Scientific Games Bond Yields Increased as Investors Balk

Scientific Games Corp.’s plan to raise $2.2 billion of junk bonds is running into resistance from investors, prompting the banks handling the sale to boost the yields offered on the debt.

JPMorgan Chase & Co., Bank of America Corp. and Deutsche Bank AG are offering a yield of as much as 12 percent on eight-year unsecured bonds they are underwriting to help fund Scientific Games’s $5.1 billion purchase of Bally Technologies Inc., according to a person familiar with the offering. The banks were marketing the notes at 10 percent to 11 percent earlier this week, said three investors who were offered the debt. All of the people asked not to be named because terms haven’t been made public.

The underwriters may be unable to sell the bonds at face value because the interest potential investors are demanding is higher than the 9.75 percent the company agreed to pay on the most-expensive part of the financing to ensure the Bally purchase, the people said. To raise the interest rate, the banks may have to sell the notes at a discount, potentially eroding underwriting fees, or, at worst, leading to losses.

Tasha Pelio, a spokeswoman for JPMorgan; Thomas Rottcher, a spokesman for Bank of America; and Christine Taylor, a spokeswoman for Ronald Perelman, the billionaire investor who is chairman of Scientific Games and owns 40 percent of the company, declined to comment on the offering. Kerrie McHugh, a spokeswoman for Deutsche Bank, and Bill Pfund, a spokesman for New York-based Scientific Games, didn’t immediately respond to messages left for comment.

The underwriters’ attempt to syndicate $3.45 billion of bridge loans to junk-market investors failed last month, people familiar with the issue told Bloomberg. Investors balked at buying debt that paid less interest than the approximately 11 percent yield on the company’s most junior notes at the time. The $350 million of 6.625 percent subordinated bonds due in May 2021 now yield 13.1 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The banks are also marketing $700 million of seven-year secured bonds.

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