Quicken Loans launches upsized junk bond
Quicken Loans took advantage of a record period of mortgage originations and strong demand for Double B corporate bonds with its first bond offering since its parent Rocket Companies went public in August.
The mortgage lender launched on Wednesday a US$2bn two-part offering of senior unsecured notes, upsized from an initial US$1.25bn.
A US$750m 8.5 year non-call 3.5 tranche was launched at 3.625%, while a US$1.25bn 10.5 year non-call 5.5 was launched at 3.875%.
The bond comes amid a refinancing boom in the US mortgage market, as borrowers take advantage of low rates.
Quicken was well placed to benefit during the pandemic with its online platform, according to rating agencies, with the company the largest overall US mortgage originator in the first half of 2020.
The company generated US$3.2bn in net income in the first half of 2020, compared with US$750m for the full year 2019, according to Moody's.
S&P noted that leverage could climb to around 3x, up from under 1x, if there are declines in mortgage originations in 2021 and 2022, due to the increase in debt outstanding following the new bond offering.
"We expect eventual normalization in originations at some point when refinance volumes decrease, though the timing of this is difficult to predict," said S&P.
Still, Quicken's Ba1/BB ratings played into strong demand for Double B rated corporate bonds.
"Because real yields are so low, higher quality buyers like investment-grade players have had to move down into BB so that's why we've seen huge demand in BB deals," said a high-yield portfolio manager.
The bond was being raised to redeem the outstanding amount of its 5.75% 2025 senior notes.
The other outstanding bond is its 5.25% 2028s, which were last trading at a cash price of 106 to yield around 3.6%, according to MarketAxess.
Bookrunners were JP Morgan, Morgan Stanley, Barclays, Bank of America, Citi, Credit Suisse, RBC and UBS.