Preferreds stay strong; Prospect Capital’s $25-par notes list; Fannie, Freddie weaken

By Stephanie N. Rotondo

Seattle, Dec. 22 – The preferred stock market continued to firm up in Tuesday trading.

The Wells Fargo Hybrid and Preferred Securities index ended 14 basis points higher for the day.

While there was a positive tone to the marketplace, a trader noted that volume was dwindling due to the shortened holiday week and upcoming year-end.

“It’s very quiet,” he said, “I think we are done for the year.”

“Volume was very light,” another market source said.

That source also remarked that while the market was up, in looking at the tape, it more resembled “a Christmas tree. There’s a little red, a little green and even some yellow.”

Furthermore, the activity was being spurred by managers “taking gains, taking losses. Then there’s the tax-related selling that goes on at year-end.”

Among recently priced deals, Prospect Capital Corp.’s $150 million of 6.25% $25-par notes due 2024 were admitted to the New York Stock Exchange.

The ticker symbol is “PBB.” The deal came Dec. 3, with UBS Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC and RBC Capital Markets acting as joint bookrunners.

The notes closed off 35 cents, or 1.41%, at $24.50.

Meanwhile, Fannie Mae and Freddie Mac preferreds continued to lose ground as investors feared that language in the recently passed U.S. budget deal would leave the GSEs to languish under conservatorship indefinitely.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off 15 cents, or 4.48%, at $3.20. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were down 12 cents, or 3.64%, at $3.18.

Last week, Congress passed the budget deal that included language from the “Jumpstart GSE Reform Act.” It prohibited the Treasury from selling its preferred stake in the GSEs until 2018 or until significant housing reform is done.

The Treasury is also required to get congressional approval in order to sell the preferreds.

For investors, the inclusion of the language has been deemed less-than-stellar, as it pushes any reform action down the road even more.

Investors adjust portfolios

With market players “managing positions” as the year nears its end, the most actively traded issues were trending toward names that don’t always make the list, according to a source.

Public Storage’s 5.9% series S cumulative preferred (NYSE: PSAPS) was the day’s most active issue, putting on 7 cents to close at $25.62.

Countrywide Financial Corp.’s 7% capital securities (NYSE: CFCPB) and 6.75% trust preferred securities (NYSE: CFCPA) were also included in the list. The former held steady at $25.62, while the latter inched up 3 cents to $25.63.

Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPA) meantime earned 3 cents, ending at $25.38, as PartnerRe Ltd.’s 5.875% series F noncumulative redeemable preferreds (NYSE: PREPF) popped 26 cents, or 1.02%, to $25.78.

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