Oil and gas preferreds drop as commodity prices remain weak; Cherry Hill delays offering

By Stephanie N. Rotondo

Seattle, Dec. 8 – The preferred stock market remained under pressure on Tuesday, driven in large part by a slumping oil market.

“Oil and gas was smashed yesterday on the Saudi’s comments that they are going to pump until everybody else goes out of business,” a trader said.

In Tuesday trading, domestic crude closed with a $37 handle, though it had been trading south of that mark earlier in the day. The weakness came ahead of the U.S. Energy Information Administration’s weekly inventory report on Wednesday. The report is expected to show a stockpile build for the 11th straight week.

Among oil and gas preferreds, the results were initially a little mixed, but ultimately came out negative.

Goodrich Petroleum Corp.’s 10% series C cumulative preferreds (NYSE: GDPPC) closed off 3 cents, or 4.41%, at 65 cents. The preferreds were up 2 cents, or 2.94%, at 70 cents at mid-morning.

Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) meantime declined 71 cents, or 10.52%, to $6.04. The units were down a quarter, or 3.7%, at $6.50 earlier in the day.

For its part, Goodrich suspended the dividends on all of its preferred issues – including a convertible preferred issue – on Dec. 1. As for Vanguard and its peers – such as Breitburn Energy Partners LP – the aftermath of the latest OPEC meeting – in which the cartel failed to reduce production quotas – is weighing on the name. Vanguard and Breitburn are starting to see their hedging positions wind down, which will only increase downward pressure amid the current low-priced commodity environment.

Cherry Hill nixed

As for coming deals, a trader said a $50 million offering of series A cumulative redeemable preferred stock from Cherry Hill Mortgage Investment Corp. was expected to price Tuesday but was later postponed.

Price talk on the non-rated deal was around 9%, he said.

The deal had been postponed due to market conditions, the trader said.

Morgan Stanley & Co. LLC, UBS Securities LLC, Keefe, Bruyette & Woods Inc. and Citigroup Global Markets Inc. were running the books.

Among recently priced deals, a trader said Prospect Capital Corp.’s $150 million of 6.25% $25-par notes due 2024 – a deal priced Thursday – had freed to trade, quoting the issue at $24.75 bid, $24.80 offered.

“They are moving up nicely even in the face of this [weak] market,” the trader said.

More pain for Fannie, Freddie

The sell-off in Fannie Mae and Freddie Mac preferreds continued in Tuesday trading, much to the dismay of one market source.

The source said there was news out regarding shareholder lawsuits currently pending against the government. In the wake of newly released discovery documents, the courts are allowing the plaintiffs to amend their lawsuits, the source said.

“I would think that would be positive,” the source said. But as the preferreds remained weak, he opined that “it could be tax loss selling going into year-end.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 6 cents, or 1.56%, to $3.78. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) fell 12 cents, or 3.12%, to $3.73.

Both of the non-paying securities were seen dominating overall trading on the day.

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