Citi heralds solicitation results, preferreds trade mostly up; Public Storage plans new issue

By Stephanie N. Rotondo

Portland, Ore., April 4 - The big news in the preferred stock market on Monday was Citigroup Inc.'s announcement that it received approval to terminate certain capital replacement covenants for its securities.

The company has been attempting to do so for some time but initially was unable to get the needed consents to do away with the covenants. Once the market learned that approval had been secured, Citi's preferreds were mostly firmer on the day.

In the new issue market, Public Storage was heard to be bringing a deal, the proceeds of which would go toward funding the redemption of the company's 7.25% series I preferred shares. The callable shares traded down on the news.

Sunstone Hotel Investors Inc.'s new issue - the deal priced Friday - was getting a bit of attention, a trader said, though trading levels were in line with Friday's.

Citi boosted

Citigroup said it received 53.61% approval from holders of the company's 6% trust preferred securities regarding a consent solicitation to terminate 10 capital replacement covenants on various Citi securities.

As a result, the financial institution's preferreds traded up, for the most part, according to a trader.

The trader saw the 7.25% series F preferreds closing a penny higher at $25.16, while the 7.875% series G preferreds gained a nickel to close at $25.72.

The 6.35% series E preferreds, however, were "a curious one," as the paper lost 13 cents to close at $23.44.

"It should have pushed the price up," the trader said, as the consent solicitation results increase the likelihood that the preferreds will get called.

As banks and other financial institutions prepare for the implementation of the Frank-Dodd bill, many have done similar consent solicitations to prepare themselves for when trust preferreds are no longer deemed tier 1 capital. Citigroup's solicitation, however, was "interesting" because unlike other banks, stakeholders were not so quick to jump on board. Citi did not get the necessary approval it needed in the first round and therefore extended the solicitation to April 1.

"It was a very slow process this time around," the trader said.

The capital replacement covenant "restricted the company's ability to refinance these securities," the trader explained. An issuer cannot call a particular issue without replacing it with "greater or equal equity content," he said.

He also noted that investors wanted to make the company pay for the approvals.

"And they did," he said.

Holders that consented to the termination of the covenant received a consent fee of 2% of the liquidation amount of their covered securities.

Public Storage plans new issue

Public Storage announced its intention to redeem $517.5 million of the 7.25% series I preferreds Monday, along with its plan to issue $150 million of new preferreds to help pay for the call.

"It's not new money for them," a trader said.

He added that the 7.25% preferreds fell a quarter to $25.12, "which you would expect," as the shares are being called at par.

The Glendale, Calif.-based storage company intends to issue 6 million of the new preferreds, and price talk is 6.5% to 6.625%.

The trader said the new issue was trading at $24.625 in the gray market.

"That's not indicative of a strong demand in the underwriting," he said.

Another trader saw the shares at $24.65.

Sunstone still steady

Among other recent issues, Sunstone Hotel Investors' new 8% series D cumulative preferred shares were trading around $24.75, a trader said.

"There has been some [action], but not a lot because it's a small issue," the trader said.

Another trader placed the paper around $24.73.

The Aliso Viejo, Calif.-based real estate investment trust priced the $100 million offering on Friday. The company sold 4 million preferreds at par of $25.

The deal has an over-allotment option of $15 million, or 600,000 preferreds.

J.P. Morgan Securities, LLC, Merrill Lynch and Wells Fargo Securities LLC were the joint bookrunners. The senior co-managers were Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc. The junior co-managers were Baird, FBR Capital Markets, KeyBanc Capital Markets LLC and Stifel, Nicolaus & Co. Inc.

Proceeds from the sale will be used to fund growth at the company's Sunstone Hotel Partnership LLC subsidiary. In exchange, the company will receive additional membership units in the operating subsidiary.

Sunstone intends to apply to list the preferreds on the New York Stock Exchange under the ticker symbol "SHO PRD."

Ally most active

The most active preferred of the day was Ally Financial Inc.'s 8.5% series B preferred stock, according to a trader. He saw the shares trading up 13 cents to $25.02.

The day's second most active security was Wells Fargo & Co.'s 7% preferreds, which fell a penny to $25.24.

In what a trader called a "bizarre move," Seaspan Corp.'s series C cumulative redeemable perpetual preferreds were the third most active, trading down 3 cents to $26.85.

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