Morning Commentary: Preferreds inch upward; PennyMac enters market; Apollo deal holds

By Stephanie N. Rotondo

Seattle, March 2 – After weakening in the previous session, the preferred stock market was looking to recover in early Thursday trading.

The Wells Fargo Hybrid and Preferred Securities index was up 2 basis points at mid-morning. The U.S. iShares Preferred Stock index was up 10 bps.

In the primary, PennyMac Mortgage Investment Trust announced plans to sell $75 million of series A fixed-to-floating rate cumulative redeemable preferred stock.

Price talk is in the 8.125% area, a market source reported.

Morgan Stanley & Co. LLC, Keefe Bruyette & Woods Inc. and RBC Capital markets are running the books.

“It sounds like they have put some shares into weak hands,” a trader opined, seeing a $24.60 bid in the early gray market. “It will probably stay low bid and flipped in the street.”

The trader noted that the company was “not overly levered” and that the deal itself was not “bad,” per se. However, with interest rates expected to rise at least once this year – possibly more – and a new tax plan looming on the horizon, “it adds a little bit of uncertainty” to the credit.

Meanwhile, Apollo Global Management LLC’s $250 million of 6.375% series A preferred stock – a deal priced Tuesday and freed early Wednesday – was steady around $24.88, according to a trader.

Price talk was initially in the 6.5% area but was revised to 6.375%, according to a source.

The deal came upsized from $150 million.

BofA Merrill Lynch, Morgan Stanley, UBS Securities LLC and Wells Fargo Securities LLC led the deal.

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