Aviva announces plans for new issue, traders eye deal; no word on Winthrop Realty new issue

By Stephanie N. Rotondo

Portland, Ore., Nov. 16 - Preferred stocks headed downward Wednesday on fears that Europe's financial contagion could spread throughout the continent and possibly into the United States.

Traders were also lamenting a lack of real volume.

"Nobody wants to keep layering on additional risk in the market," one market source said.

Another trader cited a report from Fitch Ratings that said domestic banks have strengthened their balance sheets, but the European crisis still poses a risk.

"That kind of caught everybody by surprise," he said.

The news of the day was an upcoming deal from Aviva plc, a London-based insurance company. The word on the street was that the deal was growing from an original issue amount of $200 million.

"The deal looks great," a trader said, likening the paper to Allianz SE's OTCBB-listed 8.375% subordinated callable bonds.

Meanwhile, market players continued to be on the lookout for a new deal that was supposed to come from Winthrop Realty Trust.

"People are wondering what is going on with that," a trader said. The deal had not yet priced, though it was expected to. It was announced Monday.

Aviva new issue lauded

Aviva intends to sell 30-year capital securities, the company said in a regulatory filing Wednesday.

Price talk is 8.25% to 8.375%, according to a market source.

The source also said he heard the original issue amount for the $25-par bonds was $200 million, but chatter is that the deal is growing.

"It seems like they are trying to grow the deal," he said. "I'm sure they will be able to raise more."

He saw the capital securities at $24.72 bid, $24.75 offered in the grey market.

Another trader said the deal "looks great" and feels a lot like Allianz's $25-par notes.

He quoted the issue at $24.70 bid, $24.80 offered.

Aviva said in its regulatory filing that it plans to use proceeds for general corporate purposes and that it expects the funds to qualify as regulatory capital.

"It's a tier 2 kind of capital security," a source said. "It's more like junior subordinated debt than a preferred."

Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC are the joint bookrunning managers. The capital securities will be listed on the New York Stock Exchange.

Market waits for Winthrop

Also in the primary market, players were waiting for Winthrop Realty Trust's proposed $50 million issue of series D cumulative redeemable preferreds.

"It's got to price tonight," a source said Wednesday. "They had it open for a while now."

He noted that he saw a $24.70 offer for the new issue.

"It's kind of under the radar," said another trader. He speculated that the Boston-based real estate investment trust might have stalled the deal because of the weak tone of the overall market.

Barclays Capital Inc. and Stifel Nicolaus Weisel are the joint bookrunners.

Proceeds from the new securities will be contributed to the operating partnership, which will then use the funds for potential acquisitions, to pay down debt, to repurchase stock and/or for general corporate purposes.

Value in Fannie, Freddie?

A market source said there is "renewed talk from hedge-y guys" that there could be value in Fannie Mae and Freddie Mac preferreds.

Though the source personally thinks the idea is far-fetched, he said that the rationale is that there is "a certain amount of risk/reward" in investing in the paper - most of which trades around a buck.

"It becomes worth the lottery ticket," he said.

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