BlackRock Dodges AI Bond-Trading Flop After Offering Junk Yields
BlackRock Inc.’s $12.55 billion bond sale tied to a Meta Platforms Inc. data center rallied in early trading on Monday in a sign that relatively high yields on the debt ultimately attracted investors.
The investment-grade debt for the El Paso, Texas project was sold in an offering led by JPMorgan Chase & Co. and Morgan Stanley at a 7.534% yield, a level more common in junk bonds.
That seemed to draw investors in the “gray market,” where bonds can be bought and sold before official trading begins, even if demand during syndication looked tepid by one standard measure. In the secondary market, the debt was quoted at a yield of around 2.6 percentage point more than Treasuries earlier in the session, according to people with knowledge of the matter, tighter than the pricing level of 2.875 percentage points.
During syndication, demand for bonds from Sopaipilla Investor, a holding company tied to BlackRock that holds an 80% stake in the data center project, looked soft, reaching just $20 billion on Friday, or 1.6 times the amount of bonds for sale. The average demand for bond sales this year was closer to four times the size of the offering, according to data compiled by Bloomberg News.
A flood of jumbo-sized debt sales by technology firms has stretched investors’ ability to absorb the supply, eroding appetite for new AI-related bonds. A recent selloff in tech bonds more generally has also made investors wary as some companies like Alphabet boost their spending plans and potentially look to sell more debt to fund that.
But the securities were sold at a high yield relative to other investment-grade bonds and compared with other tech debt. At launch on Monday, they yielded a premium of about 0.4 percentage point to where a Beignet note due in 2049 trades. The Beignet security was sold last year to help finance a Meta data center in Louisiana.
Other factors that can impact how bonds trade include the type of investor who buys the debt, and how soon they typically sell the bonds to make a quick profit.
For the credit market, the early performance of the Sopaipilla bonds in trading were a marked contrast to some recent bond flops from companies including SpaceX. Bond traders were stunned and investors faced significant paper losses after that company’s debut high-grade bond deal was sold in June and traded off in the secondary market.
Representatives for BlackRock and Morgan Stanley declined to comment. Spokespeople for Meta and JPMorgan didn’t immediately comment.
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
Bloomberg News provided this article. For more articles like this please visit bloomberg.com.
