Freddie Mac sells $6 billion in preferred stock

By Al Yoon

NEW YORK (Reuters) - Freddie Mac on Thursday said it sold $6 billion in preferred stock in a record deal that met with strong investor demand as the U.S. home financing company shored up its capital after sustaining mortgage losses.

The perpetual preferred issue was priced at $25 per share with a dividend rate of 8.375 percent fixed for five years, according to Freddie Mac, the second biggest provider of U.S. home financing. The issue, if not redeemed, would float after five years at the three-month London interbank offered rate plus 4.16 percentage points, with a floor at 7.875 percent.

Government-sponsored Freddie Mac, empowered with some $30 billion in orders for the issue, was able to lower the yield paid to investors from the "mid- to high-8 percent range" on Wednesday, said John Radwanski, assistant treasurer for the McLean, Virginia-based company. The demand also allowed Freddie Mac to drop a planned convertible portion as a "prudent" move for equity holders, he said.

The success for Freddie Mac's largest-ever preferred issue came just eight days after the company surprised investors with a $2 billion third-quarter loss, as deteriorating credit on mortgages it owns or guarantees sent expenses soaring. To do the preferred deal, Freddie Mac dispatched two executive teams to New York and the west coast to reassure investors over the company's financial standing, Radwanski said.

"The Freddie Mac preferred issue is likely to begin trading well, especially given the initial excess demand for the issue," said Christopher Sullivan, chief investment officer for the United Nations Federal Credit Union in New York.

Some prospective buyers on Tuesday had said the yield might be as high as 9 percent, even as 8.25 percent was initially floated to investors, sources said.

Despite the lower-than-expected cost, the yield is still far above that of Freddie Mac's last preferred stock sale. In September, the company raised $500 million from 20 million preferred shares sold at a dividend rate of 6.55 percent.

But Freddie Mac's success in winning investor support has eased concerns that the company would fall short of capital. Shares of Freddie Mac climbed for a second day, rising 0.31 percent to $29.51 on the New York Stock Exchange.