By Joshua Franklin
NEW YORK (Reuters) – U.S. casino operator Wynn Resorts Ltd (O:WYNN) and automated teller machines maker NCR Corp (N:NCR) jointly raised $1 billion on Tuesday, in the first unsecured junk-rated bond offerings since the market was roiled by the coronavirus outbreak at the start of March.
The offerings indicate investor appetite for risk is gradually returning in the market for new corporate debt rated below investment grade.
The so-called high-yield market has been supported by the Federal Reserve’s pledge to backstop the investment-grade market, according to Bill Zox, chief investment officer of fixed income at Diamond Hill Capital Management.
“It opens up the new issue market on the investment-grade side, which then gives high-yield investors some confidence that the market can absorb new issuance,” said Zox.
Wynn, which issued a warning on Feb. 28 about the potential impact of the coronavirus on earnings, sold $600 million in new debt maturing in 2025, upsized from the $350 million the company originally planned to raise.
The company is paying interest of 7.75%, compared with 5.125% in a $750 million deal for bonds maturing in 2029, which was done in September.
NCR sold $400 million in new debt maturing in 2025 at a yield of 8.125%, a higher borrowing cost than the 6.125% yield on the $500 million in 2029 bonds it agreed to in August.
Yum Brands Inc (N:YUM) and Carnival Corp (N:CCL) last week reopened the market for riskier debt after its longest lull since the 2008 financial crisis, but those deals were both secured against the companies’ assets. In an unsecured deal, the borrowing is done against a company’s perceived creditworthiness.
Nevertheless, the high-yield market is still seen as off limits for smaller companies or borrowers with lower credit ratings.
“You’re going to see larger well-known issuers accessing the market. I still don’t expect very low-quality or much smaller issuers to access the new issue market,” Zox said.
Shares in Wynn and NCR closed up 7.3% and down 4.3% respectively.
Wynn, NCR deals a sign of yet more risk returning to bond market
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