Preferred stocks remain weak; Two Harbors not yet free; Spark plans deal; redemptions eyed

By Stephanie N. Rotondo

Seattle, March 8 – The preferred stock market continued to sell off in midweek trading.

A trader speculated that investors were sitting back, “trying to see what is cheap.”

The Wells Fargo Hybrid and Preferred Securities index waned 68 basis points. The U.S. iShares Preferred Stock index declined 76 bps.

One market source said the day’s dip was “roughly in line with Treasuries.”

Two Harbors Investment Corp.’s $125 million of 8.125% series A fixed-to-floating rate cumulative redeemable preferreds – a deal priced Tuesday – were not yet free to trade, a market source reported.

Sources said the issue was expected to free from the syndicate on Thursday.

A trader pegged the paper at $24.52 bid, $24.60 offered.

The deal came upsized from $75 million and tight to the 8.125% to 8.25% price talk.

Morgan Stanley & Co. LLC, UBS Securities LLC and Keefe Bruyette & Woods Inc. ran the books.

Come early Wednesday, Spark Energy Inc. added another deal to the pipeline.

The Houston-based energy provider said it was selling $30 million of series A fixed-to-floating rate cumulative redeemable preferreds, with price talk in the 8.75% area.

According to one market source, the deal was launched at 8.75%, with $35 million of the preferreds expected to be sold.

RBC Capital Markets LLC and FBC Capital & Co. are the bookrunners.

The deal had not priced as of press time.

Called issues active

Realty Income Corp.’s 6.625% monthly income class F cumulative redeemable preferreds (NYSE: OPrF) stumbled in Wednesday trading, just one day after the real estate investment trust said it would redeem the issue on April 6.

The preferreds fell 27 cents, or 1.07%, to $25.07.

One trader noted a Bloomberg Intelligence article that said there were $5 billion of REIT preferreds becoming callable in May.

“I think there will be a lot of [new] issuance to replace that,” he said.

As for other issues being called soon, ING Groep NV’s 7.2% perpetual debt securities (NYSE: INZ) dominated the day, with about 3.1 million of the securities trading.

The issue bucked the day’s downward trend, rising a penny to $24.99.

The securities will be called on March 15.

Also being called on March 15 are Barclays Bank plc’s 7.1% series 3 noncumulative callable preference shares (NYSE: BCSPrA).

The preference shares were the second biggest trader of the day, with about 2.89 million shares being exchanged.

Like ING, the paper rose a penny to $24.99.

Both issues will be redeemed at par plus accrued dividends.

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