Qwest $25-par notes drop following common stock dividend cut; International Shipholding prices

By Stephanie N. Rotondo

Phoenix, Feb. 14 - Qwest Corp. wasn't getting much love from preferred stock investors on Valentine's Day, according to a trader.

Qwest parent CenturyLink, Inc. reported earnings late Wednesday. Though the trader said the numbers "didn't look that bad," the $25-par notes were taking sizable hits, likely due to a common stock dividend decrease and revisions to the company's capital allocation strategy.

"They got beat up pretty well today," the trader said.

Another trader attributed the decline to the fact that Moody's Investors Service placed the name on review for a potential downgrade.

In the primary realm, International Shipholding Corp. brought $25 million of $100-par cumulative redeemable preferreds at 9.5%.

"It's not a big deal, but it's a yieldy one," a source said.

Qwest notes nosedive

Qwest's $25-par notes fell hard Thursday after the company announced a new financial policy that resulted in a downgrade from Fitch Ratings.

The 7.5% notes due 2051 (NYSE: CTW) dropped $1.16 cents, or 4.2%, to $26.44.

"Ouch," a market source said.

The 7% notes due 2052 (NYSE: CTU) meantime drifted off 84 cents, or 3.13%, to $26.00. The other issue of 7% notes due 2052 (NYSE: CTX) fell 90 cents, or 3.35%, to $25.99, and the 7.375% notes due 2061 (NYSE: CTQ) were down 86 cents, or 3.16%, at $26.34.

Late Wednesday, the Monroe, La.-based telecommunications company reported fourth-quarter earnings, posting a net profit of $233 million, or 37 cents per share.

That compared with a profit of $109 million, or 18 cents per share, the year before.

However, revenues were down 1.5% to $4.58 billion, which was still within the company's forecast of $4.56 billion to $4.61 billion.

The company also gave expectations for the first quarter and for the whole of 2013. For the first quarter, CenturyLink expects to see revenue of $4.46 billion to $4.51 billion. That was below what analysts polled by Thomson Reuters had forecast, which was $4.55 billion.

For the full year, revenues are expected between $18.1 billion and $18.3 billion.

But it was news that the company intended to institute stock repurchases and lower its common stock dividend that was really driving the declines in the preferreds.

"People worry that the preferreds will be next," a trader said.

For Fitch, the moves will "result in a lower level of debt reduction over the next two years than previously incorporated in Fitch's expectations," the agency said in a statement.

"In Fitch's opinion, CenturyLink's change in financial policy will lead to a credit profile no longer reflective of a 'BBB-' rating, as CenturyLink is not expected to reduce leverage to the 2.5x threshold Fitch believes necessary for CenturyLink to maintain an investment-grade rating."

Fitch downgraded the company to BB+ from BBB-.

International Shipholding prices

International Shipholding priced a $25 million issue of 9.5% $100-par series A cumulative redeemable preferred stock on Thursday.

The deal - deemed a "best-efforts" offering by several sources - was first announced on Monday.

The non-rated deal includes step-up provisions on the dividend in case the company misses any two dividend payments.

A market source, who declined to give current markets, noted that there was "higher risk" associated with the name given its industry, ocean freight.

"It's a business that tends to be more highly leveraged," he said. Still, "on the positive side, they didn't really push pricing or the size, so hopefully it will do well."

He expected the new issue to free up on Friday.

Among other recent deals, Cullen/Frost Bankers Inc.'s $150 million of 5.375% series A noncumulative perpetual preferreds were seen offered at $24.75.

The issue priced Tuesday and freed up on Wednesday.

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