Preferred stocks rise as Fed minutes released; Colony Capital upsizes; GasLog lists, jumps

By Stephanie N. Rotondo

Phoenix, April 8 – Preferred stocks were moving up Wednesday as investors heard the minutes from the Federal Reserve’s March meeting.

The Wells Fargo Hybrid and Preferred Securities index closed up 17 basis points. The index was up 6 bps at mid-morning.

Investors were once again looking for clues from the central bank as to how the economy is really doing and also how that will impact when the Fed plans to raise interest rates. The mid-afternoon release of the minutes showed that the Fed was divided on whether or not to go ahead with a June rate increase, with some indicating that despite a poor first quarter, recent economic data should not deter the June plan.

Others, however, were a little more wary of the first quarter’s performance, and some even went so far as to suggest taking a meeting-by-meeting approach to raising rates, rather than setting out a somewhat definitive timeline.

Investors were also expecting a deal from Colony Capital Inc. to price later in the session – and it did. The Los Angeles-based real estate investment trust announced the offering of series C cumulative redeemable perpetual preferreds late Tuesday, and late Wednesday it was announced that $250 million of the preferreds were sold at par to yield 7.125%.

BofA Merrill Lynch, Barclays, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, RBC Capital Markets and UBS Securities LLC were running the deal.

Price talk was initially 7.25%, according to a trader, though it was later revised to 7.125%.

In the morning, some market participants were expecting Colony to sell a small amount of the preferreds but at least $75 million.

“It’s a small deal; there’s not a big selling group,” a trader said, seeing a $24.85 bid, $24.90 offered gray market quote early in the session.

As is typical when a company brings a new deal, the company’s other preferreds were declining.

The 7.5% series B cumulative redeemable perpetual preferreds (NYSE: CLNYPB) fell 24 cents to $25.61. The 8.5% series A cumulative redeemable perpetual preferreds (NYSE: CLNYPA) dropped 42 cents, or 1.56%, to $26.55.

Among recent deals, GasLog Ltd.’s $100 million of 8.75% series A cumulative redeemable perpetual preference shares began trading on the New York Stock Exchange under the ticker symbol “GLOGPA.”

The shares climbed up to $25.77 at the close, up from $25.40 at mid-morning.

The deal priced March 30.

Big moves for Fannie, Freddie

Away from newer deals, Fannie Mae and Freddie Mac paper was getting a boost after the New York Times reported that Iowa senator Charles Grassley had written letters to the Justice Department and the Treasury asking why the government chose to consign the bulk of the agencies’ profits – and why information on that decision has yet to see the light of day.

In response, Fannie and Freddie paper “all popped about 20 cents,” according to a trader.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended up a quarter, or 5.94%, at $4.46. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) finished 29 cents, or 6.89%, better at $4.50.

Shareholders have filed several lawsuits against the government over its 2012 decision to take the majority of Fannie and Freddie’s profits as the agencies continue to operate under conservatorship. In the course of those lawsuits, certain documents have been requested from the government, but each request has gone unanswered. In some cases, the government has even claimed presidential privilege.

In particular, shareholders are looking for documents relating to the 2012 decision, but thus far, none have come.

In his letter, senator Grassley also expressed questions about the decision and asserted that taxpayers have “a right to know what has transpired.

“But, instead of transparency, there appears to be an invocation of executive privilege. If true, this is cause for concern,” Grassley wrote in his letter.

Since the decision, Fannie and Freddie have proved to be quite profitable for the Treasury. After the two GSOs received $187.5 billion in 2008, the market began to stabilize and the companies began to return to profitability. As of March 31, 2015, Fannie and Freddie have repaid a total of $228.3 billion back to taxpayers, over $40 billion more than it originally received.

With the bulk of their profits being taken away, the ability to create a capital cushion has been near impossible and recoveries for shareholders are believed to be nil.

In his letter, Grassley gave the Justice and Treasury departments until April 20 to respond.

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