NEW YORK, July 19 (IFR) - Diamond Sports Group, a subsidiary of Sinclair Broadcast Group, raised US$4.875bn on Thursday in what was the largest high-yield bond trade so far this year.
Investors largely shrugged off concerns about unusually loose covenants for a non-sponsored deal and bought into a story they knew and liked.
"Diamond is right in the middle of the plain vanilla Double B story that people like," said an investor. "It is a large liquid name in an industry that everyone understands."
The issuer priced a US$3.05bn senior secured 7NC3 (Ba2/BB) - to yield 5.375%, while also landing a US$1.825bn unsecured 8NC3 (B2/B) at 6.625%.
The secured tranche was upsized from US$2.55bn, while the unsecured issue was downsized from US$2.325bn.
"There is tons of demand on the books and it seemed that investors preferred the secured tranche," a buyside account told IFR.
However, more secured debt on the capital structure had S&P on Thursday revising the recovery estimate for the company's senior secured debt to 70% from 75%.
Covenant Review also noted that the non-sponsored deal followed in the footsteps of private equity backed trades from Refinitiv, of which IFR is part, and Envision.
Like those deals, Diamond's bond language allowed the extraction of dividends and other distributions regardless of the company's financial health.
"As this is the first time that a non-sponsored issuer has attempted to procure this covenant 'innovation', we are greatly concerned, that this could become a wider practice in the high-yield market," the research firm said.
Typically, an issuer cannot pay dividends out of its accumulated restricted payments basket if it is in default, and its earnings must be at least double that of its interest expenses.
The latter is also known in the industry as the US$1 of ratio debt. Without that, Diamond would be able to use any accumulated build-up back capacity to move assets out of the reach of bondholders, it said.
This includes unrestricted subsidiaries much like J Crew and Petsmart have done in the past.
Even so, such concerns did little to stop investors from buying into the trade, helping to squeeze pricing dramatically lower.
Pricing on the secured and unsecured tranche came in a good 62.5bp from start to finish, after starting with whispers of 6%-6.25% and 7.25%-7.5%, respectively.
"It came cheap and was in the wheelhouse of what most investors want right now," said the investor. "That outweighed people's concerns about covenants."
JP Morgan was lead-left on the deal.