Market flat to begin week; KeyCorp brings upsized fixed-to-floating issue; GSEs soften

By Stephanie N. Rotondo

Seattle, Dec. 5 – Preferred stocks were treading water in early Monday dealings, eventually ending with a slightly softer tone.

The Wells Fargo Hybrid and Preferred Securities index was unchanged at mid-morning but finished down 2 basis points.

The market did see a new issue hitting the tape, a $500 million sale of 6.125% series E fixed-to-floating rate noncumulative perpetual preferred stock from KeyCorp.

Price talk was in the 6.25% area. The deal was upsized from $250 million.

Post-pricing, a market source placed the issue at $24.93.

A trader saw the issue quoted at $24.85 bid, $24.95 offered in the early gray market, though he later said it was $24.88 bid, $24.92 offered after the deal size was increased.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC, Goldman Sachs & Co. and KeyBanc Capital Markets are running the books.

Dividends will be fixed through Dec. 15, 2026. At that point, the securities will float at Libor plus 389.2 bps.

The issue becomes redeemable on or after Dec. 15, 2026 at par plus accrued dividends.

As for secondary trading, GSE-linked preferreds continued to be in focus. Following Friday’s trend, Fannie Mae and Freddie Mac paper was weakening.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 30 cents, or 3.57%, to $8.10. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) retreated 44 cents, or 5.49%, to $7.58.

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