DTE Energy comes with upsized sale of $25-par debentures; Fannie Freddie firm again

By Stephanie N. Rotondo

Seattle, May 23 – The preferred stock new issue pipeline continued to flow on Monday following the previous week’s steady stream of deals.

DTE Energy Co. brought a $300 million offering of 5.375% $25-par 2016 series B junior subordinated debentures due June 1, 2076 (Baa1/BBB-/BBB-).

Price talk was around 5.5%. The deal came upsized from $150 million.

A trader said there was no selling group.

BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC led the deal.

Proceeds will be used to repay the $300 million of 6.35% 2006 series B senior notes due June 1, 2016 and for general corporate purposes.

As for last week’s deals, W.R. Berkley Corp.’s $290 million of 5.75% $25-par subordinated debentures due 2056 – a deal priced Wednesday – were holding around $24.95, according to a trader.

Looking ahead, a trader said it would “probably be a quiet week,” as the bond market will close early Friday ahead of the Memorial Day holiday.

The preferred market, however, will remain open all day. Still, the trader speculated that the space will start to shut down early.

Fannie, Freddie see gains

Fannie Mae and Freddie Mac continued to be in focus on Monday as investors digested news from last week regarding stakeholders’ lawsuits against the federal government.

The market also continued to take the news as a positive for preferred holders, as paper remained on an upward track.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) added a nickel, or 1.21%, to close at $4.19. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 7 cents, or 1.75%, to close at $4.08.

More court documents in a case challenging the government’s “net worth sweep” of the agencies’ profits were unsealed in response to an out-of-court settlement in a Kentucky case. The documents appeared to show that the White House was more involved with the Treasury Department’s August 2012 decision to take a bulk of the profits earned by Fannie and Freddie while they operated under conservatorship than previously stated.

One e-mail, written by a top housing official in the Obama Administration, went so far as to say that the alteration in the 2008 conservatorship plan would ensure that the mortgage giants would not be able to “repay their debt and escape as it were,” according to a report published by The New York Times.

The e-mail allegedly came not long after a meeting in July 2012 with the Federal Housing Finance Agency, the regulator overseeing the two agencies. In that meeting, the regulator reportedly told officials that Fannie and Freddie were about to enter the “golden years” in terms of profits.

Stakeholders of Fannie and Freddie have taken the government to court challenging the sweep, deeming it illegal under the conservatorship. They have also argued that the government has set up Fannie and Freddie to fail again, as they are not able to build up any capital cushion to fall back on in the event of another financial crisis.

To date, Fannie and Freddie have paid back over $50 billion more than the combined $187.5 billion bailout received in the financial crisis. However, the principal amount of what it owes remains outstanding, as all of those payments have been deemed dividend payments on the Treasury’s holdings.

Ares buying American Capital

Ares Capital Corp. and American Capital Ltd. announced Monday that the former is buying the latter in a cash-and-stock deal valued at $3.43 billion, or $14.95 per share.

Additionally, American Capital will sell its American Capital Mortgage Management unit to its American Capital Agency unit for $562 million.

The news helped to push up both Ares’ and American Capital Agency’s preferreds.

Ares’ 5.875% $25-par senior notes due 2022 (NYSE: ARU) inched up 2 cents to $25.57. American Capital Agency’s 7.75% series B cumulative redeemable preferreds (Nasdaq: AGNCB) rose a nickel to $25.11, while the 8% series A cumulative redeemable preferreds (Nasdaq: AGNCP) ticked up 27 cents, or 1.05%, to $25.88.

In the wake of the news, a trader said there was buzz that “we could see more [business development companies] merge like that.”

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