Uber’s debut bond deal is oversubscribed and is expected to price today, after a secretive syndication involving private credit ratings and tightly controlled offering documents, according to four buysiders following the transaction.

The USD 1.5bn senior unsecured bond deal comes as banks pitch the company for an IPO that could take place as early as next year and value Uber at up to USD 120bn, according to media reports — nearly double the company’s valuation when it raised money from Toyota earlier this year.

Official price talk for the Morgan Stanley-led bond offering was circulated yesterday, in line with earlier whispers at 8% area for the USD 1bn notes due 2026 and 7.5% area for the USD 500m tranche due 2023. Books close at noon today (16 October), with pricing expected thereafter.

The deal, which has received private ratings of B3/B- from Moody’s and S&P, has an investment-grade style covenant package lacking the investor protections usually found in high yield bonds, such as provisions around restricted payments and the use of asset sale proceeds, sources said.

During an exclusive roadshow with what buysiders referred to as “friends and family” investors — firms that have supported the company in previous capital raises — Uber executives told investors they did not expect the company to generate EBITDA for at least the next three years.

The fact that Uber is able to execute a deal without typical covenants protections despite its single-B rating and heavy cash burn suggests investors have a high degree of faith in the company’s future growth potential, said buysiders following the deal.

“Typically [an IG-style covenant package] means the company is a high BB that will potentially get rated IG over the life of the bond,” said one. “[This is] a single-B name that’s burning cash for the next three years, and they’re doing IG covenants.”

During the marketing process for the bond — which kicked off with a non-deal roadshow the week before last — management said the company would continue its strategy of aggressive growth through its own innovations as well as acquisitions and partnerships, said buysiders who attended the roadshow.

Having bought JUMP Bikes earlier this year as well as investing in scooter start-up Lime, Uber is also in talks to put in a bid to purchase London-based food delivery service Deliveroo for GBP 1.5bn (USD 2bn), according to media reports.

Uber plans to dedicate a large portion of its expected USD 600m capex to developing autonomous vehicles, sources said.

As the currently asset-light company expands into more physical technologies, the bonds’ lack of protections around the use of asset sale proceeds could begin to look short-sighted, said buysiders.

“There’s this notion that Uber will go from just a software company to a massive buildout,” said one. “So, it really matters to investors how much [asset] value you attach to Uber.”

Ultimately, however, investors are putting faith in the company’s equity story, with one source referring to the deal as a “bridge to the IPO”.

Nevertheless, Uber needs the offering to trade well after pricing, sources said. The company told investors it aims to be a repeat issuer going forward — a strategy that would resemble fellow cash-burning tech company Netflix’s regular use of the bond markets after its IPO.

The 4(a)2 bonds are settling through US Bank rather than DTC, which should help them trade better after pricing, and are expected to eventually receive a 144A Cusip, giving them a potential liquidity boost, sources said.

Morgan Stanley declined to comment. Uber did not respond to a request for comment.

2018 Debtwire