Uber Technologies has found a way to tap debt markets when burning through billions of dollars of cash: Keep financial details closely guarded and hire former Goldman Sachs bankers to oversee the deals.
The San Francisco ride-hailing giant sold $2 billion of bonds this week 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 company that is still losing money as it expands globally.
Although a lack of transparency generally can make gauging creditworthiness difficult, 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% 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 Tuesday. 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 Wednesday that 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 advisor.
Uber's 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 access the company's financials only 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," Terwilliger said. "They are creating demand by giving the appearance of exclusivity and that is very shrewd."
Uber's privacy stands out even in contrast to other cash-burning technology companies that are tapping credit markets. Tesla Inc. had years of public earnings under its belt by the time it sold its first junk bond last year. WeWork Cos. disclosed much of its financials right before making its own debut in the bond market in April.
Both of those offerings were distributed to a broad set of investors, which required disclosures about the companies' financials and risks that ran into the hundreds of pages.
That's a level of transparency they might have preferred to avoid: WeWork received ridicule when its bond offering documents included a measure that the company called "community-adjusted Ebitda," which excluded certain expenses related to its daily operations from its calculation of earnings. Together with a series of other adjustments, that enabled WeWork to move its earnings from negative to positive territory as it marketed the debt sale.
"Bondholders like disclosure," said Scott Carmack, chief executive of Holbrook Holdings Inc. These companies are "all disrupting given industries with potential long-term growth, but bondholders don't care so much about that. I care about their leverage, their debt amortization schedule, interest coverage, their cash burn."
Still, more than 10 investors submitted some $3 billion in orders for Uber's bond sale, which includes five-and eight-year tranches, yielding 7.5% and 8% respectively, said the people, who asked not to be identified because the deal is supposed to be private.
In a sign that these kinds of deals may spread, Uber's Lawlor has since moved to online home-buying marketplace Opendoor Labs Inc., yet another firm in the Uber vein of upending the traditional way business is done. He joined Gautam Gupta, now chief operating officer at Opendoor, who oversaw Uber's finances when it got the 2016 loan. Gupta also previously worked at Goldman Sachs. Adarkar has left Uber to become the chief financial officer of food delivery company DoorDash Inc. Poetzscher, who reports to Uber CFO Nelson Chai, handled the new bond sale.