Preferred stocks decline to end week; Inland prices upsized deal; Fannie, Freddie gain

By Stephanie N. Rotondo

Phoenix, Oct. 10 – Preferred stocks came in again on Friday as the Dow Jones industrial average erased all of its gains for the year.

Though a trader said early in the day that the preferred space was “holding pretty steady... We’re not seeing the sell-off like the high-yield markets,” by the end of business that was no longer the case.

The Wells Fargo Hybrid and Preferred Securities index closed out the week off 10 basis points. According to one market source, it was “initially off a lot more, about double.”

In the primary, Inland Real Estate Corp. priced $100 million of 6.95% series B cumulative redeemable perpetual preferreds Friday morning.

Initial price talk on the non-rated deal was in the 7% area. The deal was upsized from $50 million.

A trader said the new issue was “holding up pretty well” early in the session, seeing a less 10-cent bid for paper.

At another desk, a source – who noted he was not involved at all in the deal – said he was “surpised they could actually price it,” given the day’s overall “feeble” volume.

“I would bet the underwriters are sitting on a lot of that right now,” he said.

Wells Fargo Securities LLC was the bookrunner.

From last week’s business, Cowen Group Inc.’s $55 million of 8.25% $25-par notes due 2021 – a deal priced Oct. 3 – were pegged at $25.05 bid.

That issue came via Sterne, Agee & Leach Inc., Janney Montgomery Scott LLC and Cowen and Co. LLC.

Fairholme appeals ruling

Fannie Mae and Freddie Mac preferreds were again rising Friday and dominating overall trading in that space.

A market source said the preferreds were “up a bit... I’m assuming it was because [Fairholme Funds] formally went ahead with the appeal,” referring to a Sept. 30 decision by federal judge Royce Lamberth in which he dismissed investors’ lawsuits regarding what they claimed was an illegal takeover by the government of a majority of the agencies’ profits.

In the most actively traded issues, the shares were up 15% to 18%, the source said.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) traded up 60 cents, or 17.65%, to $4.00 per share, and Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 53 cents, or 15.5%, to finish around $3.95.

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