Preferred stocks modestly better; Just Energy fizzles post-pricing; Morgan Stanley wanes

By Stephanie N. Rotondo

Seattle, Jan. 31 – The preferred stock market had a firm tone for the end-of-the-month session, once again outperforming the common stock space.

The Wells Fargo Hybrid and Preferred Securities index improved 14 basis points, while the Dow Jones industrial average waned over 100 points.

Investors had one new issue to play with, Just Energy Group Inc.’s $100 million of 8.5% series A fixed-to-floating rate cumulative redeemable preferreds.

The deal came late Monday.

Come Tuesday, the new issue was seen closing at $24.55, according to a market source.

The preferreds were pegged at $24.58 bid, $24.70 offered in early dealings.

“It’s not the best thing right now,” a trader said.

The issue is the first dollar-denominated preferred sold by the Toronto-based energy provider. Given that, and the fact that it was a non-rated deal, the issue was not giving investors much reason to get excited, a source remarked.

The source also speculated that there was “probably a credit question,” though he was not involved in the deal so he couldn’t be sure. Additionally, the deal was done by “not exactly leading underwriters.”

Stifel Nicolaus & Co. Inc., FBR Capital Markets and National Bank Financial Inc. ran the books.

The source also pointed to the deal’s “unusual rate reset mechanisms.”

The dividend will be fixed for five years, at which point it will float at a spread applicable to the semiannual five-year U.S. mid-market swap rate.

From last week’s business, Morgan Stanley & Co. Inc.’s $1 billion of 5.85% series K fixed-to-floating rate noncumulative preferreds were down a dime at $25.12.

Earlier in the day, the paper was pegged at $25.15 bid, $25.20 offered.

The deal – which priced on Jan. 24 – is trading under a temporary symbol, “MSDDP.”

All eyes on GSEs

Fannie Mae and Freddie Mac continued to head for higher ground early Tuesday, buoyed by news out Monday regarding a court ruling that was “in favor of the plaintiffs,” a trader said.

However, the preferreds started to lose ground toward the end of the day.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) ended off 2 cents at $8.85, with over 7.12 million shares trading.

In Fannie paper, the 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 13 cents, or 1.38%, to $9.27 on about 2.3 million shares trading.

The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) managed to gain 48 cents, or 5.35%, to $9.45, with 1.64 million shares trading.

On Monday, the Court of Appeals unanimously ruled that of the 56 sample documents reviewed from the Treasury, 48 should be turned over to the plaintiffs, Fairholme Funds

The ruling piggy-backs on judge Margaret M. Sweeney’s decision last year, which called for the Treasury to turn over the documents it had previously tried to designate as privileged in one way or another.

The documents in question are related to the Treasury’s argument that the 2012 “net worth sweep” was necessary in order to protect taxpayers. Papers unsealed last year have thus far thrown shade on that defense.

Without knowing what those documents included, a market source told Prospect News on Monday that it was unclear whether or not the ruling would ultimately be positive or negative for shareholders.

“Both sides will probably appeal,” he remarked.

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