Preferred stock market eyes Fed meeting; Validus issue frees to trade, moves above par

By Stephanie N. Rotondo

Seattle, June 13 – Preferred stock trading was on the muted side on Tuesday – though with a few exceptions – as the market turned its eyes toward the Federal Reserve.

The central bank kicked off a two-day policy meeting on Tuesday, and investors are waiting to see if the Fed will opt to raise interest rates or not. One Reuters report indicated that there is a 94% chance that rates will rise, but one preferred stock trader wasn’t so sure.

“I’m not expecting a hike anytime soon,” he said. “I don’t think the current economic growth warrants a hike. Washington is stalled out, so we won’t see a tax cut or housing reform this year.”

But another market source agreed that an increase would likely occur, pointing to “general economic data.”

“Look at employment numbers overall,” he said. “The futures market is also telling you that” rates will be upped.

Across the board gains in the market did seem to back the source up. For its part, preferred stock market indicators fared well on the day.

The Wells Fargo Hybrid and Preferred Securities index was up 11 basis points. The U.S. iShares Preferred Stock ETF was up 23 bps.

As for the day’s dealings, Validus Holdings Ltd.’s $250 million of 5.8% series B noncumulative preference shares freed to trade during Tuesday’s session.

Also, the paper was already assigned a temporary trading symbol, “VRRHP.”

A source said the preference shares ended at $25.05. Another source echoed that level, deeming the shares up a nickel.

The issue also massively topped the day’s most active list, with over 5.47 million shares being exchanged.

Earlier in the day, a trader pegged the shares in a $24.95 to par context.

The deal came on Monday, upsized from $150 million and tight to the 5.875% price talk.

BofA Merrill Lynch and Morgan Stanley & Co. LLC ran the books.

Meanwhile, NGL Energy Partners LP’s $185 million of 9% class B fixed-to-floating rate cumulative redeemable preferred units were seen adding 6 cents to close at $24.86.

That issue priced June 6 and is trading under a temporary symbol, “NGGLP.”

Maiden Holdings Ltd.’s $150 million of 6.7% series D noncumulative preference shares were also better, putting on 8 cents to finish at $25.06.

In terms of volume, the issue was runner-up to the Validus deal, with over 315,000 shares exchanged.

The deal came on Thursday, upsized from $100 million and tight to the 6.75% price talk. It is trading under a temporary symbol, “MDNHF.”

BofA Merrill Lynch, Morgan Stanley and UBS Securities LLC were the joint bookrunners.

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