Preferreds soft as week starts; Qwest sells $25-par notes; recent deals quoted around par

By Stephanie N. Rotondo

Seattle, Jan. 25 – The preferred stock market was weaker as the new trading week began.

“It was not a pretty day,” a market source said, noting that the Wells Fargo Hybrid and Preferred Securities index dropped 44 basis points during the session.

“We significantly underperformed the Treasury market,” the source also commented. He said the weakness – which has been ongoing since the year started – was due to “general market concern about corporate America. And the stock market was off a lot.”

Despite the softness, the new issue pipeline was pushing out a deal from Qwest Corp. The Monroe, La.-based subsidiary of CenturyLink brought $235 million of 7% $25-par notes due 2056.

The deal was upsized from $150 million and in line with price talk.

BofA Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC ran the books.

Just prior to pricing, the notes were quoted in the gray market at $24.80 bid, $24.85 offered, according to a source.

Earlier in the day, a trader said he had heard there was no selling group. He also noted that he had not seen any gray market quotes for the notes, though he speculated the paper was likely around $24.75 bid.

Qwest will use proceeds to retire maturing debt.

Meanwhile, Bank of America Corp.’s $1 billion of 6.2% series CC noncumulative preferreds and Wells Fargo & Co.’s $875 million of 5.7% class A series W noncumulative perpetual preferreds dominated the trading session, with well over 2 million shares of each issue being exchanged.

At the bell, the BofA issue – which is trading under a temporary symbol, “BKRRP” – was off 6 cents at $24.99. The Wells Fargo paper, however, was up 12 cents at $25.07.

The latter securities are trading with a temporary ticker of “WLGGP.”

At mid-morning, both issues were trading “around par,” according to a trader.

BofA brought its deal on Thursday, while Wells Fargo priced on Tuesday.

BDC earnings on tap

Business development companies, or “BDCs,” are expected to start churning out earnings in the coming weeks, a trader said.

The results are not expected to be good.

“There’s been a lot of stories about how they’ve gotten crushed” in recent months, the trader remarked.

Still, the trader opined that “there could be some opportunities there. People are starting to dip their toes back in the water in preferreds after getting smashed the last two weeks.”

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