Fannie, Freddie stay busy, strong on improved profits; Winthrop prices $25-par notes, hits par

By Stephanie N. Rotondo

Phoenix, Aug. 8 - The preferred stock market was "pretty flat" Wednesday, a market source said.

Secondary action continued to be focused on Fannie Mae and Freddie Mac, which were on the move again. The upward movement came on the heels of sizable profits from both government-backed mortgage buyers.

"They've doubled over the course of two days," a trader said. "There's big blocks that are flying around. All this stuff is back on the radar."

But away from Fannie and Freddie, "the secondary is pretty quiet," the trader said.

In the primary, Winthrop Realty Trust priced $75 million of 7.75% $25-par senior notes due Aug. 15, 2022.

The deal came in line with talk and was upsized from $35 million. Paper was seen trading around par post-pricing.

A market said it was "strongly rumored" that there would be a "very large" $25-par preferred deal announced Wednesday. It never materialized, however, leaving the source to speculate that overall lackluster market conditions were likely to blame.

Fannie/Freddie up again

Fannie Mae and Freddie Mac preferreds continued to be actively traded and remained on an upward course Wednesday following second-quarter profits.

On Tuesday, Freddie reported a $3 billion profit for the second quarter. Fannie followed that up on Wednesday with a reported profit of $5.1 billion. The trader said that some investors were "betting on the lottery ticket" again, as there was renewed hope that the two companies could potentially be in a position to repay the government if the profits continue to churn out.

Freddie's 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up 42 cents, or 18.03%, at $2.75. The variable-rate noncumulative preferreds (OTCBB: FMCCG) climbed up 45 cents, or 16.07%, to $3.25.

Fannie's 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) meantime rose 35 cents, or 17.5%, to $2.35. The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) increased 40 cents, or 18.18%, to $2.60.

Though the market seems to be enthusiastic about the latest round of results from Fannie and Freddie, one market source was not as convinced.

"The world's a rosy place again," the source said sarcastically. While he conceded that the agency preferreds have had "quite the run-up in the last few days," he also said the action is a bit overblown.

In terms of market value, he explained, the most active of the Fannie and Freddie issues had about $7 million of turnover. In comparison, BB&T Corp.'s 5.625% series E noncumulative perpetual preferreds - the day's most active issue among paying securities - had turnover of about $29 million, he said.

He did note that the Fannie and Freddie preferreds would not necessarily be a bad move for risk-taking investors. It is reasonable, he remarked, that the preferreds could continue to rise to as much as $4.00 in the next year, assuming that Fannie and Freddie continue to have stellar earnings.

But the likelihood that either company will be in a position to start paying dividends again, or even exchange preferred securities, in the near term remains low, he said.

Winthrop prices, hits par

Winthrop Realty Trust priced $75 million of 7.75% senior notes due Aug. 15, 2022.

The $25-par notes came in line with talk and were upsized from $35 million.

A trader quoted the issue at $25.05 bid, $25.10 offered around midday. After the bell, a source said the notes were trading around par.

"It's doing well," the first trader said, noting that retail interest, a "decent coupon" and the fact that Winthrop is "a name that people know" were helping fuel the fire.

The notes will be listed on the New York Stock Exchange. Settlement is expected no later than Aug. 15.

The joint bookrunners are Barclays, Stifel Nicolaus & Co. Inc. and Jefferies & Co. Inc. Credit Suisse Securities (USA) LLC is the lead manager, and KeyBanc Capital Markets and MLV & Co. LLC are the co-managers.

Winthrop is a Boston-based real estate investment trust.

Taubman to redeem preferreds

Taubman Centers Inc.'s $175 million of 6.5% series J cumulative redeemable perpetual preferred shares were quoted at $24.95 bid, par offered on Wednesday.

The Bloomfield Hills, Mich.-based REIT formally announced on Wednesday that it will use the proceeds from the deal, which priced Aug. 3, to redeem its series H and G preferreds at par plus accrued dividends.

The 8% series G cumulative redeemable preferreds (NYSE: TCOPG) rose 3 cents to $25.35, in line with the Sept. 4 call price. The 7.625% series H cumulative redeemable preferreds (NYSE: TCOPH) meantime increased a nickel to $25.35. The call price is $25.33359375.

In addition to announcing the redemptions, Taubman also updated its 2012 guidance due to the new offering and subsequent redemption, which will result in a $6.4 million charge representing the difference between the face value and the book value of the preferreds redeemed.

The company is forecasting earnings per share of $1.20 to $1.30 for the year.

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