Southern Co. taps market with $800 million sale of $25-par notes; Fannie, Freddie weaken

By Stephanie N. Rotondo

Seattle, Sept. 12 – New preferred stock issues continued to enter the marketplace on Monday, continuing the trend from the previous week.

The Southern Co. kicked off the week with a planned offering of $250 million of $25-par 60-year series 2016A junior subordinated notes. The deal priced shortly before the close, coming upsized at $800 million. The notes were priced at par to yield 5.25%, the tight end of the 5.25% to 5.275% price talk.

A trader quoted that issue at $24.80 bid, $24.85 offered in the early gray market. After the bell, another market source placed the issue “around $24.80.”

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

The notes become callable Oct. 1, 2021 at par plus accrued interest. The issue can be redeemed prior to that date upon a tax event at par plus accrued interest. Additionally, upon a rating agency event, the notes can be called at 102 plus accrued interest.

Proceeds will be used to repay short-term debt and for other general corporate purposes.

From last week’s business, Entergy Mississippi Inc.’s $260 million of 4.9% $25-par first mortgage bonds due 2066 were seen at $24.78 at mid-morning.

The deal priced Thursday and freed to trade on Friday.

Meanwhile, Associated Banc-Corp’s $100 million of 5.375% series D noncumulative preferreds – a deal priced Wednesday – and Monmouth Real Estate Investment Corp.’s $135 million of 6.125% series C cumulative redeemable preferreds – a deal from Tuesday – were both seen offered at par.

A trader noted that there was some stagnation during the day’s trading session.

“People pulled back a lot of the bids and things are just sitting there right now,” he said.

The woes of Fannie, Freddie

Fannie Mae and Freddie Mac preferreds were under pressure on Monday following news out on Friday of another court case being thrown out.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dropped 42 cents, or 10.99%, to $3.40. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) declined 43 cents, or 11.98%, to $3.16.

On Friday, U.S. District Court judge Karen Caldwell dismissed yet another shareholder lawsuit that alleged the government’s net worth sweep of nearly all of Fannie and Freddie’s profits was illegal. In her dismissal, Caldwell said that “the legislation bars the courts from interfering with the conservator,” a market source explained.

This is not the first time such a suit against the government has been thrown out. In fact, Caldwell’s dismissal largely echoes the ruling of U.S. District Court judge Royce Lamberth in October 2014.

“It’s one big litigation mess,” a source said. Of the various cases brought by stakeholders against the government in regard to its treatment of the GSEs, “so far it’s two-thirds for the Treasury, one-third for investors.”

Still, Caldwell’s ruling will likely be appealed. If not, the decision could help another shareholder case before the U.S. Court of Federal Claims. The crux of that case is that the sweep amounts to the taking of property.

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