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Uber’s quiet ride into bond market
Bonds Hush-hush deal attracts eager support and paves the way for an IPOBY NATALIE HARRISON,
JOY WILTERMUTHRide-hailing service UBER
TECHNOLOGIES saw success with
its debut bond deal, attracting
more than 50 investors to the
deal that some see as another
stepping stone to going public.
The start-up joins a handful
of other cash-burning
COMPANIESûINCLUDINGû.ETmIX û
Tesla and WeWork that have
found – at least initially – a
following in the junk bond
market.
Uber raised US$2bn from its
two-part debt offering, which grew
from an original US$1.5bn size,
side-stepping volatility that led
other corporate issuers to stand
down.
“The market this year has
DElNITELYûBEENûOPENûTOû
stories,” said Tim Schwarz, a
credit analyst at Investec Asset
Management in New York.“Part of that is that high-
yield net supply has been down
about 28% since last year and
companies that do end up
coming don’t have a lot of
competition.”
The Uber bonds, a private
placement, were sold without
OFlCIALûRATINGSû4HEYûTHEREFOREû
do not qualify for inclusion in
the closely-watched ICE BAML
indices, which could limit
liquidity.
But that did not dampen
interest in the debt, which
sources said amassed around
US$3bn in orders, or
enthusiasm for a planned
company IPO that Uber chief
EXECUTIVEû$ARAû+HOSROWSHAHIû
recently said could take place
in 2019.
“An upsized debt deal clearly
highlights investors’ level of
comfort over Uber’s projected
lNANCIALSûANDûPROlTABILITYû
TARGETS vûSAIDû2OHITû+ULKARNI ûmanaging director and head of
research at SharesPost – a
research and a secondary
trading platform for venture
capital-backed companies.
“This is a very healthy sign
for investor appetite for Uber’s
)0/ûNEXTûYEARv
With the help of Morgan
Stanley, the left lead placement
agent, Uber sold a US$1.5bn
eight-year non-call three-year
bond, which was increased
from US$1bn, and a US$500m
lVE
YEARûNON
CALLûTWOûATû
respective yields of 8% and
7.5%.
Some said those yields – in
line with earlier whispers –
were not high enough.
“Eight percent is a high
YIELD vûSAIDû+ATHLEENû'AFFNEY û
DIRECTORûOFûlXEDûINCOMEûANDû
lead portfolio manager for
Eaton Vance.
“But that’s today. That’s short-
term thinking. Where are ratesheaded, and is 8% going to be the
right number for Uber in the long
term? I tend to doubt it. All you
get is the coupon. It’s so much
better to wait and trade for it on
discount.”DEAD END
Several investors told IFR that it
had been tough to get
information on the deal,
structured as a 4(a)(2) issue.
Indeed, privately-held Uber
declined to comment for this
story, as did Morgan Stanley.
Jerry Marlatt, a lawyer at
Mayer Brown, told IFR that
private placements typically
are sold under Rule 144A and
ONLYûTOûQUALIlEDûINSTITUTIONALû
buyers with at least US$100m
of assets under management.
But under a 4(a)(2) format,
the securities can be sold to
smaller investors.
“That could include friends
ANDûFAMILYûOFûOFlCERSûOFûTHEûDisney surprises market with early debt exchange
Bonds Media giant backs down after investors push backBY WILLIAM HOFFMANMedia giant WALT DISNEY caused a
stir in the market with a
COMPLEXûDEBTûEXCHANGEûTHATû
might have left investors
holding illiquid debt for months
if they had not pushed back.
The debt swap, involving
about US$18bn of 21ST CENTURY FOX
BONDS ûISûTIEDûTOû$ISNEYSû
53BNûACQUISITIONûOFû&OXSû
media assets that was
announced earlier this year.
"UTû$ISNEYûCAUGHTûBOTHûBONDû
buyers and analysts off-guard by
DECIDINGûTOûDOûTHEûEXCHANGEûNOW û
even though the acquisition is
NOTûEXPECTEDûTOûCLOSEûUNTILûTHEû
lRSTûHALFûOFûNEXTûYEARûnûANDûHADûTOû
change some terms in the face of
buyside resistance.“What was unusual with this
EXCHANGE ûCOMPAREDûTOûWHATûWEû
usually see, was the long lock-up
period,” said Mary Pollock, a
senior credit analyst at
CreditSights.
While M&A liability
MANAGEMENTûEXERCISESûAREû
common, companies typically
wait until nearer to the close of
acquisitions – or even afterwards- to undertake such
transactions.
AT&T ûFORûEXAMPLE ûANNOUNCEDû
ANûEXCHANGEûONûDIRECTV bonds
AROUNDûSIXûMONTHSûAFTERûITSû
acquisition of the pay TV
provider closed in 2015.
"YûMOVINGûEARLY û$ISNEYû
appeared to overlook a major
liquidity problem for
participating bondholders, who
under the original terms of the
EXCHANGEûWOULDûHAVEûBEENû
unable to sell the new bonds
until the M&A deal closed.
“The main concern was this
idea that you’re checking into
the roach motel, but can’t check
OUT vûSAIDû$AVIDû+NUTSON ûHEADû
of credit research Americas at
Schroders.
“Investors weren’t against the
EXCHANGEû)TSûJUSTûTHATûTHEû
MECHANICSûOFûITûWEREûDIFlCULTûTOû
manage. There was a concern
that some investors’ illiquid
BONDûBUCKETSûWOULDûOVERmOWvCLIMBDOWN
The terms stopping investors
from selling the new bonds were
changed following demands
from the Credit Roundtable, abondholder lobby group.
+NUTSONûISûAûCO
LEADERûOFûITSû
advisory board.
“Every liability management
desk on the Street is watching
this transaction and if we had
not pushed back, the chances
are those desks would have been
sending proposals out to their
clients telling them what was
NOWûPOSSIBLE vû+NUTSONûTOLDû)&2
$ISNEYûRESPONDEDûTOû
bondholder concerns and on
Monday said those who opt to
TAKEûPARTûINûTHEûEXCHANGEûWILLûBEû
able to sell the new bonds until
THEûEXPIRATIONûOFûTHEûEXCHANGE
As it stands now, that
EXPIRATIONûISû.OVEMBERû
“That should relieve investors’
concerns regarding liquidity,”
said Pollock at CreditSights.