Preferred stocks move with equities; CHS brings upsized new deal; bank earnings on tap

By Stephanie N. Rotondo

Phoenix, Jan. 13 – Preferred stocks ended about flat Tuesday after ticking up early, following the trend set by the common equity markets.

But as the equity markets swung into the red, the preferred space began to give up ground as well.

“The market was up a bit in the morning, down in the afternoon, but recovering” in the last hour, “heading for a flat close,” a market source said.

The Wells Fargo Hybrid and Preferred Securities index closed down 1 basis point. It was up 6 bps at mid-morning.

By comparison, the Dow Jones industrial average was up over 240 points at mid-morning but closed off just over 27 points.

The primary space saw its first deal of the year hit the tape with CHS Inc.’s sale of $450 million of 7.5% class B series 4 cumulative redeemable preferreds.

Price talk was 7.5% to 7.625%, according to a trader. The issue was upsized from $250 million.

The non-rated deal came via BofA Merrill Lynch and Wells Fargo Securities LLC.

The trader saw a $24.90 bid, par offered gray market early in the day.

Later in the day, but ahead of pricing, another source pegged the deal at $24.80 bid, $24.88 offered in the gray.

The strength of the yet-to-price deal was attributed to where the company’s other issues are currently trading. A trader said that the 7.875% series 1 class B cumulative redeemable preferreds (Nasdaq: CHSCO) had been trading around $28.16, with a 7.02% yield. Should the new issue come at the tight end of talk, “compared to where the other issues are, this thing could pop.”

The 7.875% preferreds ended the day at $27.98, down 73 cents, or 2.54%. The 6.75% class B series 3 reset rate cumulative redeemable preferreds (Nasdaq: CHSCM) declined 52 cents, or 2.04%, to $24.98.

The Inver Grove Heights, Minn.-based integrated agricultural company will use the proceeds to help fund construction of a nitrogen fertilizer manufacturing plant in North Dakota.

On Wednesday, CHS released its results for the first quarter of fiscal 2015, showing a $378.7 million profit for the period – a 56% increase year over year, due in large part to stronger refining margins. Revenue, however, fell to $9.5 billion from $11 billion.

The decline was attributed to a decrease in the average grain selling price.

Bank earnings to begin

JPMorgan Chase & Co. and Wells Fargo & Co. will kick off bank earnings season on Wednesday.

Ahead of releases, JPMorgan’s preferreds were trending mostly higher, while Wells Fargo’s issues were mixed, but mostly to the downside.

JPMorgan’s 6.7% series T noncumulative preferreds (NYSE: JPMPB) were the most actively traded issue in that structure, ending off 4 cents at $26.51. But the 5.5% series O noncumulative preferreds (NYSE: JPMPD) put on 3 cents to close at $24.26.

Among the Wells Fargo preferreds, the 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) dipped 3 cents to $25.70, while the 6% series T class A noncumulative preferreds (NYSE: WFCPT) lost a penny, finishing at $25.44.

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