lot more red on my screen than green," he said.

Still, the more-active-than-usual new issue market continued to churn out deals, including one from Southern California Edison Co. The source said the deal was slated to raise $125 million but that interest was very strong.

Meanwhile, ING Groep NV said that it would repay the Dutch government about 40% of what it received in a government bailout. The company had previously attempted to call some of its outstanding preferreds but was unable to do so because of what it owed the government.

SoCal Edison sees interest

A preferred stock trader said he was hearing price talk on Southern California Edison's planned new offer of $100-par perpetual series D preferreds.

Books closed at 3 p.m. ET on Monday, and pricing came in a while later at $100 per share.

The trader said the Rosemead, Calif.-based power producer was selling $125 million of the preferreds via a syndicate including Citigroup Global Markets Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, Loop Capital Markets LLC and Ramirez & Co., Inc. The preferreds were expected to carry a 6.5% yield.

"I was surprised the deal wasn't grown," he added, noting that he had heard the syndicate received interest for about double that amount.

"Unlike their outstanding issues, this one has dividends that are cumulative," the trader said. He called that feature "interesting," considering that the company had omitted dividends on its non-cumulative issues back in 2001 and 2002. That meant holders of those securities lost out on all those dividends.

"I'd like to think the market demanded it; however, it certainly wasn't in the issuer's interest," he said.

Among other new deals announced Monday, the trader said the first-ever preferred issuance from real estate investment trust Pebblebrook Hotel Trust was being talked at 7.875% to 8%. The trader said the company was looking to raise $25 million via the sale of the $25-par series A preferreds.

"It's a small one-off deal, the trader said. "I don't think it will command a lot of attention."

ING payment 'widely expected'

Dutch financial company ING Groep said Monday that it would repay €2 billion of the €5 billion it received in a government bailout by May and that it would pay the remainder by May 2012.

According to a market source, ING had previously sought to redeem its 8.439% preferreds but was forbidden from doing so by the Dutch government because of what it was owed.

News of the bailout payback "didn't really rally" the company's preferred stock, the source said, as it was "widely expected that it would be repaid as soon as possible."

The source said the payback was subject to a 50% call premium, meaning ING actually paid €3 billion in total.

US Bank, Wells Fargo active

Several issuers were "continuing the theme from last week," according to a trader, including US Bank NA and Wells Fargo & Co.

About $37 million of US Bank's 6.189% preferreds traded around 83, which was unchanged on the day. However, the paper was the most actively traded $100-par preferred.

Wells Fargo was the second-largest trader, as its 7.875% preferred traded about $31 million. The preferreds were also unchanged at 103¼ bid, 103 3/8 offered.

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