Virtu debuted in the US high-yield primary on Tuesday, offering bond investors a chance to gain exposure to one of the country’s largest electronic market makers.
The New York-based company raised US$500m today through a seven-year non-call three bond, rated B1/B+/BB-. Proceeds from the bond and a new US$1.245bn term loan B will be used to refinance a loan due 2029.
JP Morgan is left lead on the bond and lead arranger on the new TLB. Virtu is also extending the maturity and increasing commitments on a revolver to US$300m.
The borrower priced the first-lien bond at par to yield 7.50%, the wide end of price talk of 7.375%-7.50% and in line with initial thoughts of 7.50% area.
The deal comes at a time when electronic liquidity providers such as Jane Street and Citadel Securities have been in the spotlight as they continue to gain market share in a number of different asset classes and make a push into the corporate credit space.
Virtu’s deal follows on the heels of Jane Street’s US$1.4bn seven-year non-call three bond, which priced in April at par to yield 7.125%. Since then, those senior secured bonds, rated Ba2/BB, have rallied to change hands on Monday at around 102.00 to yield 6.636%.
The Virtu transaction will bolster liquidity and extend maturities in a business that is not capital intensive given the short holding periods of its trades, according to rating agencies. Up to now, its long-term debt has largely comprised the loan that Virtu refinanced today.
The company is also benefiting from the Securities and Exchange Commission’s approval of Bitcoin ETFs in January, allowing it to expand into the crypto space where it has launched a string of such products.
“The market is anticipating the launch of new crypto products across ETFs, options and futures, both in the US and abroad, which will further expand the addressable market for Virtu,” said CEO Douglas Cifu during an earnings call in April.
Shareholder friendly
Meanwhile, the company has come under fire from rating agencies for financial policies that favor stock owners over debt holders.
This month Moody’s downgraded the long-term issuer rating of VFH Parent, the borrowing entity for Virtu Financial, to B1 from Ba3, citing shareholder-friendly financial policies.
“Net trading revenues and cash flows have trended down, but management remains fairly active in share buybacks,” said Bain Rumohr, a Fitch analyst covering the credit.
“They haven’t taken excess cash flows to pay down debt. From our perspective that could be credit negative longer term if the revenue or cash flow generation continues to be depressed or lower [compared] to what they were experiencing in 2021 and 2022.”
The industry has also been under regulatory scrutiny in recent years after lawmakers and the SEC questioned how electronic trading firms like Virtu and Citadel Securities pay retail brokers for order flow.
The practice known as payment for order flow (PFOF) is not new but received renewed attention following the frenzied buying of meme stocks that helped bolster Virtu’s trading volumes in the early 2020s.
“It is still to be determined how all this will play out, but I think an all-out ban of payment for order flow is probably not on the table,” Rumohr said.
Cifu has been a vocal defender of PFOF and a critic of SEC Chairman Gary Gensler's policies.
In September, the SEC sued Virtu for failing to maintain and enforce policies that safeguard sensitive client data.
Refiled story: Refiles with full name of Citadel Securities