Preferreds drop, but up from lows; American Financial sells upsized notes; Goodrich firms

By Stephanie N. Rotondo

Seattle, Nov. 9 – The preferred stock market was under pressure in Monday trading following Friday’s sell-off spurred by a new jobs report that led many to think an interest rate increase was imminent.

However, the market did manage to pare its losses by the end of the day.

The Wells Fargo Hybrid and Preferred Securities index finished 18 basis points lower. The index was off 47 bps at mid-morning.

Despite the weakness in the market, a new deal was priced during the session.

American Financial Group Inc. brought $150 million of 6% $25-par subordinated debentures due 2055 on Monday.

Price talk was 6% to 6.125%, according to a market source. The deal came upsized from $100 million.

Post-pricing, a trader pegged the notes at $24.98 bid, par offered. The trader had seen a $24.75 bid in the gray market earlier in the day.

The trader added that there was “no selling group.”

BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC are the bookrunners.

On the news, the company’s 6.25% $25-par subordinated debentures due 2054 (NYSE: AFGE) fell 37 cents, or 1.39%, to $26.18. The 5.75% $25-par senior notes due 2042 (NYSE: AFA) declined 29 cents, or 1.12%, to $25.54, as the 6.375% $25-par senior notes due 2042 (NYSE: AFW) drifted down 21 cents to $26.35.

The notes can be redeemed on or after Nov. 15, 2020, in whole or in part, at par plus accrued interest. If the issue is not redeemed in whole at that time, $25 million of the debt must remain outstanding.

The company can also redeem the issue prior to that date upon a tax event or rating agency event. In the case of a tax event, the debentures must be redeemed in whole at par plus accrued interest. Upon a rating agency event, the issue must be redeemed in whole at the greater of 100% of the principal amount plus accrued interest or par plus interest that would have accrued to Nov. 15, 2020, less Treasuries plus 45 basis points.

Interest will be payable quarterly, beginning Feb. 15, 2016. The company has the right to defer interest payments for up to five consecutive years.

Proceeds will be used for general corporate purposes, which may include common stock repurchases.

American Financial Group is a Cincinnati-based property and casualty insurance company.

Goodrich pops on exchange

In the secondary space, Goodrich Petroleum Corp.’s preferred shares were gaining ground in response to word of an exchange offer.

The company announced the swap – 10% series E cumulative convertible preferred stock for all outstanding 5.375% series B cumulative convertible preferreds and up to 2.39 million shares each of the 10% series C cumulative preferreds and 9.75% series D cumulative preferreds – late Friday.

The Cs (NYSE: GDPPC) were up 65 cents, or 27.5%, at $3.03, while the Ds (NYSE: GDPPD) improved by 32 cents, or 13.33%, at $2.72.

The 5.375% convertible preferreds (OTCBB: GDPAN) increased 95 cents, or 35.19%, to $3.65.

For each of the series B preferreds exchanged, holders will receive 1.2 of the series E preferreds. Holders of the C and D preferreds can exchange their shares on a one-for-one basis.

The Houston-based oil and gas producer said the higher number of shares given to series B holders was due to the “current trading price and the higher liquidation preference.”

The series E convertible preferreds have a liquidation preference of $10.00 per share. The preferreds are convertible into common stock at an initial conversion price of $2.00 per share.

Goodrich hopes that the exchange will reduce its fixed dividend obligations, among other things.

The exchange offer expires at 5 p.m. ET on Dec. 8.

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