Preferreds firm after jobs report; Morgan Stanley lists; GSEs busy again; Vanguard weak

By Stephanie N. Rotondo

Seattle, Feb. 3 – Preferred stocks were up on Friday, following equities higher in the wake of a better-than-expected U.S. jobs report.

The Wells Fargo Hybrid and Preferred Securities index ended 29 basis points higher. By comparison, the S&P 500 index neared historic highs, and the Dow Jones industrial average popped above the 20,000 mark again.

The U.S. Labor Department reported Friday that non-farm payrolls increased by 277,000 in January, better than the 175,000 increase expected.

Wage growth, however, remained tepid, rising only 0.1%.

The markets were also boosted – led largely by financials – by the new administration’s orders to look into repealing financial regulations, including Dodd-Frank and the Volcker Rule.

As for the day’s preferred dealings, Morgan Stanley & Co. Inc.’s $1 billion of 5.85% series K fixed-to-floating rate noncumulative preferreds – a deal priced Jan. 24 – began trading on the New York Stock Exchange under the ticker symbol “MSPrK.”

The preferreds ended the day at $25.41, up 11 cents. Over 3.41 million of the preferreds were exchanged.

Meanwhile, Fannie Mae and Freddie Mac paper once again took over as the dominating securities. The GSE-linked preferreds continued to trend upward.

Vanguard Natural Resources LLC was Thursday’s most active name after the company announced it had filed for bankruptcy. The name was still on the active – and weaker – side in Friday trading.

GSEs stay active, better

Fannie and Freddie preferreds had quite an active day, as the paper continued to rise.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 58 cents, or 6.1%, at $10.09, on 6.03 million shares traded.

The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) gained 90 cents, or 9.73%, to $10.15, with 1.08 million preferreds being exchanged.

And, the 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) rose 44 cents, or 5.24%, to $8.84. Over 8.22 million shares traded.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were meantime 61 cents better, or 6.7%, at $9.63. Investors traded that issue over 3.13 million times.

In a report out Thursday, Fitch Ratings said stakeholders may not see any moves toward housing reform any time soon.

Back in November, Steven Mnuchin, a former Goldman Sachs banker that has been tapped to head the Treasury, indicated that housing reform was on the front-burner for the new administration. That sent the GSE preferreds soaring.

But Mnuchin later remarked that any “recap and release” plan would not be acceptable, throwing some uncertainty into the market.

In its report, Fitch said there are many moving parts to the Fannie/Freddie equation and, without any specific plans being made public, it was not clear that reform would happen quickly.

“The future of Fannie Mae and Freddie Mac remains among the thorniest of public policy questions,” the report said. “There is no consensus on the future of Fannie Mae and Freddie Mac, a primary reason why they have remained in their post-crisis conservatorship for so long.”

Vanguard still busy

Vanguard remained busily traded on Friday as investors continue to react to the company’s bankruptcy filing.

The 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) were off 65 cents, or 18.73%, at $2.82, while the 7.75% series C cumulative redeemable preferreds units (Nasdaq: VNRCP) dropped 50 cents, or 14.12%, to $3.04.

In announcing its bankruptcy filing, Vanguard also said that it had reached a restructuring support agreement with some holders of the 7 7/8% senior notes due 2020, 8 3/8% senior notes due 2019 and the 7% senior secured second-lien notes due 2023. Under that agreement, second-lien noteholders will provide a $19.25 million equity investment. Holders of the 2019 and 2020 notes have also agreed to backstop a $255.75 million rights offering.

The plan will allow the company to eliminate about $708 million of debt under its reserve-based credit facility and senior unsecured debt.

Additionally, the company said it has obtained a committed $50 million debtor-in-possession financing facility underwritten by Citibank, NA, J.P. Morgan Securities LLC and Wells Fargo Bank, NA.

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