Roblox brings US$1b junk sale amid debut issuance frenzy

[NEW YORK] Video game developer Roblox Corp is selling US$1 billion of junk bonds, becoming the latest debut high-yield borrower in a year full of them.

The company is looking to sell 8.5-year senior unsecured notes to yield in a high-3 per cent range, said a person familiar with the transaction. After talking to investors about the deal Monday morning, it is scheduled to price Tuesday, said the source, who asked not to be identified as the details are private.

Roblox will be the 85th company this year to sell high-yield bonds for the first time, according to data compiled by Bloomberg. Newly public companies riding large equity valuations - as well as issuers who were previously deemed too risky by debt investors - are taking advantage of robust demand for yield to sell bonds for the first time.

According to research from Goldman Sachs Group Inc, companies favour debt for organic growth and M&A - with junk debuts pricing at record low yields - while investors like the issuers' low loan-to-value profiles.

Tech companies have been especially active in high-yield bonds this year, with cheap debt appearing more attractive than equity to fund expansion.

Anne Russ, Goldman's head of technology, media and telecom leveraged finance, told Bloomberg recently: "In 2021 thus far, we have done almost as much debut high-yield issuance for technology companies versus the last four years combined - both from the perspective of number of deals as well as dollars raised."

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Morgan Stanley, Goldman Sachs, and JPMorgan Chase & Co are leading the Roblox bond sale, which is expected to get a BB rating, putting it at the better-quality end of the high-yield spectrum. Proceeds may be used for production and development as well as potential acquisitions, said the source.

Roblox, which has a market capitalisation in excess of US$45 billion, went public in March through a direct listing on the New York Stock Exchange.

BLOOMBERG