Preferreds sell off on mortgage rates, oil prices; oil names drop; Wells Fargo active

By Christine Van Dusen

Atlanta, Jan. 20 – The preferred stock market was in full sell-off mode on an “ugly” Wednesday as mortgage rates and oil prices put pressure on the shares.

The Wells Fargo Hybrid and Preferred Securities index closed down about 80 basis points, or an average of 20 cents per $25-par issue.

“Things were pretty ugly overall,” a market source said, noting there was “not a lot of green, mostly all red.”

Housing-related names like Resource Capital Corp. plummeted in early trading, with the company’s 8.625% fixed-to-floating rate series C cumulative redeemable preferreds (NYSE: RSOPC) dropping about $2.18 to $12.57. The notes managed to regain some footing into the close, finishing at $13.68.

“Real estate prices hit an all-time high, so people are nervous about leverage and what's going on overall,” a trader said on Wednesday morning. “Anything with a REIT in its name is getting smashed right now.”

Energy-linked paper also continued to suffer on Wednesday morning. Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) traded at $4.04, down 21 cents. At the end of the day the notes were seen at $3.97.

Some names recovered a bit into the close, including Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP), which at first traded down 55 cents to $2.55, then bounced up to $3.09. And Legacy Reserves LP’s series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) dipped 17 cents to $2.13 on Wednesday morning. The notes moved up at the end of the day, finishing at $2.58.

“There seems to be a strong sell-off in the preferreds market,” the trader said.

Active issues move lower

Among the most active issues in the preferred market on Wednesday was Merrill Lynch Capital Trust II's 6.45% trust preferred securities, which closed down 5 cents at $25.30 on about 499,000 shares traded.

Morgan Stanley Capital Trust IV's 6.25% capital securities finished the day at $25.43, down 9 cents on 482,000 shares traded.

And RBS Capital Funding Trust VII's 6.08% non-cumulative guaranteed trust preferreds were off 34 cents on Wednesday, closing at about $24.63.

Wells Fargo trades

The new issue of preferreds from Wells Fargo & Co. – $875 million of 5.7% non-cumulative perpetual class A preferred stock, series W – traded at about $24.67 on Wednesday after pricing at $25.00 per depositary share on Tuesday, according to a filing with the Securities and Exchange Commission.

There is a $125 million greenshoe.

Wells Fargo & Co. LLC was the bookrunner. The joint lead managers were Citigroup Global Markets Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC, RBC Capital Markets and UBS Securities LLC.

The preferreds are callable on any interest payment date, beginning March 15, 2021.

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