Preferred stocks trade up; Scorpio Tankers sells new issue; Global Indemnity notes drop

By Stephanie N. Rotondo

Seattle, March 28 – The preferred stock market was on the rise in Tuesday trading, following the trend of the broader markets.

The Wells Fargo Hybrid and Preferred Securities index improved 15 basis points. The U.S. iShares Preferred Stock ETF was up 18 bps.

The primary had a new deal added to the calendar, an offering of $25-par senior notes due 2019 from Scorpio Tankers Inc.

Price talk on the deal – led by Stifel Nicolaus & Co. Inc. and Janney Montgomery Scott LLC – was 8.25%, according to a market source.

Late in the session, $50 million of the notes priced at par to yield 8.25%, on top of talk. There is a $7.5 million greenshoe.

Prior to pricing, the notes were seen quoted at $24.60 bid, $24.66 offered in the gray market.

Proceeds from the “baby bond” sale will be used to fund a cash tender offer for the 7.5% $25-par notes (NYSE: SBNB) coming due in October.

Those notes were trading off 9 cents to $25.51.

The tender will expire on April 11. Participating holders will receive par plus accrued interest.

One trader remarked that it was “kind of odd” to take out the $50 million issue early.

“I wouldn’t touch that one,” he added.

Another market source said his firm also declined to participate given “too many credit concerns.”

Among recent issues, Global Indemnity Ltd.’s 7.875% $25-par subordinated notes due 2047 – a deal priced March 16 – were coming in after the company said $10 million of its $18 million greenshoe had been exercised, lifting the total amount outstanding to $130 million.

A trader pegged the paper around $24.70. A day earlier, the notes had been trading closer to $24.90.

Another source quoted the notes at $24.78, with a volume weighted average price of $24.657. However, the source noted that trading in the issue was limited.

The new issue is expected to list on the Nasdaq Global Select Market later this week. The expected ticker symbol is “GBLIL.”

GSE reform once again eyed

A trader said Fannie Mae and Freddie Mac preferreds were “jumping around a little bit” in the wake of a disappointing court ruling and chatter that the Senate is working on a GSE reform bill.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off a nickel at $6.83. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) declined 13 cents, or 1.99%, to $6.40.

The U.S. District Court for the Northern District of Iowa said it had dismissed a lawsuit against the mortgage giants brought by Thomas Saxton. The court’s ruling contended that the Federal Housing Finance Agency is not compelled to preserve any of the GSEs’ assets. Additionally, the so-called “net worth sweep” is allowed under the FHFA’s authority, provided by the Housing and Economic Recovery Act.

One source remarked that the “potentially more important article to pay attention to” was reports that senators Corker and Warner were once again looking to solve the problem of the GSEs, meeting with industry groups and former government officials to discuss options. Mike Crapo, head of the Senate Banking Committee, has also reportedly started to get briefings on the matter in hopes of reaching a compromise.

Corker and Warner have already attempted to drive the matter forward, but their previous proposal failed in 2014. Those against that legislation said the bill would have resulted in higher mortgage rates and fewer home-buying opportunities for low-income borrowers.

Shareholders also opposed the bill, as it would have wound down the agencies and replaced it with a new system, thereby leaving them with little chance of any recovery.

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