Valley National deal altered to include fixed-to-floating coupon; Annaly lower with market

By Stephanie N. Rotondo

Seattle, July 27 – The preferred stock primary market continued to see deals trickle out on Thursday, as Valley National Bancorp brought an upsized $100 million issue of 5.5% series B fixed-to-floating rate noncumulative preferreds.

Prior to pricing, the Wayne, N.J.-based bank holding company said in a regulatory filing that it had added a fixed-to-floating rate feature to the issue. The dividend will be fixed until Sept. 30, 2022, at which time it will begin floating at Libor plus 357.8 basis points.

One market source said that the issue “has been unusually quiet.”

“It should be due to the embarrassment of the underwriter,” he said. “All of yesterday’s gray market trades had to be cancelled” due to the coupon alteration.

Earlier in the day, a trader saw the issue at par bid in the gray market.

Keefe Bruyette & Woods Inc. is running the deal.

Meanwhile, Annaly Capital Management Inc.’s $700 million of 6.95% series F fixed-to-floating rate cumulative redeemable preferreds – a deal priced Tuesday – continued to be actively traded.

However, as the overall market was on the negative side, the recently priced issue was following suit, trading off a dime from the open to $24.85.

About 1.73 million of the preferreds changed hands during the session.

The deal freed Wednesday afternoon and began trading under a temporary ticker, “ANNPP.”

Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, UBS Securities LLC, RBC Capital Markets, Citigroup Global Markets Inc. and Keefe Bruyette & Woods were the bookrunners.

The dividend rate will be fixed until Sept. 30, 2022, at which time it will float at Libor plus 499.3 bps.

In the secondary, Fannie Mae and Freddie Mac remained in focus. But the GSEs’ recent upward surge was stemmed, as the preferreds began to come back in.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 40 cents, or 4.33%, to $7.10, on 2.03 million shares traded. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) lost 27 cents, or 3.81%, to close at $6.81.

About 1.72 million of those preferreds were exchanged.

A source remarked that the losses were likely tied to reports that Steven Mnuchin, head of the Treasury Department, said any guarantees backing the GSEs should be “explicit.”

In his testimony before the House Financial Services Committee on Thursday, Mnuchin once again indicated that housing finance reform was a top priority, though he said discussions were ongoing.

Fannie and Freddie’s preferreds have been on a tear since Monday, seeing significant gains in each session. It was not clear what was driving the securities upward, though last week, new documents from a shareholder lawsuit against the government related to its “net worth sweep” were released.

The documents appeared to show that the government knew that the GSEs were set to return to profitability prior to enacting the sweep. As shareholders are arguing that the sweep was unjustified and illegal, the documents could be a boon for their case.

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