Preferreds try to rebound but end flat; Public Storage upsized; oil names under pressure

By Stephanie N. Rotondo

Seattle, Jan. 12 – The preferred stock market was attempting to rally in early Tuesday trading but turned down by the end of business.

“Everyone is trying to bounce it back here,” a trader said early in the session.

The Wells Fargo Hybrid and Preferred Securities index ended flat for the day, after trading up 7 basis points at mid-morning. But even once the index fell into the red, there were gyrations, ultimately ending with an unchanged finish.

A trader also noted that while there was some strength returning to the market, liquidity remained thin.

There were meantime signs of life in the primary space, as Public Storage brought $275 million of 5.4% series B cumulative perpetual preferred stock.

The deal – initially talked at 5.5% and coming via BofA Merrill Lynch, Morgan Stanley & Co. LLC, Wells Fargo Securities LLC and UBS Securities LLC – marked the first to hit the tape in 2016.

The Public Storage deal was upsized from $75 million.

However, “it isn’t very attractive to me,” the trader said ahead of pricing. “But Public Storage always trades pretty rich.”

A market source saw the issue quoted at $24.85 bid, $24.90 offered in the gray market.

Dividends will be payable on a quarterly basis. The preferreds become redeemable Jan. 20, 2021.

On the heels of the new deal, the Glendale, Calif.-based real estate investment trust’s 5.2% series W cumulative preferreds (NYSE: PSAPW) were sinking a bit, trading down a dime to $24.94.

Oil names under pressure

As oil prices continued to dip, oil and gas preferred paper was on the decline as well.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) dropped 66 cents, or 14.01%, to $4.05. Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) meantime lost 81 cents, or 11.96%, closing at $5.96.

Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) were one of the biggest losers on the day, falling $1.08, or 21.64%, to $3.91.

For its part, domestic crude oil prices weakened 2.32% to $30.68 a barrel. The commodity did trade sub-$30 briefly – and ticked up to as high as a $32 handle.

Oil’s continued decline was made worse Tuesday by the unclear intentions of OPEC. Nigeria’s Emmanuel Kachikwu – the country’s top oil official and OPEC’s outgoing president – indicated in an interview with CNN that some members of the cartel were interested in holding an emergency meeting to decide whether or not to curtail production.

But later in the day, Suhail Mohammed Al Mazrouei, energy minister of the United Arab Emirates, said he felt it was “unfair” to ask OPEC to unilaterally lower its production.

OPEC has previously been steadfast in its refusal to cut output as it attempts to steal market share from the United States.

Posturing in Schwab

The Charles Schwab Corp. preferreds were trading actively – and better – on Tuesday as the market readies for the company’s earnings announcement next week.

“A slightly higher activity level could be indicative of posturing in advance of earnings,” a market source said.

The 6% series C noncumulative perpetual preferreds (NYSE: SCHWPC) and 6% series B noncumulative perpetual preferreds (NYSE: SCHWPB) were both 8 cents better, at $26.93 and $26.68, respectively.

Navios sinks

Navios Maritime Holdings Inc.’s preferreds continued to retreat on Tuesday as Moody’s Investors Service cut its rating on the Monaco-based dry bulk carrier.

The 8.625% series H cumulative redeemable perpetual preferreds (NYSE: NMPH) fell 49 cents, or 10.38%, to $4.23. The 8.75% series G cumulative redeemable perpetual preferreds (NYSE: NMPG) lost 52 cents, or 11.06%, to $4.18.

The issues went ex-dividend on Monday, as a dividend is slated to be paid on Jan. 15. The dividend covers the period from Oct. 15 to Jan. 14.

Moody’s dropped Navios to Caa1 from B2, citing “continued challenges in the dry bulk market.” The agency said it also believed that market conditions in that sector would fail to improve in 2016.

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