PennyMac deal comes upsized, tight to talk; secondary slips; Fannie, Freddie preferreds fall

By Stephanie N. Rotondo

Seattle, June 27 – Talk of a new deal in the preferred stock market proved true Tuesday, as PennyMac Mortgage Investment Trust brought a $175 million offering of 8% series B fixed-to-floating rate cumulative redeemable preferreds.

The deal came at the tight end of the 8% to 8.125% price talk and was upsized from $75 million.

A trader saw the issue around $24.75 in the early gray market.

As for the company’s existing 8.125% series A fixed-to-floating rate cumulative redeemable preferreds (NYSE: PMTPrA), they were off 32 cents, or 1.24%, at $25.40.

Morgan Stanley & Co. LLC, Keefe, Bruyette & Woods Inc. and RBC Capital Markets are running the books.

The dividend rate will begin to float on June 15, 2024 at Libor plus 599 basis points. The paper also becomes redeemable on that date.

Proceeds will be used to fund the company’s business and its investment activities, to repay debt, to repurchase outstanding common stock through a $50 million share repurchase program and for other general corporate purposes.

Meanwhile secondary was trending lower along with the broader markets.

“Equity markets were down, Treasuries were down by over a point,” a source commented. “With both of them off, it would be nearly impossible for preferreds/hybrids to be up or even stay flat.”

The Wells Fargo Hybrid and Preferred Securities Index declined 3 bps, although that was a reversal from mid-morning when it was up 4 bps morning. The U.S. iShares Preferred Stock ETF dropped 23 bps on the day.

One major focus of the secondary space was GSE-linked paper. Fannie Mae and Freddie Mac preferreds were losing ground following a Bloomberg report on a renewed Corker-Warner plan to deal with the mortgage backers.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 17 cents, or 2.88%, to $5.74, while Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) slid 35 cents, or 6.09%, to $5.40.

Republican senator Bob Corker of Tennessee and Democrat senator Mark Warner of Virginia are once again attempting to establish a bipartisan bill that would move Fannie and Freddie out of government control.

The senators’ previous attempt was thwarted last year.

Buzz is, however, that the current plan would seek to break the agencies into pieces, separating their single-family business from their multi-family business. The theory there is that breaking them up would help to increase competition in the single-family arena, though that may not be as much of an issue for the multi-family market.

“It was probably the most unbiased article I have [read] on the situation and the politics,” a market source said, “as opposed to the Moelis fantasy plan.”

Earlier in the month, Moelis & Co. released the blueprint for an investor-backed plan that would allow Fannie and Freddie to stay whole by building up capital in the private sector. The government would then be able to reduce its stakes in the agencies.

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