Preferreds attempt to recover Monday’s losses; Medley Capital 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 Tuesday.

The Wells Fargo Hybrid and Preferred Securities index ended 55 basis points higher, 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, though he personally believed that a probable interest rate increase was already factored in.

Expectations of a rate hike were also pushing up oil prices, which have been a key driver of the markets in the last year. Domestic crude improved 2.2% on the day, trading north of $37 a barrel.

The commodity’s price had plummeted on Monday to near 11-year lows.

But while oil prices rebounded, oil and gas-linked preferreds were mixed on the day.

Legacy Reserve LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) slipped a penny to $5.51, as Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable perpetual preferred units (Nasdaq: VNRBP) popped by $1.08, or 20.49%, to $6.35.

Meanwhile, 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 $1.34, or 8.8%, at $16.57.

Though there was a definite return of strength to the market, it was not necessarily felt across the board.

Fannie Mae and Freddie Mac preferreds continued to turn over actively on Tuesday. The paper has been in sell-off mode of late, due at least in small part to the overall weakness of the market. But in Tuesday trading, the GSE preferreds were treading water.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) and Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) closed unchanged at $3.50.

Medley prices

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.

Medley is a New York-based business development company.

© 2015 Prospect News.
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