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24-07-2012 20:08:00

GE Capital, BB&T Issue Preferreds as Yield Hunt Lowers Capital Costs

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--GE Capital Corp. issues $1.75 billion, BB&T issues $250 million in noncumulative, perpetual-preferred stock

--Deals are expected to price lower than previous deals

--Year-to-date issuance of preferreds is highest since 2008 crisis

By Katy Burne

The financing arm of U.S. conglomerate General Electric Co. (GE) and financial-services company BB&T Corp. (BBT) are in the market Tuesday selling preferred stock, seeking to boost their capital bases for regulatory purposes and disregarding the "risk-off" trade that has many investors flocking to safe-haven assets.

Issuance of U.S. preferreds--which qualify as tier-one capital, a measure of banks' health under new regulations--is at $17.1 billion so far this year, the most since the crisis in 2008 and up from $5.7 billion to this point last year, according to data provider Dealogic.

The flight from risky assets didn't deter the issuers, said a banker working on both offerings, because so many investors are still starved for yield at a time when central bankers keep pumping money into the system. Preferreds allow investors to pick up incremental yield by buying more risky securities from names they already have vetted, rather than investing in more speculative companies.

"The bid for yieldy paper gives strong companies the ability to get deals done at attractive rates, even on tough days," said Andrew Karp, head of investment-grade debt syndicate in the Americas at Bank of America Merrill Lynch.

Many issuers also have been selling preferreds to take out, or refinance, existing preferreds issued a few years ago when the cost of capital was greater.

Both the GE Capital Corp. and BB&T offerings follow so-called blackout periods around their earnings. Friday, GE reported a second-quarter profit of $3.11 billion, or 29 cents a share, and last Thursday BB&T reported second-quarter earnings of $510 million, or 72 cents a share.

GE's tier-one common-capital ratio at the end of the second quarter was 10.1% under proposed Basel III capital rules, down from 10.4% at the end of the first quarter. BB&T's tier 1 common capital ratio was estimated at 8.2% as of June 30, compared with 9.2% as of March 31.

Their newly marketed securities, coming in the form of perpetual-preferred shares that have both debt- and equity-like characteristics, never mature and rank senior only to common equity. These stand to boost the issuers' tier-one capital, while investors are assured of being repaid ahead of shareholders, but behind bondholders, if the companies run into trouble.

Several financials have been in the market with preferreds this year, including GE Capital already June 7 with a $2.25 billion deal and BB&T April 26 to raise $575 million. Late April also featured a $1.09 billion preferreds issue from U.S. Bancorp (USB) and a $1.5 billion deal from PNC Financial Services Group Inc. (PNC).

GE Capital marketed $1.75 billion of "noncumulative," perpetual-preferred stock due to be priced in Tuesday's session. Noncumulative preferreds are more risky for investors than cumulative ones because they don't require companies to make up dividend payments when they skip a payment.

The interest on the GE notes is fixed for the first 10 years, and thereafter will float over the benchmark London interbank offered rate. The securities are expected to price to yield 6.5%, much lower than the 7.125% preferreds GE sold in June.

BB&T is offering $250 million in noncumulative, perpetual-preferred stock, which bear interest at a fixed rate over their life, but the deal may be increased on demand. The securities are expected to yield 5.625% to 5.75%, under the 5.85% BB&T achieved in April.

Bank of America Corp. (BAC) is leading the BB&T sale, supported by the issuer, Deutsche Bank AG (DB, DBK.XE), Morgan Stanley (MS), UBS AG (UBS, UBSN.VX) and Wells Fargo & Co.'s (WFC) Wells Fargo Securities. Bank of America, Barclays PLC (BCS, BARC.LN), Goldman Sachs Group Inc. (GS), J.P. Morgan Chase & Co. (JPM), Morgan Stanley and UBS are leading the GE issue.

Write to Katy Burne at katy.burne@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 24, 2012 14:08 ET (18:08 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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