Preferreds lose early gains; PennyMac enters the market; Apollo gets a temporary ticker

By Stephanie N. Rotondo

Seattle, March 2 – Preferred stocks continued to retreat on Thursday, despite earlier attempts to recover from the previous day’s losses.

“[The market] bounced around to around noon, then it kind of slid,” a market source said.

The Wells Fargo Hybrid and Preferred Securities index finished the session down 16 basis points, though it was up 2 bps at mid-morning. The U.S. iShares Preferred Stock index declined 17 bps, after being 10 bps better in earlier dealings.

The source further remarked that the preferred space has been “directionless.”

“[Everyone] is trying to wait for some sort of direction from the [Federal Reserve] and the [Trump] administration,” he said.

As for the Fed, there have been some clues as to the direction the central bank plans to take in the coming months. That has led to “changing perceptions,” the source said.

In the last week, a few of the governors on the Federal Open Market Committee who have previously been hawkish on raising rates have changed their tunes, indicating that the economy is ripe for an interest rate increase in March.

The market had previously speculated that rates wouldn’t go up until June.

In the preferred stock 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.

Pricing details were not available as of press time.

Meanwhile, Apollo Global Management LLC’s $250 million of 6.375% series A preferred stock – a deal priced Tuesday and freed early Wednesday – dipped a dime to $24.80.

At mid-morning, the issue was steady around $24.88, according to a trader.

The paper is trading under a temporary ticker symbol, “APLMP.”

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.

Among other recent deals, Chimera Investment Corp.’s 8% series B fixed-to-floating rate cumulative redeemable preferreds (NYSE: CIMPrB) were active and better, rising 4 cents to $24.93.

The $300 million issue priced Feb. 22 and listed on the New York Stock Exchange on Wednesday.

Digital Realty in play

A market source noted that Digital Realty Trust Inc.’s 7.375% series H cumulative redeemable preferreds (NYSE: DLRPrH) were on the busier side, but slightly lower, even as the company reported “positive” news.

The preferreds slipped a penny to $27.38.

The source said that the San Francisco-based REIT declared a dividend on its common stock that was up 5.7% from the previous quarter.

The company also declared dividends on four series of preferreds, including the series H paper.

“Sometimes investors shift their exposure” after such news, the source said.

AXIS to redeem issue

AXIS Capital Holdings Ltd. announced Thursday that it was redeeming all of its outstanding 6.875% series C noncumulative preferreds (NYSE: AXSPrC).

Ahead of the news, the preferreds were trading flat at $25.39.

“It was their highest dividend rate preferred,” a source commented.

The issue will be called at par plus accrued dividends on April 17.

AXIS is a Pembroke, Bermuda-based specialty insurance and reinsurance company.

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