Preferred stocks mixed; TICC prices upsized ‘baby bond’ offering; AmTrust trends higher

By Stephanie N. Rotondo

Seattle, April 4 – After strengthening on Monday, the preferred stock market was mixed in Tuesday trading.

The Wells Fargo Hybrid and Preferred Securities index rose 14 basis points by the bell, though it was in the red earlier in the day. The U.S. iShares Preferred Stock ETF declined 4 bps. The ETF was down 13 bps at mid-morning.

After the market closed, TICC Capital Corp. priced an upsized $57.5 million of 6.5% $25-par notes due 2024.

The deal came in line with price talk and was upsized from $50 million.

Ladenburg Thalmann & Co. Inc., BB&T Capital Markets, Compass Point and William Blair & Co. ran the books.

Meanwhile, a trader said AmTrust Financial Services Inc.’s preferreds were “snapping back nicely” after the company issued a restatement of earnings for 2014 and 2015.

The preferreds were up 3% to 5% in early dealings.

The company also revised its 2016 results.

The restatements resulted in a 7.2% reduction in net income for 2014 and a downward move of 11.2% in 2015.

Still, the trader noted that AmTrust “doesn’t have that overhang” anymore, thus the preferreds were pushing higher.

GSEs continued to be the dominant securities, however. Fannie Mae and Freddie Mac paper continued to weaken as investors remained concerned about how potential corporate tax changes could negatively impact the agencies.

AmTrust firms on restatements

AmTrust Financial’s preferreds got a nice boost after the company released its earnings restatements for 2014 through 2016.

The 7.75% series E noncumulative preferreds (NYSE: AFSIPrE) improved 82 cents, or 3.39%, to $25.04. The 6.95% series F noncumulative preferreds (NYSE: AFSIPrF) were up $1.00, or 4.45%, at $23.46.

For 2016, the New York-based insurance company revised its 2016 net income by 12.5%, while 2015 net income fell by 11.2%. Income for 2014 was downwardly restated by 7.2%.

However, there were no changes to the company’s gross written premium, net earned premium, loss and loss adjustment expense and loss and loss ratio and loss adjustment expense reserves for 2016.

The company did note that there continued to be weaknesses in its internal accounting safeguards.

GSEs remain soft

Worries around potential reforms of the tax code continued to weigh on Fannie and Freddie preferreds on Tuesday.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off 39 cents, or 6.26%, at $5.84. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were down 46 cents, or 7.72%, at $5.50.

On Friday, an analyst at BMO Capital Markets issued a report saying that if the Trump administration goes forward with a plan to cut corporate tax rates to 20% from 35%, the mortgage agencies could write down $21 billion in tax-related assets.

Those so-called deferred tax assets are used similarly to tax credits, allowing the companies to reduce their tax liability. In cutting the corporate rate, those assets would lose a fair bit of value.

But that isn’t the end of the trouble, Margaret Kerins said in the report. In such an event, Fannie and Freddie could be forced to go back to the Treasury for more funding, as neither have any capital buffers to help them in the event they post a loss.

“However, the potential for renewed draws is likely to be politically unpopular and may spark preemptive Treasury action and Congress to prioritize GSE reform in addition to headline risk,” Kerins wrote.

© 2015 Prospect News.
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