Chimera Investment prices upsized deal; Fannie, Freddie decline; Morgan Stanley gains

By Stephanie N. Rotondo

Seattle, Feb. 22 – The preferred stock primary market broke its streak of silence on Wednesday, as Chimera Investment Corp. brought a $300 million sale of 8% series B fixed-to-floating rate cumulative redeemable preferreds.

The non-rated deal seemed well received, given that it was upsized from $75 million and at the cheap end of the 8% to 8.125% price talk.

Morgan Stanley & Co. LLC, UBS Securities LLC, RBC Capital Markets and Keefe Bruyette & Woods Inc. ran the books.

In the wake of the new issue, Chimera’s 8% series A cumulative redeemable preferreds (NYSE: CIMPrA) traded down 31 cents, or 1.22%, to $25.15.

Overall, the preferred space continued to have a firm tone.

The Wells Fargo Hybrid and Preferred Securities index was up 16 basis points, while the U.S. iShares Preferred Stock index was up 3 bps.

Though the market was generally ticking upward, “Fannie and Freddie were jumping all over the place again,” according to one sellside source.

Fannie Mae and Freddie Mac preferreds got beat down on Tuesday after the U.S. Court of Appeals ruled 2-1 that the Recovery Act essentially barred investors from pursuing their claims against the government in regards to the net worth sweep.

Some claims, however, were remanded to the lower court – specifically, contract-related claims.

By Tuesday’s close, the agencies’ preferreds had dropped more than 28%. The carnage then continued into midweek dealings.

Meanwhile, Morgan Stanley & Co. Inc.’s 5.85% series K fixed-to-floating rate noncumulative preferreds (NYSE: MSPrK) continued to trend higher, adding 2 cents to close at $25.65. About 1.47 million of the preferreds changed hands.

Chimera comes upsized

Chimera Investment priced $300 million of 8% series B fixed-to-floating rate cumulative redeemable preferred stock on Wednesday.

Price talk on the non-rated deal was 8% to 8.125%, a market source reported. The deal was upsized from $75 million.

Post-pricing, a market source quoted the issue at $24.70 bid, $24.75 offered.

Ahead of pricing, a trader pegged the paper at $24.80 bid, $24.85 offered.

The dividend rate begins to float at Libor plus 579.1 bps on March 30, 2024.

The issue becomes callable on March 30, 2024 at par plus accrued dividends. The preferreds can also be called upon a change of control.

Proceeds will be used to acquire residential mortgage loans and other targeted assets and for general corporate purposes, including to pay down liabilities and other working capital items.

Chimera is a New York-based real estate investment trust.

Losses mount for GSEs

Fannie and Freddie preferreds remained in decline on Wednesday following an unfavorable court ruling on Tuesday.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dropped 59 cents, or 7.63%, to $7.14, on about 11.4 million preferreds traded. The variable rate series O noncumulative preferreds (OTCBB: FNMFN) waned $1.05, or 7.64%, to $12.70, with over 966,000 preferreds bring traded.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) meantime lost 66 cents, or 8.82%, to $6.82. That issue traded over 6.8 million times.

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled against plaintiffs in Perry Capital LLC v Mnuchin, opining that the Recovery Act bars the investors from bringing such a suit.

Some parts of the lawsuit were remanded to the lower court, however, including contract-based claims.

The three-judge panel ruled 2-1.

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