KeyCorp preferreds end mostly stronger on TARP repurchase; Sunstone deal pricing expected soon

By Stephanie N. Rotondo

Portland, Ore., March 30 - It was the "same old, same old" in the preferred stock market Wednesday, as market players prepared for month-end activities.

KeyCorp was a topical name, as the bank announced it had bought back $2.5 billion of preferred stock held by the U.S. Department of the Treasury. KeyCorp's preferreds responded to the news by trading higher, for the most part.

Meanwhile, a new issue from Sunstone Hotel Investors Inc. was expected to be pricing soon, according to a trader. He noted that the deal is said to be small in size and that it is likely to be oversubscribed because investors are grappling at any new issues in the preferred market.

Ally Financial Inc. remained a busily traded name. However, the bank's preferreds ended the session about the same as Tuesday's closing levels.

KeyCorp gains as TARP repaid

KeyCorp announced Wednesday that it had wrapped a repurchase of $2.5 billion of series B fixed-rate perpetual preferred stock sold to the Treasury in late 2008.

Though KeyCorp's preferreds were not trading overly actively, they were trading higher on the day, according to a trader.

The biggest gainer was the series A 5.88% trust preferreds, which moved up 32 cents to $24.14, with a 6.10% yield. Of the other issues, the series E 6.75% trust preferreds gained 7 cents to $25.03, while both the series D and F preferreds improved by 8 cents to $25.24 and $26.16, respectively.

The series B 6.13% preferreds were the only decliner. They lost a dime to close at $24.70.

Another trader said the 8% preferreds closed up 7 cents at $26.10, down from the intra-day high of $26.15 and the low at the open of $26.02.

The Cleveland-based bank was one of 700 U.S. banks to receive funds from the government's Troubled Asset Relief Program. KeyCorp was able to make the repurchase due to its successful completion of a $625 million common stock sale and a $1 billion debt offering.

The bank paid nearly $300 million of dividends and accrued interest to the Treasury between 2008 and the repurchase date.

KeyCorp also intends to repurchase the outstanding warrant that was issued to the Treasury. The warrant allows for the purchase of up to 35.24 million common shares. If KeyCorp does not or cannot buy back the warrant, it will instead purchase common stock to offset any dilution.

Sunstone deal to price soon

A trader said pricing of a new issue from Sunstone Hotel Investors was expected Wednesday.

"If not today, then tomorrow most likely," he said.

The Aliso Viejo, Calif.-based real estate investment trust said Tuesday it would sell cumulative redeemable preferred shares "over the near term." Proceeds from the preferred sale would fund growth via the company's Sunstone Hotel Partnership LLC subsidiary.

According to the trader, price talk on the series D preferreds is 8% to 8.125%, with about 3 million shares being issued.

J.P. Morgan Securities, LLC, Merrill Lynch and Wells Fargo Securities LLC are said to be the bookrunners.

"I bet it's oversubscribed," the trader said, given the deal's small size and the fact that "this market is so hungry for new issues."

Ally ends unchanged

Ally Financial's series A and B preferreds continued to be active but were essentially unchanged on the day, according to a trader.

He placed the series A 8.125% hybrid trust preferreds at $25.50 and the series B 8.5% perpetual preferreds at $24.60 bid, $24.92 offered.

Another trader said the 8.5% preferred was up 4 cents on the day at $24.90, while the 8.125% trust preferreds moved up 2 cents to $25.48.

He noted that the 8.5% preferreds were the day's second most actively traded issue, with about 1.5 million shares trading.

Ally Financial is a Detroit-based bank holding company.

Utilities seen higher

As month-end approaches, investors were "repositioning for next quarter," a trader said, pushing utility preferreds up.

However, he added that trading in most energy-related names was so thin that the price moves were not necessarily indicative of value.

"They were such tiny trades," he said.

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