Deal flow steady as Two Harbors prices; TriplePoint frees, hits par; American Homes dips

By Stephanie N. Rotondo

Seattle, July 12 – The preferred stock primary market continued to churn out deals on Wednesday, as Two Harbors Investment Corp. priced a new issue.

The New York-based real estate investment trust sold $250 million of 7.625% series B fixed-to-floating rate cumulative redeemable preferreds. The deal came upsized from an expected $75 million and tight to the 7.75% initial price talk.

“That’s a big difference,” a market source said of the size increase. “But it’s an issuer’s market out there.”

He saw the issue trade as high as $25.02 in the gray market.

Another trader saw the issue at $24.70 bid earlier in the day.

As for the company’s 8.125% series A fixed-to-floating rate cumulative redeemable preferreds (NYSE: TWOPrA), they were off 58 cents, or 2.12%, at $26.76.

Morgan Stanley & Co. LLC, UBS Securities LLC, J.P. Morgan Securities LLC and Keefe Bruyette & Woods Inc. ran the books.

The dividend will be fixed through July 27, 2027 and will float at Libor plus 535.2 basis points after that date.

The preferreds become redeemable July 27, 2027 at par plus accrued dividends. Prior to that date, the company can redeem the issue only to maintain its real estate investment trust status or upon a change of control.

Proceeds will be used to purchase target assets, including residential mortgage-backed securities, mortgage servicing rights and other financial assets. The funds may also be used for general corporate purposes.

From Tuesday’s business, TriplePoint Venture Growth BDC Corp.’s $65 million of 5.75% $25-par notes due 2022 freed from the syndicate in afternoon dealings, according to a market source.

At the end of the day, the notes were seen trading “in size” at par.

At mid-morning, a trader saw the issue at $24.90 bid in the gray.

The deal came upsized from $55 million. Initial price talk was 5.875%.

Keefe Bruyette & Woods, Morgan Stanley and Deutsche Bank Securities Inc. were the bookrunners.

And, American Homes 4 Rent’s $115 million of 5.875% series G cumulative redeemable preferreds – a deal priced Monday – were lower on the day, slipping 3 cents to $24.96.

The deal came upsized from $100 million and priced at the tight end of the 5.875% to 6% price talk.

The issue freed to trade on Tuesday and was assigned a temporary ticker, “AMMRP.”

Wells Fargo Securities LLC, BofA Merrill Lynch and Raymond James led the deal.

GSEs trade up

Fannie Mae and Freddie Mac preferreds saw active trading in the preferred stock market at midweek.

The preferreds also managed to gain some ground.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) added 11 cents, or 1.79%, to close at $6.24. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) ticked up 9 cents, or 1.57%, to $5.82.

One market source opined that “maybe some of it was the spin with the [Royal Bank of Scotland plc] settlement” with the Federal Housing Finance Agency, the overseer of the GSEs.

RBS inked a $5.5 billion settlement with the FHFA on Wednesday, bringing an end to an investigation into its sales of toxic mortgage-backed securities prior to the financial crisis. The settlement will give RBS one less obstacle to jump as it tries to reinstate its dividend and exit taxpayer control.

As to how that pertains to Fannie and Freddie, however, the source said it was “unclear.”

“The numbers look big,” he said. But the deal was inked with the FHFA, not the GSEs – meaning Fannie and Freddie might not see a dime.

The source also noted that there were questions as to how such a big outflow of cash would impact RBS.

“But it’s not a big issue for them, because they had the reserve for it,” he remarked.

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