Gladstone Investment offering term preferreds; Freddie, Fannie slip after earnings

By Stephanie N. Rotondo

Phoenix, May 5 – The preferred stock market had “a pretty red day,” a market source reported Tuesday.

“Part of it was the Treasury market was down and the stock market was down,” the source said, noting that the Treasuries’ decline was due to weak GDP data for the first quarter.

The Wells Fargo Hybrid and Preferred Securities index ended down 31 basis points.

Talk of a new deal from a business development company proved true on Tuesday as Gladstone Investment Corp. announced an offering of series C cumulative term preferreds.

Price talk is in a 6.5% area, according to a market source.

A trader said he had yet to see any gray market for the paper in early trading but noted that the company’s previous two deals were “oversubscribed.”

“This should do well,” he opined.

Ahead of the new issue’s pricing, the 7.125% series A cumulative term preferreds (Nasdaq: GAINP) closed down a dime at $25.80. The preferreds were initially up a nickel at $25.95.

The 6.75% series B cumulative term preferreds (Nasdaq: GAINO) dipped 9 cents to $25.60. That paper was off 14 cents at $25.55 at mid-morning.

Janney Montgomery Scott LLC is running the books on the new issue.

The deal did not price Tuesday.

Meanwhile, Freddie Mac’s preferreds were coming in after the agency reported its first-quarter results.

Though the bottom line showed year-over-year improvement, the GSE reported that it would be making a $746 million payment to the Treasury, its smallest payment since 2009.

It was also reported Tuesday that the Federal Housing Finance Agency was considering raising the salaries of its chief executive officers, a move aimed a retaining or attracting qualified candidates.

Freddie, Fannie fall

Freddie Mac reported earnings Tuesday, and despite a wider profit, the agency’s preferreds – as well as those of Fannie Mae – were drifting lower.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) ended 8 cents, or 1.6%, weaker at $4.92. Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were down 7 cents, or 1.4%, at $4.93.

Of the two issues, the Fannie paper traded much more actively, with well over 2 million shares being exchanged.

For the first quarter of 2015, Freddie posted net profit of $524 million, up from $227 million the year before.

That being said, the mortgage giant also noted that it would be sending a smaller check back to taxpayers – about $747 million. Once that payment is made, Freddie will have made $92.6 billion in cumulative dividend payments to the Treasury, after receiving $71.3 billion in bailout funding at the height of the financial crisis.

Also on Tuesday, the FHFA announced that it was submitting a proposal to the GSEs board to increase the salaries of its CEOs.

The proposal is being made despite objections from the Treasury, the White House and other lawmakers.

The FHFA hopes the pay increase would help the GSEs retain talent, while also attracting new blood, should the need arise.

The top executives’ pay was slashed in 2012 to $600,000 per year after lawmakers expressed concerns about management’s multi-million dollar wages.

The new proposed pay structure could not be higher than the 25th percentile of comparable companies and also could not include a bonus.

But the FHFA could be fighting an uphill battle, as the pay proposal comes on the heels of last week’s stress test results. Those results indicated that in the event of a severe financial downturn, Fannie and Freddie would need up to $157.3 billion in new bailout funding.

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