Earnings boost Freddie, Fannie preferreds; Montpelier, Kayne new issues perform 'pretty well'

By Stephanie N. Rotondo

Portland, Ore., May 5 - Though the straight equity market ended Thursday's session weaker, a preferred stock market source said the day was "mostly green" for preferreds.

Market players were speculating what a gross profit from Freddie Mac might mean for its preferreds as well as those of Fannie Mae. For Thursday at least, it meant gains for the securities.

Meanwhile, recent new issues from Montpelier Re Holdings Ltd. and Kayne Anderson MLP Investment Co. were performing "pretty well," a source said. Both have traded above par since breaking into the market.

Citigroup Inc.'s series Q preferreds were once again among the day's most actively traded securities - the paper made the top three most active list Thursday. The preferreds also continued to gain traction and ended nearly a dime better on the day.

Fannie, Freddie gain

Fannie Mae and Freddie Mac preferreds gained ground after Freddie Mac posted a $676 million profit for the first quarter of 2011, market sources said.

One source said the $50-par preferreds were up as much as $1.20 on the day and the $25-par issues were up anywhere from 50 cents to 70 cents.

"The feeling is if they are going to start making money again, could these still have value?" a trader explained.

At another shop, a source said, "On a percentage basis, they were up a lot. But on a dollar-basis, not so much."

Fannie's 8.25% preferreds, for example, gained about 25%, or 50 cents, to close at $2.50.

However, the source noted that while Freddie Mac said it turned a profit, that was before taking out its preferred dividend to the government. Once those figures were subtracted, earnings turned into a loss of 29 cents per common share.

But the source noted that some were pondering how the balance sheet would look once the government was taken out of the picture. Both mortgage-backers received bailout funds in September 2008. Though Freddie Mac said it was not planning to seek more government aid, it has received about $13 billion in the last year.

Montpelier, Kayne perform well

Montpelier Re Holdings' new 8.875% perpetual non-cumulative preferreds - a $150 million issue that priced Tuesday - "has done pretty well," a market source said.

He quoted the new issue at $25.25 bid, $25.35 offered.

"There must have been a reasonable short in the underwriting," he said.

Shortly before the market closed, a trader saw the preferreds even higher at $25.32 bid, $25.40 offered.

Among other new issues, Kayne Anderson MLP Investment's new 4.95% series D mandatory redeemable preferreds - a $100 million deal that priced Wednesday - were trading at $25.00 bid, $25.10 offered.

"These are both small deals with good coupons," a trader said.

Citi Qs remain busy

Citigroup's 6% series Q preferreds continued to move up, according to a source, as investors remained intrigued by so-called "lower-coupon/lower-dollar price trust preferreds."

The source placed the Qs up 9 cents at $22.95 on about 1.84 million shares traded.

The popularity of issues such as the Citi Qs comes as issuers and investors alike consider what the Dodd-Frank and Basel III regulations will do to the market after Jan. 1, 2013. The source said that the Qs in particular have upside whether they are called early or not.

Also maintaining its popularity was Ally Financial Inc.'s 8.125% series A preferred stock. Standard & Poor's upgraded the securities on Wednesday, and a source said that "the irony of things is they actually ended down 5 cents" come Thursday.

He pegged the paper at $26.05 on volume of about 2.4 million shares.

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