Investors line up for Ally's $2.7 billion secondary offer

by Timothy Sifert

WASHINGTON/NEW YORK (Reuters) - The Treasury's $2.7 billion secondary offering of Ally Financial's trust preferred securities (TruPS) unveiled Tuesday is expected to be a blowout, as investors rush to get in on one of the last opportunities to buy a sizeable bank TruPS deal.

The securities are high-yielding and rare, making them popular with investors from the get-go. Ally will receive no proceeds from the deal. Instead, the US government is selling the shares it received from Ally, the former General Motors Acceptance Corp <GM.N>, in December 2009 as part of the bailout of the auto and home lender.

The offering comprises $25-par non call five notes with a February 15 2040 final maturity through GMAC Capital Trust I. Ally Financial is guaranteeing the notes on a subordinated basis.

Initial whispers surfaced at 8.50%-8.75% only to tighten to an 8.00%-8.50% range. Bookrunners have zeroed in on 8.25%, plus or minus 12.5 basis points with the launch expected at 2 pm.

The deal is expected to be about $2.667 billion, the full size of the Treasury's holding. The Treasury also owns $5.9 billion of mandatory convertible preferred stock in Ally and 74% of its common shares.

An initial public offering is planned for the stock later this year. In total, the Treasury has about $17.2 billion in taxpayer funds invested in Ally at present.

There is some precedent for success selling secondary TruPS. The Treasury sold a $2.246 billion offering of Citigroup <C.N> TruPS in September. The 30-year, $25-par trade attracted a $10 billion order book, largely from institutional buyers.

Citigroup, Deutsche Bank, JP Morgan, Morgan Stanley, Barclays Capital and Goldman Sachs are bookrunners for Ally.


Ally's will likely be one of the last, sizeable bank TruPS issued. The Collins Amendment to the Dodd-Frank Act disallows Tier 1 treatment for any newly issued TruPS. As bank regulators have sought to fortify bank capital in the wake of the credit crisis, they have been stricter with what type of capital qualifies as Tier 1, a key measure of a firm's financial strength.

Once a regular feature of bank balance sheets, TruPS have been one of the casualties of tighter capital policies. As a result, banks have been keen to repurchase existing TruPS. They are also exploring new Tier 1 alternatives.

However, Ally's TruPS were sold to the Treasury in 2009 and are not considered new issues.

(Reporting by IFR's Timothy Sifert and Andrea Johnson; additional reporting by Reuters reporters Lesley Wroughton and David Lawder)