Preferred market remains weak as oil declines; Medley a no-show; GE Capital notes decline

By Stephanie N. Rotondo

Seattle, Dec. 11 – The preferred stock market continued to be pressured in Friday trading.

“Everyone is still focused on oil and that’s putting a lot of pressure on the markets,” a trader said.

“Obviously it was a big sea of red today,” said another market source.

Domestic crude oil prices were down nearly 3.5% on Friday, which in turn caused the common equity exchanges to be off close to 2% across the board.

For its part, the Wells Fargo Hybrid and Preferred Securities index dropped 36 basis points.

In the primary space, Medley Capital Corp.’s planned offering of $25-par notes due Jan. 15, 2021 had not yet priced, a trader reported, though he heard that the deal could price during the session.

However, given the tone of the market, it was no surprise when the deal failed to show.

The trader saw the notes offered at $24.60 in the gray market.

The New York-based business development company announced the offering on Thursday.

Keefe Bruyette & Woods Inc., Deutsche Bank Securities Inc., Sandler O’Neill & Partners LP and Janney Montgomery Scott LLC are running the books.

Medley intends to use the proceeds to redeem its $40 million of 7.125% $25-par notes due 2019 (NYSE: MCQ).

Those notes ended a penny higher at $24.99.

Meanwhile, Prospect Capital Corp.’s $150 million of 6.25% $25-par notes due 2024 – a deal from Dec. 3 – had yet to receive a symbol, a trader said.

Still, the paper has been moving closer to par in recent sessions. The notes were pegged at $24.95 bid early Friday.

UBS Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC and RBC Capital Markets ran the books.

GE Capital’s decline

General Electric Capital Corp.’s 4.7% $25-par notes due 2053 (NYSE: GEK) declined on Friday, though a market source noted that the weakness was not all based on the overall losses for the day.

The notes closed off 13 cents at $25.35.

The source said that GE Capital’s preferreds – including the “baby bond” issues – have dropped 7 to 10 points in the last week and a half in response to a mandatory conversion of the issues into new preferred shares with lower coupons.

In order to appease investors, parent General Electric Co. “paid extra shares to offset” the lower dividend, according to the source.

“The company thought it was a good deal,” the source said. “Investors thought differently.”

In addition to pushing the existing paper down, “investors are banding together and considering legal remedies,” the source said. In the last week, “investors have gotten more organized” and “I think the company has realized that they have a problem on their hands.”

The conversion of the GE Capital preferreds into GE paper comes as the parent company looks to divest most of its financial businesses. That effort was first announced in April. The mandatory conversion of the preferreds was announced on Dec. 1.

© 2015 Prospect News.
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