JPMorgan sells upsized $1.1 billion deal at tightened dividend; commodity preferreds sink

By Stephanie N. Rotondo

Phoenix, July 22 – The preferred stock market saw a new deal price on Wednesday.

JPMorgan Chase & Co. brought $1.1 billion of 6.15% $25-par series BB noncumulative preferred stock.

Price talk was initially around 6.25%, according to a trader, but was later revised to 6.15%.

“They are probably going to tighten the yield to around 6.125%, I’m guessing,” the trader said prior to pricing, adding that the new issue seemed “well-received by retail.”

The deal was also upsized from $400 million.

“There’s a lot of retail on it,” another market source said.

Ahead of pricing, a trader saw a gray market quote of $24.60 bid, $24.65 offered for the paper.

Later in the day, that same trader noted that price talk had been revised and pegged the issue at $24.60 bid, $24.70 offered.

As for the company’s other outstanding issues, the 6.1% series AA noncumulative preferreds (NYSE: JPMPG) dominated overall trading, with about 1.4 million shares being exchanged.

The paper fell 26 cents, or 1.03%, to $24.94.

The 6.125% series Y noncumulative preferreds (NYSE: JPMPF) meantime lost 33 cents, or 1.29%, to close at $25.20.

Just over 540,000 of those shares traded.

J.P. Morgan Securities LLC is running the books. Joint lead managers are BofA Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, UBS Securities LLC and Wells Fargo Securities LLC.

Dividends will be payable quarterly. The preferreds become redeemable on or after Sept. 1, 2020 at par plus accrued dividends.

Additionally, the bank can redeem the shares in whole within 90 days of a regulatory capital treatment event.

Proceeds will be used for general corporate purposes.

If the deal goes well, the trader opined that the calendar might add a couple more new issues before the month is out.

The new deal came despite recent modest weakness in the market. The losses seen in midweek trading, however, were not so modest.

The Wells Fargo Hybrid and Preferred Securities index closed off 27 basis points. The index was down 8 bps at mid-morning.

Commodity names dive

Weakness in commodities continued to pressure Gamco Global Gold, Natural Resources & Income Trust’s 5% series B cumulative preferred shares (NYSE: GGNPB), which were “selling off a little bit again because of gold getting hammered,” a trader reported.

The preferreds of the Gabelli-run fund ended off 24 cents, or 1.13%, at $20.98.

For its part, gold was down nearly 1.5% early in the session but closed 1% softer. Crude oil prices also took a dive, as West Texas Intermediate crude declined $1.76, or 3.46%, to $49.10.

The drop in oil prices came as the U.S. Energy Information Administration released its weekly inventory report, showing an unexpected 2.5 million-barrel gain for the week.

Analysts had predicted a 2.3 million-barrel decline.

The report only exacerbated oversupply concerns, especially after OPEC said earlier in the week that it would continue to maintain its production levels.

Among other commodity-linked names, Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) saw above-average trading as the units fell 46 cents, or 1.91%, to $23.58.

Over 119,000 units were exchanged during the session, which compared to the daily average of just over 10,000 shares trading.

Fannie, Freddie busy, better

Fannie Mae and Freddie Mac preferreds were bucking the day’s downward trend as the market reacted to the latest news regarding lawsuits brought against the government by shareholders.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 2 cents to $4.42, with 3.88 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up a penny at $4.43, on trading of about 3.89 million shares.

On Tuesday, judge Margaret Sweeney of the Federal Claims Court in Washington, D.C., approved a motion brought by Fairholme Funds to force the U.S. Treasury to release all discovery documents related to the decision to place the GSEs into conservatorship.

On the news, Richard Bove, a lauded analyst with Rafferty Capital Markets, deemed the decision a “big win” in a note to clients.

“It has always been my belief that this mediation will result in a settlement giving shareholders their ownership rights back,” Bove wrote. “This case is now alive again in three courts any one of which could find in Fairholme’s and all other shareholders’ favor.

“The next hoped for step is for one of these three courts to unseal the documents so that the public can see what has happened in the historical discussions between the White House, the Treasury Department, and the Federal Housing Finance Agency concerning Fannie Mae’s status.”

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