SoCal Edison, Capital One issues free to trade, assigned temporary symbols; Fannie, Freddie down

By Stephanie N. Rotondo

Phoenix, Aug. 18 – New preferred stock issues from Monday’s business were doing well come Tuesday.

A trader said both Southern California Edison Co.’s SCE Trust IV $325 million of 5.375% fixed-to-floating rate trust preference securities and Capital One Financial Corp.’s $500 million of 6.2% fixed-rate series F noncumulative preferreds had freed to trade early in the session.

Both deals were also assigned temporary trading symbols.

The Southern California Edison symbol is “SCTTP,” and the Capital One symbol is “CPTFP.”

As for the Southern California Edison deal, those securities closed at $25.29, unchanged from the open.

Earlier in the session, a trader quoted the preferreds at $25.25 bid, $25.27 offered.

“It’s an investment-grade name,” he said. “A lot of insurance companies like to hold utilities, since they can only hold so many financials.”

Another market source noted that only about 192,000 shares had traded, opining that there was “probably genuine interest” – that is, investors who actually want to hold on to the paper – in the name.

Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, RBC Capital Markets, BNY Mellon Capital Markets LLC and BNP Paribas Securities Corp. ran the books on the new issue.

When declared, distributions will be payable quarterly at a fixed rate until Sept. 15, 2025, when the distribution rate will begin to float at Libor plus 313.2 basis points.

In the Capital One preferreds, those finished at $24.98, which compared to opening levels of $24.90.

At mid-morning, the preferreds were seen at $24.90 bid, $24.92 offered.

Over 1.4 million shares traded during the session.

The deal was upsized from $250 million. Initial price talk was in a 6.25% to 6.375% range. That was then revised to 6.2% to 6.25%.

BofA Merrill Lynch, JPMorgan, Morgan Stanley, UBS Securities LLC and Wells Fargo Securities LLC ran the books.

Market falls by the bell

Overall, the preferred stock market ended down 6 basis points, going by the Wells Fargo Hybrid and Preferred Securities index.

“The market was flat most of the day, then it kind of petered out a little bit” after lunch, a market source said.

The source noted that volume was “pretty light.”

As for why the market dipped later in the day, there was “nothing I can really point to,” the source said. “There was a fade in long Treasuries around that time too.”

“[Preferreds] were more or less following suit,” he said.

Fannie, Freddie weak again

A market source said that GSE preferreds were “heavily traded” again on Tuesday amid “fear of that story.”

The story to which he was referring was in regards to reports that Claren Road’s hedge fund was facing nearly $2 billion in withdrawals at the end of the quarter.

Bloomberg reported Monday that investors were looking to take out about 48% of the fund’s assets this year as losses mount up. The withdrawals began to kick up last year when the fund reported its first yearly loss due to weak returns from Fannie Mae and Freddie Mac.

As Claren has previously been big fans of Fannie and Freddie preferreds, the shares have been under pressure since the story printed.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 23 cents, or 4.84%, to $4.52. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined 15 cents, or 3.19%, to $4.55.

On a percentage basis, Claren Road’s main fund lost 7.2% in value since the beginning of 2015, according to the Bloomberg piece. The fund rose 1.7% in the first two weeks of August.

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