Uber seeks to raise $1.5 billion from bond investors

Uber is seeking to raise $1.5 billion from bond investors in what would be the rideshare company’s first foray into the junk bond market, according to people familiar with the matter.

The company is working with Morgan Stanley on a private placement that would consist of $500 million in five-year notes, which could yield around 7.5%, and $1 billion in eight-year notes, which could yield around 8%, one of the people said.

A call for investors to discuss the offer was scheduled for Wednesday at noon Eastern time in New York. The bonds are expected to list next week. The final interest rate will be fixed when the bond is valued.

The bond offering was first reported by Debtwire. Uber and Morgan Stanley declined to comment.

Uber is the latest tech company to test investors’ appetite for high-yield bonds following WeWork’s $702m deal earlier this year – up from an initial launch of $500m — and Tesla’s $1.8 billion issuance last year.

Uber itself has already raised billions from its creditors. The proposed new transaction would come just months after the sale of $1.5 billion in leveraged loans marketed directly to investors. It previously raised $1.15 billion in its first leveraged loan deal in 2016.

Uber has also raised a lot of capital from equity investors over the past year, mostly through a $9 billion investment from a SoftBank-led consortium, which included $1.25 billion in new funding. . In August, Toyota invested $500 million in the company as part of a collaboration around autonomous vehicles.

The company’s return to debt markets is opportunistic as corporate borrowing costs are expected to rise ahead of an initial public offering that Uber is targeting for next year. Raising an additional $1.5 billion will give it additional short-term cash as it ramps up investment in new businesses, including food delivery and bike and scooter sharing.

Investors in the US high-yield corporate bond market typically gauge a company’s financial health by its earnings and cash flow, which they then compare to its debt. But those leverage measures are often meaningless for a loss-making company like WeWork or Uber, which reported a second-quarter adjusted pro forma EBITDA of negative $404 million.

Instead, portfolio managers will rely heavily on ratings agencies, as well as their own research, on the group’s ability to repay debt.

A junk bond fund manager said there was “low interest” in the deal at their company due to Uber’s “high cash burn”. But others were eager to hear Uber’s pitch, especially given the bond interest rate.

Uber ended the second quarter with $7.3 billion in cash and reported negative cash flow of $163 million from operating activities in the quarter.

Under generally accepted accounting principles, Uber’s second-quarter net loss narrowed to $891 million from $1.1 billion a year ago. Net revenue rose 63% to $2.8 billion over the same period.

Dara Khosrowshahi, chief executive, said Uber is likely to remain unprofitable for some time as it invests in areas of potential growth.

“We are suffering from having too many opportunities as a business,” Khosrowshahi said at an event on Tuesday.

Carol M. Barragan