Snai Plans Euro Bonds as Junk Borrowing Costs Fall Below 5%

Snai SpA, an Italian betting website operator, is meeting investors for the company’s debut sale of high-yield bonds in euros as junk borrowing costs dropped to a record 4.99 percent.

Snai is planning to sell 300 million euros ($403 million) of senior secured notes and 160 million euros of senior subordinated notes, according to a person familiar with the matter. The average yield investors demand to hold junk-rated debt fell 12 basis points this month, Bank of America Merrill Lynch index data show.

Borrowers are benefiting from record low central bank rates, which are encouraging investors to take on more risk as default rates approach historic lows. Investors placed $19 billion in European high-yield credit funds this year, compared with $771 million in investment grade, according to a Bank of America Corp. report this month, citing EPFR Global data.

“There’s still a lot of money coming into high yield funds as investors hunt for yield,” said Aengus McMahon, a credit analyst at ING Groep NV in London. “Investors are focusing more on expectations of continued low default rates as the economy grows. We expect spreads should stay tight and high-yield will continue to be attractive in 2014.”

The cost of insuring the securities against losses held within two basis points of the six-year low reached yesterday. The Markit iTraxx Crossover index of credit-default swaps on 50 high-yield companies in Europe added 1.7 basis points to 332 basis points at 11:16 a.m in London.

Default Rate

Non-financial companies raised a record 65 billion euros from junk bond sales in Europe this year, up from 31 billion euros over the same period in 2012, according to data compiled by Bloomberg. The worldwide default rate fell to 2.8 percent in October from 3.2 percent a year earlier, Moody’s Investors Service reported Nov. 8.

Porcari, Italy-based Snai will use the proceeds from the note sale to help refinance existing bank debt, the company said in a statement yesterday.

In the sterling high-yield market, Grainger Plc, a Newcastle-based residential landlord, is selling 200 million pounds ($322 million) of seven-year secured notes to yield 5 percent. The proceeds will be used to refinance existing debt, according to a person familiar with the deal.

The average yield on junk-rated bonds in pounds is 6.16 percent, up from a record low of 5.95 percent reached on May 9, according to Bank of America Merrill Lynch index data.

Investment-grade borrower Petroleos Mexicanos, the state oil company also known as Pemex, is selling bonds in euros for the first time since 2009. The company is issuing seven-year notes yielding about 190 basis points more than the benchmark mid-swap rate.

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