Uber Technologies has found a way to tap debt markets when burning through billions of dollars: Keep financial details closely guarded and hire former Goldman Sachs bankers to oversee the deals.
The ride-hailing company last week sold $2 billion of bonds in what's known as a private placement. The secretive approach, bypassing Wall Street's broader bond market, allowed Uber to limit the financial information it disclosed -- and then only to a small and select group of buyers. That kept prying eyes away from the books of a firm that is still losing money as it expands globally.
And, while a lack of transparency generally can make it difficult to gauge creditworthiness, it seemed to work. So many orders poured in that Uber boosted the size of the offering, its first ever in the bond market, to $2 billion from $1.5 billion. The yield, 8 percent on one portion of the bonds, is a relatively small premium to what public companies are paying in the junk-bond market.
The unorthodox deal shows how many fixed-income investors are willing to overlook less disclosure to get a piece of one of the world's most valuable venture-backed tech companies. Uber may go public next year at a whopping valuation of as much as $120 billion, according to estimates by Goldman Sachs and Morgan Stanley, people with knowledge of the discussions said recently. It also reflects a dearth of junk-rated debt, a supply shortage at its biggest in 10 years.
"The bar is a little lower for Uber," said Mike Terwilliger, a portfolio manager at Resource Alts. "Their ability to tap financing on such friendly terms and with less financial disclosure is a testament to the comfort the market has with the story."
A representative for Uber confirmed last week the bond sale was being finalized.
The private placement is the second time this year Uber has sold its own debt directly. In March, it put together a $1.5 billion loan, a deal investors also devoured voraciously. A team including Tim Lawlor, Prabir Adarkar and Cameron Poetzscher, all alumni of Goldman Sachs Group Inc., handled the transaction. Rather than hire a bank to find lenders, they took orders from investors by phone themselves and built up the loan book from their San Francisco office. Morgan Stanley served as an adviser.
Uber's very first foray into the loan markets was in 2016, when it went the traditional route of hiring banks to manage the deal. That transaction, however, was later criticized by U.S. regulators because it ran afoul of guidance designed to quell risky lending practices.
Private placements aren't unusual but they are typically used by much smaller companies to raise funds quickly. Uber's latest pitch was directed mainly to a select crew of large asset managers, who could easily put in orders of $100 million or more, according to people familiar with the matter.
Potential buyers were asked to sign confidentiality agreements and could only access the company's financials through a password-protected website, the people said, asking not to be identified discussing the private matter. Such websites are typically used to market syndicated loans to institutional investors.
"They put out a velvet rope and everyone wants to get in," said Terwilliger. "They are creating demand by giving the appearance of exclusivity and that is very shrewd."
SundayMonday Business on 10/21/2018