Preferreds pop as Fed changes policy language; energy names up; Fannie, Freddie active

By Stephanie N. Rotondo

Phoenix, Dec. 17 – Preferred stocks were rebounding early Wednesday as the market reacted to the Federal Reserve’s latest policy statement.

After its monthly two-day meeting, the central bank announced that it had changed language in regards to when it would raise rates. It switched “considerable time” to “patient,” leaving some to speculate that rates could rise sooner than expected.

In a press conference following the release, Janet Yellen, Fed chairman, said the language change was consistent with the previous policy and that there would likely be no overtures to increase rates for at least a few more meetings.

The Wells Fargo Hybrid and Preferred Securities index finished up 27 basis points. It was up 10 bps at mid-morning.

“It was doing pretty well,” a market source said of the preferred space.

On the heels of the Fed announcement, oil prices rallied, helping to push up some oil and gas names that had previously been on the decline.

For its part, West Texas Intermediate crude gained 23 cents, ending at $56.16 per barrel. Brent crude improved by 71 cents, or 1.18%, to $60.72.

Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) were up $1.20, or 7.13%, to $18.04. Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable preferred units (Nasdaq: BBEPP) meantime gained $1.42, or 7.18%, to close at $21.20.

In Goodrich Petroleum Corp. paper, the 9.75% series D cumulative preferreds (NYSE: GDPPD) rose 43 cents, or 4.86%, to $9.28.

Away from the energy space, a source said there was “a lot of activity in [Fannie Mae and Freddie Mac]” as Bill Ackman of Pershing Square Capital Management said he had “meaningfully” increased his bets in the government-sponsored entities.

Ackman eyes Fannie, Freddie

Fannie and Freddie preferreds were busy in midweek trading as Ackman said he had been “meaningfully” increasing his position in the agencies over the last couple of weeks.

Fannie’s 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) rose 24 cents, or 9.2%, to $2.85, while the 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) improved 6 cents, or 1.71%, to $3.57.

Freddie shares, however, were a little weaker on the day.

The fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) fell 9 cents, or 2.39%, to $3.67, as the 5% noncumulative perpetual preferreds (OTCBB: FMCKK) – a $50-par issue – declined 19 cents, or 3.61%, to $5.08.

Ackman is betting that a Sept. 30 court ruling allowing the government to take nearly all of Fannie and Freddie’s profits will be shot down on appeal. The previous ruling dismissed cases brought by investors such as Pershing, Perry Capital LLC and Fairholme Funds Inc.

American Realty recovers

American Realty Capital Properties Inc.’s 6.7% series F cumulative redeemable preferred stock (Nasdaq: ARCPP) were initially weaker Wednesday but regained ground along with the rest of the market.

The gains came after two days of declines in response to news out Monday when the company announced the departure of its top three executives – including its co-founder.

The paper closed up 43 cents, or 2.04%, at $21.52. Those shares were off 7 cents at $21.02 at mid-morning.

Nicholas Schorsch, executive chairman and director, left his post, the New York-based real estate investment trust said in a statement on Monday. Schorsch was a co-founder of the company and formerly its chief executive officer.

Also leaving were David Kay and Lisa Beeson, CEO and chief operating officer, respectively.

The exits came just mere months after the company reportedly discovered intentional accounting errors that then resulted in the departures of its chief financial and chief accounting officers.

For his part, Kay had maintained to investors after the disclosure that he had no plans to leave the company.

No specific reason was given for the latest round of resignations.

American Realty hopes that investors will look on the exits as a positive, as the REIT looks to move forward with its strategy.

Along with the management moves, American Realty plans to undo all of its relationships with entities linked to Schorsch.

Ratings agencies jumped into action on Tuesday, with both Standard & Poor’s and Moody’s Investors Service slashing their ratings on the company.

S&P dropped its credit rating to BB from BBB-, leaving the entity on CreditWatch with negative implications. Moody’s said it cut its senior unsecured rating to Ba1 with a negative outlook.

“The downgrade reflects our view of the high level of uncertainty surrounding ARCP after the company’s CEO and president/COO resigned unexpectedly and lead independent director William Stanley’s appointment as interim CEO,” wrote S&P credit analyst Jaime Gitler in a news release. “The track record of the recently installed executives and the board of directors in running and overseeing a public company is limited.”

Box Ships gets reprieve

Box Ships Inc. said Wednesday it had reached a deal with a lender that “significantly improved its liquidity position during this prolonged downturn.”

The 9% series C cumulative redeemable perpetual preferreds shares (NYSE: TEUPC) put on $1.20, or 7.23%, to close at $17.80.

Under the terms of the agreement, the Athens-based shipping company will make the next four installment payments on its loan upfront. In return, it will not have to make another payment until 2017.

Certain other covenants will be waived or removed, assuming the company holds similar agreements with its other lenders.

“With this final agreement, the company has enough liquidity and optionality to get through at least the next two years even if the market remains weak,” said Michael Bodouroglou, chairman, president and CEO, in a statement.

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