Preferreds improve; AmTrust comes with upsized sale of $25-par notes; Fannie, Freddie up

By Stephanie N. Rotondo

Phoenix, June 11 – After spending the beginning of the week with a negative tone, the preferred stock market was rebounding in Thursday trading.

The Wells Fargo Hybrid and Preferred Securities index ended 15 basis points higher for the day.

The rally came as the Commerce Department reported that retail sales gained 1.2% in May – better than the 1.1% increase predicted by economists polled by Reuters.

Additionally, April sales were revised to show a 0.2% gain. The previous reading had sales unchanged for that month.

As was expected, the primary market got a little bit of action as AmTrust Financial Services Inc. announced plans to sell $100 million of $25-par junior subordinated notes due 2055. The deal came upsized at $150 million.

Initial price talk was around 7.25%, according to a source. The issue priced at 7.25%.

Post-pricing, a trader quoted the issue at $24.60 bid, $24.70 offered.

Morgan Stanley & Co. LLC, UBS Securities LLC and Keefe Bruyette & Woods Inc. are running the books.

AmTrust’s existing 7.5% series D noncumulative preferreds (NYSE: AFSIPD) finished down 15 cents at $24.98.

Fannie, Freddie gain ground

Fannie Mae and Freddie Mac preferreds easily dominated trading again on Thursday and also saw a rebound following the previous day’s losses.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 21 cents, or 5.5%, to $4.03 on more than 3.5 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime improved 20 cents, or 5.24%, to $4.02, with 8.66 million shares being exchanged.

On Wednesday, the preferreds had drifted lower, and according to a market source, it was due to a couple research reports that were circulating.

However, the source remarked that the reports did not contain “a lot of new information.”

In the report out Wednesday, analysts at SNL Financial warned that a decline in profits, combined with a winding down of their portfolios and capital reserves, could place Fannie and Freddie back where they were at the height of the financial crisis.

But as the source noted, that in and of itself is not new information. In 2012, the Treasury Department made an amendment to its conservatorship agreement with the mortgage giants, effectively taking most of their profits. In doing so, the government took away the agencies’ ability to save for a rainy day, as it were.

Several investors have sought to fight the amendment, and lawsuits are currently pending.

RBS improves

Among paying securities, Royal Bank of Scotland Group plc’s 6.08% noncumulative guaranteed trust preferred securities (NYSE: RBSPG) were the top trader of the day, with well over 800,000 shares changing hands.

The issue – along with the rest of the preferred structure – closed up 22 cents at $24.88.

The gains came after Wednesday’s announcement that the U.K. government was looking to start selling its stake in the Edinburgh, Scotland-based bank within the coming months.

The current plan is to initially sell shares to institutional investors, George Osborne, chancellor of the exchequer, told attendees of the annual Mansion House dinner in London on Wednesday. But as the sale will likely take years to complete, a sale to retail investors in the future is not out of the question, he noted.

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