Uber Says It’s Three Years From Turning A Profit As It Pitches Debut Bond
By Paula Seligson and Farhin Lilywala
Uber knows a lot about its users—where they travel, what they eat, how much riders spend, and how much drivers earn. But when it comes to its own finances, the company is keeping a tight leash on information, even as it asks investors for billions of dollars of new funding.
The ride-sharing platform is currently marketing its first ever high yield bond to a select group of investors as part of a private offering, a placement that’s more secretive than typical broadly syndicated bond deals.
The proposed $1.5 billion deal, first reported by Debtwire earlier this week, will take Uber’s available liquidity to roughly $10 billion. But the company is expected to burn roughly $3 billion of cash this year as it continues to spend heavily to fund its rapid growth.
During their pitch to investors, Uber executives said the company should generate $10-$11 billion of revenue this year, but that it would book negative EBITDA to the tune of $2 billion. EBITDA should reach break-even levels in around three years, they added.
The deal is the latest example in a recent trend of disruptive, fast-growing companies that are tapping the debt markets for funding, following similar deals over recent months from the likes of WeWork, Tesla and Carvana.
Debt investors usually shy away from companies that don’t generate positive cash flow to pay interest on their debt. But despite the risks, Uber’s dominance in the ride-sharing space and its growth ambitions in new markets such as autonomous driving make it an exciting proposition, high yield bond investors told Debtwire.
“The initial bond deals for the other tech darlings went well. I would suspect this one for Uber will go even better,” said one of those sources.
Investors are also attracted by the ample returns Uber is offering. The company is looking to price the deal with interest rates in the region of 7.5% for the $500 million five-year tranche and 8% for the $1 billion eight-year portion. Pricing is expected next week.
Uber is currently a private company, but CEO Dara Khosrowshahi wants to take it public next year.
Over recent years, the company has attracted huge injections of equity funding from investors such as SoftBank and strategic partners like Toyota, the most recent of which valued Uber at $76 billion.
As it prepares for its IPO, the funding from the bond deal will give Uber more financial firepower to grow its existing business as well as develop new technologies, strike partnerships and acquire potential competitors.
Uber bought bike-sharing start-up JUMP Bikes earlier this year, invested in motorized scooter provider Lime and put money into developing flying cars.
The company is expected to be a regular issuer in the high yield market after it goes public.
“Once they get their public equity in place, they’ll use the debt markets to kind of backfill any kind of incremental funding needs they’ll have as they continue to grow,” said another investor looking at the deal.
Such a strategy would be similar to Netflix’s approach to debt funding. Netflix went public in 2002, long before it first accessed the bond markets in 2009—but it continues to issue ever bigger deals as it burns through cash in the drive to create new content and cement its position in the film and TV space.
Because Uber has negative EBITDA, its debt-to-EBITDA ratio – the standard measure of leverage used by high yield investors – is essentially irrelevant, said sources following the deal. Instead, the company is focusing on its debt-to-equity ratio, which it wants to keep below the double digits going forward.
Based on roughly $4 billion of total debt—including the new unsecured bonds alongside existing floating rate loans—Uber has a debt to equity ratio of about 5%. Including convertible debt, that jumps to 9.2%.
Paula Seligson and Farhin Lilywala are Debtwire reporters covering the high yield bond market. They can be reached at Paula.Seligson@acuris.com and Farhin.Lilywala@acuris.com
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