Market flat to begin week; KeyCorp brings upsized fixed-to-floating issue; GSEs soften

By Stephanie N. Rotondo

Seattle, Dec. 5 – Preferred stocks were treading water in early Monday dealings, eventually ending with a slightly softer tone.

The Wells Fargo Hybrid and Preferred Securities index was unchanged at mid-morning but finished down 2 basis points.

The market did see a new issue hitting the tape, a $500 million sale of 6.125% series E fixed-to-floating rate noncumulative perpetual preferred stock from KeyCorp.

Price talk was in the 6.25% area. The deal was upsized from $250 million.

Post-pricing, a market source placed the issue at $24.93.

A trader saw the issue quoted at $24.85 bid, $24.95 offered in the early gray market, though he later said it was $24.88 bid, $24.92 offered after the deal size was increased.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC, Goldman Sachs & Co. and KeyBanc Capital Markets are running the books.

Dividends will be fixed through Dec. 15, 2026. At that point, the securities will float at Libor plus 389.2 bps.

The issue becomes redeemable on or after Dec. 15, 2026 at par plus accrued dividends. The preferreds can also be redeemed in whole upon a regulatory capital treatment event.

As for secondary trading, GSE-linked preferreds continued to be in focus. Following Friday’s trend, Fannie Mae and Freddie Mac paper was weakening.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 30 cents, or 3.57%, to $8.10. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) retreated 44 cents, or 5.49%, to $7.58.

Last Wednesday, the preferreds – which have been mostly better since the Nov. 8 election – got a huge pop, jumping as much as 50%. The gains were extended into Thursday – albeit not as much as the midweek session – but started to retreat come Friday.

Wednesday’s gains started because of comments made by Steven Mnuchin, Trump’s pick for Treasury Secretary. Mnuchin indicated in an interview with Fox Business that the incoming administration wanted the mortgage guarantors to get out from under government control as soon as possible.

But without any specific details as to how that would be accomplished, market players began to question whether or not shareholders – who were initially optimistic on the comments – would actually benefit from any Trump-backed plan to recapitalize the GSEs. Thus, the preferreds started to roll back – though profit-taking was also a likely culprit.

“You cannot read too much into the price change,” said one market source. “It is typically the same set of investors talking up their positions.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.