1347 Property Insurance to price new deal; Fannie, Freddie see losses; preferreds gain

By Abigail W. Adams

Portland, Me., Feb. 20 – The preferred stock primary market kicked the week off with the launching of a new offering.

1347 Property Insurance Holdings Inc. plans to price $20 million, or 800,000 shares, of 8% series A perpetual cumulative preferred stock at $25.00 per share on Thursday, according to a market source.

The deal has not been well received by investors during the bookbuilding process, a market source said.

Meanwhile, preferreds from Fannie Mae and Freddie Mac saw losses in high-volume trading on Tuesday after hedge funds were dealt another blow in their effort to challenge the “net-worth sweep” policy that has the government-sponsored enterprises turning over nearly their entire profit to the U.S. Treasury.

“It’s amazing they haven’t won anything in court,” a market source said. “It’s a head scratcher.”

While broader equity markets ended the day down, preferreds saw gains with both the Wells Fargo Hybrid & Preferred Securities Financial index and the U.S. iShares Preferred Stock ETF closing the day with gains.

1347’s offering

1347’s offering of $20 million in 8% series A perpetual cumulative preferred stock at $25.00 per share, which launched prior to the market open on Tuesday, is the first new preferred stock deal in several weeks.

While there have been offerings of baby bonds, there have been no new preferred stock offerings since late January when the sell-off in equity markets began.

Boenning & Scattergood, Inc. is the bookrunner for the deal, which carries a greenshoe of $3 million, or 120,000 shares.

Net proceeds are expected to be $18.7 million, or $21.6 million if the greenshoe is exercised.

Proceeds will be used to complete the repurchase of $1.5 million shares of the company’s series B preferred stock from IWS Acquisition Corp., for future potential acquisitions and for general corporate purposes.

However, the offering has not been well received in syndication with investors expressing little interest, a market source said.

Preferreds see gains

After starting the day mixed, both the Wells Fargo Hybrid & Preferred Securities Financial index and the U.S. iShares Preferred Stock ETF closed Tuesday with gains.

The Wells Fargo Hybrid & Preferred Securities Financial index was up 0.11% early in Tuesday’s session. The climb continued throughout the session with the index up 0.19% at the market close Tuesday.

The U.S. iShares Preferred Stock ETF was down 0.01% early in Tuesday’s session but reversed course to end the day up 0.05%.

Freddie, Fannie see losses

The preferreds of embattled mortgage guarantors Fannie Mae and Freddie Mac saw losses in high-volume trading on Tuesday after the U.S. Supreme Court struck down a legal challenge to the “net-worth sweep” policy that has both entities turning over their profits to the U.S. Treasury.

Freddie and Fannie preferreds “used to be one of the safest investments you could buy,” a market source said. “No one in the preferred space thought this would happen.”

Fannie Mae’s 8.25% series S preferred stock, which trades on the OTC market under the symbol “FNMAS,” was down 35 cents, or 4.7%, to $7.10 at the market close Tuesday.

While down on Tuesday, the preferreds had a “nice little run recently,” moving from $5.50 to $8.50 from November to January, a market source said.

Fannie Mae’s series O variable-rate preferred stock, which trades on the OTC markets under the ticker “FNMFN,” was down 60 cents, or 4.96%, to $11.50 at the market close.

Fannie Mae’s 8.25% series T non-cumulative preferred stock, which trades on the OTC markets under the ticker “FNMAT,” was down 42 cents, or 5.96%, to $6.63.

Fannie Mae’s 6.75% series Q non-cumulative preferred stock, which trades on the OTC markets under the ticker “FNMAI,” was down 52 cents, or 8.13%, to $5.88.

Freddie Mac’s 8.375% preferreds, which trade on the OTC market under the symbol “FMCKJ,” were down 16 cents, or 2.23%, to $7.01.

Freddie Mac’s 5% non-cumulative preferred stock, which trades on OTC markets under the ticker “FMCKK,” was down 60 cents, or 5.45%, to $10.40.

Freddie Mac’s 5.66% non-cumulative perpetual preferred stock, which trades on OTC markets under the ticker “FMCKN,” was down 44 cents, or 7.46% to $5.46.

The U.S. Supreme Court rejected the appeal of hedge funds Perry Capital LLC and Fairholme Funds on Tuesday, which asked the court to reconsider a lower court’s ruling that it did not have the authority to hear shareholders’ claims about the bailout of the government-sponsored entities, Bloomberg reported.

The preferreds have not paid dividends since 2008. Hedge funds claim the government has seized $130 billion more than Freddie and Fannie’s initial bailout, due to the net-worth sweep.

“It doesn’t make sense,” a market source said. “If they’re making money they should be paying their debt obligations.”

Investors are involved in several other pending cases against the Federal Housing Finance Agency, the conservator for Fannie and Freddie.

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