Preferreds give back gains; sell-off in Fannie, Freddie paper continues; Goodrich drops

By Stephanie N. Rotondo

Seattle, Dec. 2 – Weakness was once again invading the preferred stock market on Wednesday.

The Wells Fargo Hybrid and Preferred Securities index closed down 19 basis points, nearly erasing the 20 bps climb on Tuesday.

One trader noted that the sell-off in Fannie Mae and Freddie Mac paper “seems to continue,” adding that the decline has “been pretty steady for the past two weeks.”

The losses have “been substantial,” the trader said. For some issues, the drop has amounted to as much as 30%, though on average he speculated that the paper has drifted down around 20% in the last couple of weeks.

“I’m not sure why, and it’s been on light volume,” he noted.

Still, the trader remarked that ongoing litigation – including a pending case in Iowa – could be the root of the problem.

Shareholders have several cases pending against the GSEs, as well as the federal government. Most center on the government’s 2012 conscription of a majority of the agencies’ profits.

Regardless of what is causing the weakness, the trader opined that “we will probably see them weaken until the end of the year or until some decent buyers come in.”

He noted that he “would be a buyer” of the preferreds around $3.75 a share.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed off a dime, or 2.44%, at $4.00. The preferreds were down 13 cents, or 3.17%, at $3.97 in early trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime fell 12 cents, or 2.93%, ending at $3.98. Those shares were off 15 cents, or 3.66%, at $3.95 at mid-morning.

Goodrich, sector softens

Goodrich Petroleum Corp., which is exchanging its convertible and non-convertible preferred stock, said Tuesday that it was suspending dividends on all those issues for the fourth quarter.

Come Wednesday, the 10% series C cumulative preferreds (NYSE: GDPPC) and the 9.75% series D cumulative preferreds (NYSE: GDPPD) were declining.

The Cs closed off 16 cents, or 15.53%, at 87 cents. The Ds finished off 11.4 cents, or 11.79%, at 85.2 cents.

The dividends will accumulate until paid in full. If the Houston-based oil and gas company fails to pay the dividend for six quarters – consecutive or otherwise – holders of each series can add an additional director to the board.

As previously reported, Goodrich is seeking to exchange up to 2.39 million shares of each of the series C and D preferreds, as well as all of the 5.375% series B cumulative convertible preferreds. Those that participate in the exchange will receive new 10% series E cumulative convertible preferreds.

Elsewhere in the oil and gas space, a trader said oil names were “a little weaker.”

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were down 66 cents, or 7.41%, at $8.25.

The company announced earlier in the week that it was cutting its common unit distribution, though it did declare monthly distributions for the series A and B preferreds units. The series A distribution will be paid in cash, while the Bs’ distribution will be paid in kind.

Meanwhile, Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) closed down 59 cents, or 5.83%, at $9.53.

As for crude oil prices, those were also softer on the day, falling below $40 briefly before ending just north of that mark.

The weakness came as the U.S. Energy Information Administration said crude stockpiles rose for the 10th straight week.

Analysts had previously predicted a decline.

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