Preferreds rebound to end session higher; recent issues remain in play; GSEs boosted again

By Stephanie N. Rotondo

Seattle, May 1 – As the first trading session of the month got underway, preferred stocks were edging downward but eventually managed to end with a firm tone.

The broader markets also finished the day higher, which was largely attributed to the fact that Congress had inked a budget deal that would keep the government open through September.

The Wells Fargo Hybrid and Preferred Securities index rose 16 basis points, though it was down 1 bp at mid-morning.

The U.S. iShares Preferred Stock ETF meantime ended 15 bps better, versus the 1 bps decline seen in early dealings.

Among recent deals, NuStar Energy LP’s $350 million of 7.625% series B fixed-to-floating rate cumulative redeemable perpetual preferred units were initially dipping with the market but pushed higher toward the end of the day.

The units finished at $25.38, a gain of 3 cents. They were off a dime at mid-morning, trading at $25.25.

The issue – which priced April 25 – is slated to begin trading on the New York Stock Exchange on Wednesday.

The ticker will be “NSPrB.”

The deal came upsized from $150 million. Price talk was initially 7.875% but was later revised to 7.625% to 7.75%.

Wells Fargo Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC were the joint bookrunners.

Qwest Corp.’s recent 6.75% $25-par notes due 2057 (NYSE: CTDD) were also being eyed on Monday, as were the 6.5% $25-par notes due 2056 (NYSE: CTBB).

There was no fresh news out, however, to act as a catalyst.

The 6.75% paper held steady at $24.95, while the 6.5% notes slipped 3 cents to $24.87.

The 6.75% baby bonds were priced April 18.

And, Wells Fargo & Co.’s 5.625% series Y class A noncumulative preferreds (NYSE: WFCPrY) – a $600 million deal priced April 17 – also remained active, as did the rest of the company’s preferred stock structure.

Like Qwest, there was no fresh news to cause the moves.

The series Y preferreds ended up 2 cents at $24.99. However, the 5.5% series X class A noncumulative preferreds (NYSE: WFCPrX) fell that much to $24.93, as the 5.85% series Q fixed-to-floating rate noncumulative preferreds (NYSE: WFCPrQ) added 17 cents to close at $27.27.

Fannie, Freddie gain again

While recently priced issues did continue to catch the market’s eye, it was Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) that saw the bulk of the attention on Monday.

The GSE-linked preferreds improved by 32 cents, or 4.3%, during the session, closing at $7.645.

About 3.72 million of the preferreds changed hands.

Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) meantime ticked up 11 cents, or 1.54%, to $7.26.

However, that issue traded significantly less than the Fannie paper, changing hands just over 518,250 times.

Both issues were on the rise as Treasury secretary Steven Mnuchin said yet again that housing reform was a top priority of the current administration. He indicated that a plan would be put forth either by the end of 2017 or early in 2018.

“There’s no way it happens this year,” a market source said, noting that the White House and Congress has a lot of other items on their plate.

The source also pointed out that the Federal Housing Finance Agency commented on a tax plan that was proposed last week. One of the points was to lower the corporate tax rate to 15%. But FHFA noted that if that occurred, Fannie and Freddie could take a massive hit that would likely result in them running to the Treasury for help.

The source added that in that event, the Treasury could have to dole out “in excess of $10 billion.”

In addition to the comments from Mnuchin and FHFA, earnings from the GSEs are slated to arrive soon. In fact, Freddie will report on Tuesday and Fannie is set to come on Friday.

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