UPDATE 3-Uber brings upsized US$900m bond as it eyes Grubhub buy

4 min read
Paul Kilby

Adds final pricing and size

Uber Technologies is garnering extra liquidity Wednesday with an upsized US$900m junk bond as the cash burning tech firm braces for losses in its ride-sharing business hit by the Covid-19 pandemic.

But strong growth in its Uber Eats units as demand for online orders pick up and news of its bid for Grubhub are seen as positives for a company that has yet to turn a profit.

Uber hit the market with a senior unsecured five-year non-call two bond, rated B3/CCC+, which was priced at par to yield 7.5%

That was in line with talk of 7.5% area, but wide to what one investor said were whispers of 7-7.5%.

At that level, the deal came with a decent premium to the long end of its curve, but more in line with secondary levels on its shorter-dated bonds - attractive enough to allow it to upsize from US$750m.

The company's 7.5% 2023s, 8% 2026s and 7.5% 2027s are trading at around 7.2%, 7.5% and 6.8%, respectively, according to MarketAxess data.

Proceeds from the deal, led by Morgan Stanley, are expected to bring Uber's cash cushion to around US$8.25bn, according to Moody's.

That plus equity stakes with a book value of US$10bn, and an undrawn US$2.3bn revolver should tide it over "several quarters until cash burn is more manageable," said S&P.

While Moody's expects its ride-sharing business to recover, the turnaround in that unit is likely to lag an uptick in economic growth.

Some investors are also in two minds about taking exposure to a company that has yet to prove it can show a profit, especially at a time when virus fears could dampen the public's long-term enthusiasm for ride-sharing.

"They are still not turning a profit because they have plowed so much into marketing and tech," said Scott Kimball, portfolio manager at BMO Fixed Income.

"Uber has been around for a while and it has become its own verb. (The question is) after becoming a verb is too late to become profitable."

Said another investor: "We aren't looking at Uber as I'm not as comfortable with their business model longer term."


Nevertheless, news that Uber is in talks to buy food delivery company Grubhub, rated B1/BB-, in an all-stock offering is seen by some as a smart move to diversify revenue streams.

"If they buy Grubhub, they are getting deeper into the food delivery business, which is thriving, said Kimball. "It is an opportune time to address their revenue mix."

Consolidation in the competitive food delivery space is seen as inevitable, though an Uber-Grubhub tie-up would still need to overcome regulatory hurdles, not to mention other potential buyers.

"We think there are many viable suitors for Grubhub and would not be surprised to see other buyers emerge," said the investor.

Yet what may be good news for Uber bondholders could be less positive for Grubhub creditors.

Grubhub's sole junk bond - the 5.5% 2027 - has fallen following the acquisition news to 96.673 to yield about 6% after closing on Tuesday at 97.00.

Covenant Review warned earlier this year that because Uber is a widely held public company, holders of the Grubhub bond will be unable to exercise the a 101 change of control clause.

"Since no person or group owns more than 50% of the voting power of Uber's voting stock, bondholders should not expect a change of control to be triggered if Uber buys the company, Covenant Review said in a January report.