RAIT Financial tanks after review ends; Fannie and Freddie rebound; 1347 deal on tap

By Abigail W. Adams

Portland, Me., Feb. 21 – Preferreds saw their second straight day of gains on Wednesday with both the Wells Fargo Hybrid & Preferred Securities Financial index and the U.S. iShares Preferred Stock ETF closing the day up.

Fannie Mae and Freddie Mac were among the gainers on Wednesday with the embattled preferreds of the government-sponsored entities rebounding after Tuesday’s losses.

While the broader market was up, RAIT Financial Trust’s preferreds were not. The Philadelphia-based real estate investment trust’s 7.75% series A, 8.375% series B and 8.875% series C cumulative redeemable preferred shares nosedived during Wednesday’s session.

RAIT announced on Tuesday that the special committee appointed to conduct a review of strategic and financial alternatives for the trust had concluded its work.

The primary market has been relatively quiet amid volatility in the broader markets. However, the first new preferred stock deal in several weeks is in the works.

1347 Property Insurance Holdings Inc. plans to price $20 million, or 800,000 shares, of 8% series A perpetual cumulative preferred stock at $25.00 per share on Thursday.

The market

After a rough few weeks where the preferreds market saw mostly losses, the market was up for the second day in a row.

The Wells Fargo Hybrid & Preferred Securities Financial index was up 0.16% and the U.S. iShares Preferred Stock ETF was up 0.09% early in Wednesday’s session.

The Wells Fargo Hybrid & Preferred Securities Financial index maintained its gains, closing Wednesday up 0.16%. The U.S. iShares Preferred Stock ETF lost some of its early gains but was still up 0.03% at the market close.

Fannie and Freddie rebound

Several of Fannie Mae’s and Freddie Mac’s preferreds rebounded on Wednesday and cut the losses they saw Tuesday after the U.S. Supreme Court struck down a legal challenge to the “net-worth sweep” policy that has both entities turning over their profits to the U.S. Treasury.

Fannie Mae’s 8.25% series S preferred stock, which trades on the OTC market under the symbol “FNMAS,” was up 55 cents, or 7.75%, to $7.65 at the market close Wednesday. The series S preferreds were down 35 cents, or 4.7%, to $7.10 on Tuesday.

Fannie Mae’s series O variable-rate preferred stock, which trades on the OTC markets under the ticker “FNMFN,” was up 40 cents, or 3.48%, to $11.90 at the market close Wednesday. The preferreds were down 60 cents, or 4.96%, to $11.50 on Tuesday.

Freddie Mac’s 8.375% preferreds, which trade on the OTC market under the symbol “FMCKJ,” were up 59 cents, or 8.42%, to $7.60 on Wednesday. The preferreds far eclipsed their losses from Tuesday when they were down 16 cents, or 2.23%, to $7.01.

RAIT’s nosedive

RAIT Financial Trust’s preferreds did not contribute to the gains in the broader market on Wednesday with RAIT’s series A to C preferreds tanking after the conclusion of a review of the trust.

RAIT’s 7.75% series A preferred shares were down $6.17, or 39.37%, to $9.50 in early trading. The preferreds continued their downward spiral, closing Wednesday at $7.78, a decrease of $7.89, or 50.35%.

The three-month average trading volume for the series A shares is 28,460. The preferreds saw 136,060 shares in play on Wednesday.

RAIT’s 8.375% series B cumulative redeemable preferreds closed Wednesday at $7.80, a decrease of $8.04, or 49.02%. The series B preferreds saw 81,610 shares trade on Wednesday, compared to the average three-month trading volume of 8,650.

RAIT’s 8.875% series C preferred shares were down $8.00, or 44.44%, to $10.00 early in Wednesday’s session. The losses continued with the series C preferreds closing Wednesday at $8.05, a decrease of $10.00, or 55.56%.

The series C preferreds also far exceeded their three-month average trading volume with 51,510 shares in play on Wednesday compared to their 6,230 average.

RAIT announced on Tuesday that the special committee appointed to conduct a review of strategic and financial alternatives for the trust had concluded its work.

The review considered the potential sale of all or a part of the trust. However, the board of directors did not feel the review identified “a suitable strategic or financial transaction with another counterparty that was preferable” to the course of action RAIT will take, according to a company news release.

Instead, RAIT will take steps to increase liquidity and position itself to better meet its financial obligations by ceasing its lending business, selling property in its portfolio and hiring a financial adviser to help in the process, according to a company news release.

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