North America High-Yield Bond: Uber’s US$2bn dual-tranche private placement

IFR Awards 2018
3 min read
Natalie Harrison

Proving it had access to the high-yield market was a big win for Uber in 2018 after it reached its US$5bn secured debt capacity. Its bond debut, structured as a private placement, opened another pocket of liquidity on very flexible terms.

The bond issue allowed the cash-burning start-up to lock in long-term fixed borrowing in a timely way, helped to protect its interest rate risk in a rising rate environment, and was proof of investor confidence ahead of a planned IPO in 2019.

“Before the bond deal we had done two secured term loans, one in 2016 and another in 2018. With those two loans and a US$2.27bn revolver, we were at our secured capacity cap,” said Sydney Meheula, who runs capital markets and special projects for Uber and met with investors during the marketing of the deal.

“We couldn’t go to the leveraged loan market any more, and the market for unsecured debt looked very attractive. It was way cheaper than equity, and not floating-rate interest like the loans.”

The US$2bn two-part bond offering stood out for several reasons. One was its size, which was increased from the US$1.5bn originally targeted and came in a volatile market that led other corporate issuers to stand down.

It was priced in line with price talk via lead-left placement agent Morgan Stanley. The US$500m five-year non-call two tranche cleared at par to yield 7.5% and the US$1.5bn eight-year non-call three at par to yield 8%. Both tranches were still above reoffer weeks later, when many other new issues were not.

The private placement (under Section 4(a)(2) of the Securities Act) was also unusual. It was the largest of its kind ever to be sold, and attracted more than 50 investors including leading high-yield mutual funds and asset managers, with final orders of around US$3bn.

“It is pretty unprecedented. Normally, private placements are sold to four or five large insurance companies,” said Mehuela.

While the structure meant Uber could get to market quicker with less onerous documentation – and keep financials tight to its chest – it made the settlement process more complex.

“It trades like any high-yield bond,” said Andrew Earls, Morgan Stanley’s head of North America leveraged finance. “But the back-end was just as challenging as the front-end.

“US Bank [the escrow bank] had to send out more than 500 bonds to all the accounts, and we had to contact hundreds of sub funds to ensure the back offices were set up.”

The bonds’ investment-grade covenants, meanwhile, give Uber maximum flexibility. That is a must-have for growth companies such as the ride-hailing company, which is expanding its platform into new areas such as Uber Eats.

And what helped get investors comfortable? That would be the US$120bn potential IPO valuation.

“You’re not doing cashflow analysis on Uber, because it doesn’t have any,” one bond buyer told IFR. “You’re thinking of the IPO – that’s a big equity cushion beneath you.”

To see the digital version of IFR Awards 2018, please click here.

To purchase printed copies or a PDF of IFR Awards 2018, please email