Gamenet SpA, the Italian gambling company controlled by Trilantic Capital Partners, sold debut bonds as borrowing costs for European high-yield companies fell to the lowest in more than seven weeks.
The average yield investors demand to hold speculative-grade bonds in euros fell to 4.75 percent, the lowest since June 4. The rate for investment-grade securities rose five basis points yesterday to 2.03 percent, the highest since July 5, Bloomberg index data show.
European Central Bank President Mario Draghi’s pledge to keep interest rates low for an “extended period of time” is encouraging investors to seek out high-yielding assets. About $1.3 billion was placed in European junk credit funds in the week to July 17, the most in almost three months, while $239 million was pulled from high-grade funds, the fifth week of outflows, Bank of America Corp. reported on July 19.
“Investors need the returns and the low yield environment is forcing them down the credit quality curve,” said Joseph Faith, a credit strategist at Citigroup Inc. in London. “There are high-yield companies that need the funding. That gives you more high-yield issuance yet without much pressure on pricing.”
Gamenet raised 200 million euros ($264 million) from five-year senior secured bonds yielding 7.25 percent, according to data compiled by Bloomberg. The proceeds will be used to repay debt and for general corporate purposes, according to a statement on the company’s website.
Moody’s Investors Service assigned Gamenet a credit rating of B1 on July 22, while Standard & Poor’s rated the company B+ the following day, both four levels below investment grade.
A spokeswoman for Gamenet in Milan, who wouldn’t be identified citing company policy, declined to comment on the bond sale. New York-based venture capital firm Trilantic took control of the company in 2010.
Also in the new issue market, Royal Bank of Canada is marketing 2 billion euros of seven-year covered bonds that will yield 16 basis points more than the mid-swap rate, according to a person familiar with the deal. It’s the first sale of the securities in the currency from a Canadian borrower since 2008, data compiled by Bloomberg show.
The cost of insuring European corporate debt against losses rose, with the Markit iTraxx Crossover index tied to 50 companies in Europe with speculative-grade ratings climbing 11 basis points to 416 at 4:30 p.m. in London, the highest since July 17.
The Markit iTraxx Europe index of contracts on 125 investment-grade companies rose 3 basis points to 103 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 6 basis points to 149 and the subordinated index jumped 10 to 228.
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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