Morning Commentary: Preferreds attempt to recover Monday’s losses; Medley deal comes discounted

By Stephanie N. Rotondo

Seattle, Dec. 15 – The preferred stock market was experiencing “a strong bounce back from yesterday on a lot of issues,” a trader said early Tuesday.

The Wells Fargo Hybrid and Preferred Securities index was up 48 basis points at mid-morning, after having lost 1.65% on Monday amid a broader dumping of high-yield securities – or as the trader put it, “Throwing their baby out with the bathwater.”

Still, the trader speculated that weakness could pervade the market once again leading up to or after the Federal Reserve’s policy meeting on Wednesday.

But as the market improved, Medley Capital Corp. announced it had sold $70 million of 6.5% $25-par notes due 2021.

A trader said the issue came at a discounted price of $24.7325 with a yield of 6.75%.

“It’s nice that they were willing to do that to get the deal done,” the trader said.

Keefe Bruyette & Woods Inc., Deutsche Bank Securities Inc., Sandler O’Neill & Partners LP and Janney Montgomery Scott LLC were the joint bookrunners.

Proceeds will be used to redeem $40 million of unsecured notes due March 30, 2019, to repay a portion of debt under a revolving credit facility, to fund new investment opportunities and for general corporate purposes.

Meanwhile, in the secondary, a trader said there “could be significant upside” in Resource Capital Corp.’s preferreds after the New York-based real estate investment trust declared a 42-cent dividend on its common shares, which was lower than previous dividends in a 60-cent range.

The company also set its book value at $18.00 per share, versus the current trading price of $10.24.

“They have been getting clobbered because everyone thinks they are an oil company because of their name, but they aren’t,” the trader added.

In Tuesday trading, the 8.25% series B cumulative redeemable preferreds (NYSE: RSOPB) were up 19 cents, or 1.28%, at $15.42.

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