Uber to Raise Up to $2 Billion in Leveraged-Loan Market
Loan would bring to some $15 billion the funds the cash-hungry ride-sharing firm has raised
By Maureen Farrell, Matt Wirz and Douglas MacMillan
Updated June 14, 2016 1:44 p.m. ET
Uber Technologies Inc. is turning to the so-called leveraged-loan market for the first time to raise as much as $2 billion, in a sign of the popular ride-sharing network’s hunger for cash as it expands around the world.
Uber has hired Morgan Stanley and Barclays PLC to sell a so-called leveraged loan of $1 billion to $2 billion to institutional investors, people familiar with the matter said. The company plans to issue the debt in coming weeks, some of the people said. There is no guarantee the deal will take place.
The move comes on the heels of Uber’s sale of a $3.5 billion equity stake to the investment arm of Saudi Arabia—part of a $5 billion funding round that was the largest single injection into a venture-backed company—and underscores the cost of its quest for global market share. The new loan would bring to roughly $15 billion the amount raised in debt and equity by Uber, which has been valued at $68 billion.
Uber is hoping to price the loan with a yield of 4% to 4.5%, some of the people said, but it is unclear whether the company will achieve a rate that low, especially given it is a first-time issuer. The average yield on new leveraged loans ranges from 3.9% to 5.5%, according to data from S&P Capital IQ LCD.
It is unclear what exactly the use of the new funds would be, but Uber spends millions of dollars to attract riders and drivers, especially in less-established markets. It offers cash bonuses to new drivers and subsidizes the cost of lower-priced rides. The company has said it is profitable in its most developed markets.
Uber has also been pouring funds into China, where it is engaged in fierce competition with the country’s largest ride-sharing company, Didi Chuxing Technology Co. Didi itself is in the process of raising money from equity investors that could top $3.5 billion and value the company at more than $25 billion.
By placing debt rather than equity, Uber can also avoid diluting its existing shareholders. Uber Chief Executive Travis Kalanick has indicated the company is unlikely to go public for at least another year, which could help explain why it is seeking more unorthodox sources of funds. Startup technology companies rarely tap the leveraged loan market because institutional investors usually reject borrowing requests from companies like Uber that lose money. Unlike stock pickers who often buy on expectations of future growth, debt investors focus on a company’s ability to generate the cash it needs to repay obligations.
But Uber and its investment bankers are hoping loan fund managers will overlook the company’s losses because of its lofty valuation, which is nearly $25 billion more than that of General Motors Co. A new $2 billion loan would amount to just 3% of Uber’s equity value, and if its business started to falter, the company could easily raise cash by cutting expenses in peripheral markets, one of the people said.
Leveraged loans are a private variant of junk bonds. Banks make the loans to companies with below-investment-grade credit ratings and offload them to professional investors such as mutual funds, hedge funds and insurance companies. Issuers of the loans don’t need to publicly report financial information because the debt is sold privately to investors who are thought to be more sophisticated.
That privacy is important to Uber, which guards details of its business such as how much it pays drivers in different cities and profit margins in core markets.
Banks have been clamoring to assist Uber in raising debt and equity in hopes of securing a role on an eventual initial public offering, which will likely represent a major prize on Wall Street.
In 2015, a consortium of banks arranged a $1.9 billion credit facility, also known as a revolver, that Uber can tap as needed. Earlier this year, that facility was refinanced and increased to $2.3 billion, according to Dealogic.