North America Leveraged Loan: Uber's US$1.15bn term loan
All hail Uber!
Internet-based car pick-up service Uber, itself already a byword for disrupting established industries, confounded lenders in the leveraged loan market accustomed to mature and staid companies with its US$1.15bn term loan.
The deal had a number of unique elements and surprised traditional players in the space
Leveraged loans are typically restricted to issuers with long histories of generating cash. But Uber has famously burned through cash and generated negative Ebitda to fuel its rapid growth, leaving the company with no excess cashflow to pay back debt and no debt-to-Ebitda leverage ratio – a hard sell.
Still, despite these hurdles, Uber priced the loan in July at 400bp over Libor with a 1% floor, 110bp tight to the broader Single B loan index at the time.
“If you go back five or 10 years, the market never would have touched this thing,” said Jim Bonetti, head of North American leveraged finance and leveraged finance syndicate at Morgan Stanley.
“It is wildly unique. It took a lot of thought to structure properly, and then a lot of time and effort to get people who are driven by cashflow and statistics to buy something with no cashflow or negative cashflow.”
Morgan Stanley led the deal, along with Barclays, Citigroup and Goldman Sachs.
“You’ve never seen anything like that,” said Andrew Earls, head of North American leveraged finance at Morgan Stanley. “There was no balance sheet. There were a few lines and Ebitda and a few years of projections and that’s it.”
Uber benefited from its strong brand and as a product that investors use on a regular basis. But even so, persuading investors still took a lot of hard work, not least because the suprise UK vote to leave the European Union came just a day after the loan was launched.
“We lost every investor in the book, but we had enough of a strong story in our mind and were able to sell it,” said Earls.
The arranging banks had additional challenges to overcome: Uber is notoriously tight-lipped and wanted to limit the number of potential investors. They also had to make sure the deal would pass scrutiny from federal regulators, which are clamping down on any deals where debt is more than six times Ebitda.
“The strategy on something like this is to point to the cashflow generation and that’s a key measure. And then you have to point to the valuation of the equity,” Earls said.