Roblox Fuels Debt IPO Frenzy With $1 Billion Junk Bond Sale

(Bloomberg) -- Video game developer Roblox Corp. is selling $1 billion of junk bonds, becoming the latest debut high-yield borrower in a year full of them.

The company is looking to sell 8.5-year senior unsecured notes to yield in a high-3% range, said a person familiar with the transaction. After talking to investors about the deal Monday morning, it is scheduled to price Tuesday, said the person, who asked not to be identified as the details are private.

Roblox will be the 85th company this year to bring a so-called debt IPO, according to data compiled by Bloomberg. Newly public companies riding large equity valuations  -- as well as issuers who were previously deemed too risky by debt investors -- are taking advantage of robust demand for yield to sell bonds for the first time.

According to research from Goldman Sachs Group Inc., companies favor debt for organic growth and M&A -- with junk debuts pricing at record low yields -- while investors like the issuers’ low loan-to-value profiles. Tech companies have been especially active in high-yield bonds this year, with cheap debt appearing more attractive than equity to fund expansion. 

“In 2021 thus far, we have done almost as much debut high-yield issuance for technology companies versus the last four years combined -- both from the perspective of number of deals as well as dollars raised,” Anne Russ, Goldman’s head of technology, media and telecom leveraged finance, told Bloomberg earlier this month. 

Morgan Stanley, Goldman Sachs, and JPMorgan Chase & Co. are leading the Roblox bond sale, which is expected to get a BB rating, putting it at the better-quality end of the high-yield spectrum. Proceeds may be used for production and development as well as potential acquisitions, according to the person familiar with the transaction.

Roblox, which has a market capitalization in excess of $45 billion, went public in March through a direct listing on the New York Stock Exchange. 

Elsewhere in credit markets: 

Americas

JPMorgan Chase & Co. is still laboring to sell $1.1 billion of bonds for debt-laden Brinks Home Security after investors shunned the company’s original offer of a 10% yield for the notes, according to people with knowledge of the matter.

• AerCap Holdings is selling a $2 billion term loan to support its acquisition of GE Capital Aviation Services after the aircraft lessor brought the second biggest high-grade deal of the year last week
• U.S. high-grade primary markets will likely slow this week, with preliminary estimates calling for about $15 billion of supply that could include a bond sale from one of the top banks
  • Sales reached $51 billion last week, taking October volume to $96.5 billion, just shy of full-month expectations for as much as $100 billion
  • Heavy supply appeared to be having an impact last week, with investors net selling $2.4 billion according to Trace, the most in a single week since June 2020, according to JPMorgan
• U.S. leveraged loan sales tied to the Secured Overnight Financing Rate are picking up pace after JPMorgan established a blueprint for borrowers earlier this month
• LifeScan Global, owned by Platinum Equity affiliates, continues to market $800 million of floating-rate high-yield notes through Thursday

EMEA

Bonds of Monte Paschi fell the most since March 2020. They include a 750 million-euro 5.375% subordinated bond, maturing in 2028, which dropped more than 16% to its lowest price since May 2020.

• The Italian government is set to ask the European Union for more time to find a buyer for Banca Monte dei Paschi di Siena SpA, after efforts to sell the troubled Tuscan lender to UniCredit SpA fell apart over the weekend
  • Read more: Italy Seeks Time to Sell Monte Paschi After UniCredit Deal Fails
• Seven issuers priced 5.65 billion euro-equivalent ($6.56 billion) of new bonds in Europe’s primary market on Monday
  • Issuance may slow down as October draws to an end, with only 8.5% of respondents to a Bloomberg News survey expecting sales to exceed 30 billion euros this week
    • Issuers across all sectors have sold over 100 billion euros of bonds so far this month

Asia

Some holders of an Evergrande bond on which the embattled developer had missed a coupon deadline last month received the interest before the end of a grace period Saturday, according to people familiar with the matter.

• At least two holders of the 8.25% dollar note maturing in March 2022 received payment for the coupon in their accounts within the grace period, the people said, asking not to be identified because the matter is private
  • The price of those and other Evergrande notes rose Monday but are still at deeply distressed levels
• Investment-grade and high-yield dollar notes in Asia outside Japan posted their first gain in six weeks
  • Spreads on high-grade bonds narrowed seven basis points, the most in a year, a Bloomberg index showed
  • The average price of junk notes rose 1.7 cents on the dollar, their best week since June 2020, according to another Bloomberg index
• South Korean brokerage KB Securities Co. was the only borrower to market dollar-denominated bonds, while a handful of firms lined up calls with credit investors for potential note sales

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