Macau casino Studio City returned to international bond markets in style on Thursday, selling the largest Asian high yield corporate bond this year.
The company sold a $350 million three-year bond and an $850 million five year non-call two year bond. Between them, these two tranches got around $2.5 billion of demand.
The deal ticked a number of boxes for those bankers looking for a win as the year ends with a whimper. For one thing, bankers extolled the geographical split of the demand. Asian notes were a bare majority for the callable bond and took just 35% of the three-year deal.
The scale of demand was also impressive. While a two times covered book is no record-setter, it was apparent this was real demand. One fund manager complained to FinanceAsia that his small order had been only partially filled.
But perhaps most impressive was that the deal got done at all. Asian bond issuers have been on high alert since the election of Donald Trump, which pushed up Treasuries and send Asian bond prices into a tailspin.
To make things harder for Studio City, it was attempting a new issue to avoid breaching loan covenants, according to a credit analyst. The proceeds of the deal will be used to pay off a HK$10.8 billion loan.
The issuer went out with initial price guidance for the three-year bond at 6% area and the five non-call two-year bond at 7.375% area. But it managed to price inside guidance on both tranches — the $350 million 2019 bond was priced at par to yield 5.875%, and the $850 million 2021 bond was fixed at par to yield 7.25%.
In the secondary market, both bonds traded tighter on Wednesday, amid demand from real money accounts in the US and Asia, said a syndicate banker. The shorter bond was trading at a cash price of 101.10 to yield 5.48%, and the longer note was quoted at a cash price of 101.40 with a 6.84% yield.
The order book peaked at around $3 billion before closing at around $2.5 billion.
In the order book for the 2021 bond, Asian investors were allocated 52%, US investors got 40% and European accounts were allocated 8%. Fund managers represented 81%, banks 14% and private banks 5%.
In the 2019 note, fund managers took 81% of the 2019 bond, private banks 8% and banks 1%. By geography, US investors took 56%, Asian accounts 35% and Europeans 9%.
The company's existing 2020 8.5% $850 million bond provided the best benchmark for the new deal. That bond, which is callable on December 23, 2016, was trading on a cash price of 102.379 on Tuesday to yield 7.797% on a yield-to-maturity basis. The call price is at 104.25.
According to Dealogic, the new Studio City bond surpassed AMC Entertainment's $900 million bond as the largest Asian corproate high-yield this year.
The asset base backing the deal is shared by an outstanding secured loan, albeit one only worth HK$234 million. That deal pays a margin of 4% over Hibor.
The new deal is rated B1/BB- by Moodys and S&P, above the issuer’s B3/B ratings.
Studio City is a Macau casino majority owned by Melco Crown Entertainment.
Deutsche Bank was the sole global coordinator of the deal, Bank of America Merrill Lynch, ANZ and BOCI joined as joint bookrunners.
