Preferreds trade mixed; Medley add-on launched, price talk revised; Freddie posts earnings

By Stephanie N. Rotondo

Seattle, Feb. 16 – Preferred stocks were mixed in Thursday dealings, as liquidity continued to be constrained.

However, one market source noted that volume was “marginally better” than it has been.

The Wells Fargo Hybrid and Preferred Securities index closed 8 basis points higher. The U.S. iShares Preferred Stock index declined 16 bps.

Medley LLC said it had officially launched its follow-on offering of up to $28.75 million 7.25% $25-par notes due 2024 (NYSE: MDLQ), which a trader said was “keeping us busy.”

Though the deal was expected to price Thursday evening, terms were not available as of press time.

Medley announced the deal on Monday. A trader said that the add-on’s price per share was initially talked at $25.20.

Another source said the talk was revised to $25.25 and that the deal’s base size – not including any over-allotments – would likely increase to $30 million.

“The deal seemed to be going pretty well,” the source added.

The notes finished the session 6 cents weaker at $25.16. In early trading, the notes were off 23.21 cents to $24.9879.

FBR Capital Markets & Co., Incapital LLC, BB&T Capital Markets, William Blair & Co., Compass Point Research & Trading LLC, Ladenburg Thalman & Co. Inc. and JonesTrading are the joint bookrunners.

The company initially sold $30 million of the notes on Jan. 13. The exercise of a $4.5 million greenshoe brought the total amount originally outstanding to $34.5 million.

Interest is payable on a quarterly basis. The notes become redeemable on or after Jan. 30, 2020 at par plus accrued interest.

Proceeds will be used to repay a portion of outstanding amounts under a term loan facility and for general corporate purposes.

Freddie posts larger profit

Aside from the add-on, investors were once again focused on GSE-linked preferreds, as Freddie Mac reported its fourth-quarter results.

However, most of the day’s activity was centered on Fannie Mae, which is slated to bring its earnings on Friday.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) slipped 12 cents, or 1.1%, to $10.76, as the variable rate series O noncumulative preferreds (OTCBB: FNMFN) lost a nickel, closing at $19.20.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) ended the session up 11 cents, or 1.06%, at $10.50.

For the fourth quarter, Freddie posted a $4.8 billion profit – $4.5 billion of which will be sent to the Treasury Department in the form of a dividend payment. The agency had reported a $2.2 billion profit the year before.

The better earnings were due in part to a gain in net interest income, which was $3.9 billion. That compared to $3.6 billion the previous year.

Freddie also said that it had a derivatives gain of $6.38 billion. Freddie uses those derivatives to hedge its interest rate risk.

One market source noted that without the gain, the mortgage giant would have likely reported a slight loss.

By comparison, a gain of just $744 million was reported in the same quarter of 2015.

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