Citigroup prices 6.125% $1,000-par preferreds; GSEs higher on Fannie’s quarterly results

By Stephanie N. Rotondo

Seattle, Nov. 5 – The preferred stock market’s primary space had a new deal added to the calendar Thursday from Citigroup Inc.

Citi sold $1.5 billion of 6.125% $1,000-par series R fixed-to-floating rate noncumulative perpetual preferreds, according to a regulatory filing.

Price talk was around 6.25%.

At the close, a market source pegged the issue at 100.5.

Ahead of pricing, a trader said he had not seen any gray market quotes for the paper but did note that “at that price, they will put that away quickly.”

There has been chatter for the past couple of weeks that the New York-based bank was planning a deal. Earlier in the week, one market source told Prospect News that the buzz was ramping up.

Citigroup Global Markets Inc. is the bookrunner.

As for Citi’s existing issues, they were trading down early in the session, ultimately ending mixed.

The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) fell 13 cents to $27.20, as the 5.8% series C noncumulative preferreds (NYSE: CPC) increased 4 cents to $25.39.

When declared, dividends will be paid at a fixed rate on a semiannual basis through Nov. 15, 2020. Beginning Feb. 15, 2021, the preferreds will begin to float at Libor plus 447.8 basis points and will be paid quarterly.

The preferreds become callable Nov. 15, 2020 at par plus accrued dividends. The paper can also be redeemed, in whole, within 90 days of a regulatory capital treatment event.

Proceeds will be used for general corporate purposes, which may include funding subsidiaries, financing acquisitions or growth or refinancing or extending the maturities of outstanding debt.

Fannie reports earnings

Meanwhile, Fannie Mae and Freddie Mac preferreds were heading higher. A trader said the gains were due in part to Fannie’s “strong earnings,” which came out Thursday.

Fannie’s (OTCBB: FNMAS) series S preferreds were up 7 cents, or 1.4%, at $5.07. Freddie’s (OTCBB: FMCKJ) series J preferreds meantime improved a nickel, or 1%, to $5.05.

The GSE reported a $1.96 billion profit for the third quarter, down from $3.91 billion the year before. Fannie intends to send a $2.2 billion dividend payment to the Treasury in December.

The trader also noted news that indicated a pending lawsuit regarding the government’s conscription of a majority of the agencies’ profits would be allowed to move forward – a “positive for shareholders,” the trader said.

Fannie’s earnings, though down year over year, were better than Freddie’s own results, which came out Tuesday.

Freddie posted a net loss of $475 million for the third quarter, which compared to a profit of $2.08 billion the year before.

The swing to the red was due to losses from derivatives used to hedge interest-rate risk. Those losses totaled $4.17 billion, up from $617 million in the previous year.

The uptick in the losses was tied to long-term interest rate declines.

On the plus side, Freddie had positive net worth of $1.3 billion, meaning it would not need to seek more help from the U.S. Treasury.

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