Lyft gives lift to new US$450m CB financing
Lyft expressed a bullish outlook for its business this week by raising US$450m from the sale of a new convertible bond this week, using the money to buy back stock and purchase an equity derivative to offset dilution from the CB to double current levels.
The ride-hailing company has navigated this road before.
Goldman Sachs, JP Morgan, Bank of America and RBC Capital Markets were joint bookrunners on the pricing of the new five-year CB at a zero-percent coupon and 40% conversion premium, through the aggressive ends of 0%–0.25% and 32.5%–37.5% terms marketed for one day. The banks guided accounts towards a credit spread and implied volatility of SOFR+225 and 45 in modelling the CB.
"Repeat issuers tend to price well," a banker on the deal told IFR. "Not only that, Uber also has an existing CB outstanding that has performed well.
"There is more than enough demand for an upsize, but the company decides against it, wanting to manage dilution."
Lyft spent US$95.7m of the proceeds to repurchase 5.7m shares concurrent with the offering, and another US$37.8m on a capped call to offset dilution from the new CB up to a share price of US$33.60.
Supported by the happy-meal but capped-call combo, Lyft shares rose 3.6% Tuesday to US$16.80. The stock is up some 30% so far this year but well below the US$29.53 price in May 2020.
Equally bullish at that time, Lyft raised US$747.5m from the sale of a 1.5% CB and spent US$132.7m of the money on a capped with an upper strike of US$73.83, a 150% premium to its share price at the time.
The company bought back about half of the 1.5s at a slight discount to par in early 2024 funded from the sale of a new US$400m 0.625% CB and repaid the remaining US$390.7m at maturity in May 2025.
In retrospect, the money spent on the capped call in 2020 was wasted money. One alternative view is that the capped call makes a CB a lower-cost debt (no dilution) alternative.
Lyft is not in urgent need of funding, as it finished the second quarter ended June with nearly US$1bn of cash.