Preferred market 'very weak'; Reinsurance Group postpones sale; Integrys active, unchanged

By Rebecca Melvin

New York, Aug. 19 - The preferred stock market, which was already in the doldrums, weakened further on Monday as yields on Treasuries stretched to two-year highs.

Weakness in Treasuries extended into the new week after volatility in that market last week. The yield on benchmark 10-year treasuries stands at about 2.9% which is up from about 1.6% in May.

Back in the preferred space, the Wells Fargo Hybrid and Preferred Securities index closed down about 106 basis points, or more than 1%, which is probably the largest one-day loss in a while, according to a market source. On Friday, the index closed down 70 bps.

"It's very rare," the market source said of the size of the index's loss. He called the market "very weak," and speculated that the decline of the index influenced Reinsurance Group of America Inc. to postpone its offering of $1,000-par fixed-to-floating rate subordinated debentures due Sept. 15, 2053.

"That's the only thing that I can think of. It's not that the credit is horrible. They should be able to find investors," the market source said.

Meanwhile weakness in the index was attributed to long Treasuries being down a lot. And concern focuses on the Federal Reserve's plan to taper its stimulus program as the employment picture brightens.

But adding to heaviness on Monday may have been a Barron's article that talked about the return of the 5% municipal bond, a preferred trader said.

"That makes the preferred market - and the junk market, too - look too rich," the trader said.

Volume light

At the same time, the market saw very light volume on Monday. The day's most active issue was Integrys Energy Group Inc.'s $400 million of 6% fixed-to-floating rate junior subordinated notes due 2073, which were unchanged on the day at $23.20 at the close. That paper priced last week at $25.00 par.

"I would say it's the lightest volume day that we have seen in a while," a market source said. About 366,000 shares of Integrys traded, he said.

The second most active share was Goodrich Petroleum Corp.'s $120 million of 9.75% series D cumulative preferreds. They were trading up about 4 cents on the day on volume of 294,000 shares. But preferred shares of JPMorgan and HSBC traded down.

Reinsurance Group postpones sale

Although price talk on the Reinsurance Group deal emerged during the session for at 7% to 7.125% yield, which was deemed "pretty attractive," the deal, also talked at $300 million, was postponed by the end of the session, according to a market source.

BofA Merrill Lynch, J.P. Morgan Securities LLC and UBS Securities LLC are the joint bookrunning managers of the Reinsurance Group preferred.

The company had said in a prospectus filed with the Securities and Exchange Commission on Monday that interest payments through Sept. 15, 2023 would be made on a semiannual basis at a fixed rate; and beginning Sept. 15, 2023, the debentures will begin to float at a rate of Libor plus a spread.

Interest will then be payable quarterly.

The deal had been talked during the session at a yield of 7% to 7.125%.

The debentures may be redeemed prior to Sept. 15, 2023 in whole within 90 days of a tax or rating agency event. After Sept. 15, 2023, the paper can be called at any time at par plus accrued interest.

Proceeds will be used for general corporate purposes.

Reinsurance Group of America is a Chesterfield, Mo.-based reinsurance company.

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