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Uber Boosts Junk Bond Sale in First Debt Raise Since IPO

Davide Scigliuzzo and Molly Smith

(Bloomberg) -- Uber Technologies Inc. sold a larger-than-expected $1.2 billion of bonds rated in the lowest tier of junk in its first debt offering as a public company.

Strong demand for the notes, which mature in 2027, allowed Uber to raise more than the $750 million originally targeted, though investors held the line on price.

The ride-sharing company priced the bond at a yield of 7.5% after receiving orders worth around $2 billion. It was the same level around which price discussions had started on Thursday, according to people familiar with the matter, who asked not to be identified because the details are private.

Uber plans to use proceeds from the debt sale to help fund its $3.1 billion purchase of Dubai-based competitor Careem as part of a bid to expand its global footprint.

It’s only the second bond sale in Uber’s 10-year history, and the first since it went public and obtained credit ratings earlier this year. The company issued $2 billion of debt in a private placement last October, increasing the size of the two-part deal as orders swelled.

U-Turn

In a sign of its waning exclusivity, Uber has ditched much of the secrecy that surrounded its earlier debt offerings. Instead of sharing only select financial information and marketing its debt directly to investors like it did in the past, it relied on a group of eight banks led by Morgan Stanley to distribute the bonds.

S&P Global Ratings said on Thursday it has assigned a CCC+ rating to the bonds, or seven levels into junk. That’s the same rating it retroactively gave Uber’s privately placed bonds after the IPO in May. Moody’s Investors Service gave the new notes a B3 rating, one step higher than S&P’s.

Uber is only the second borrower to sell bonds with ratings in the CCC range since the end of July, as investors flocked to higher-quality debt in recent weeks.

The company said it would buy Careem in March, marking the largest deal of Chief Executive Officer Dara Khosrowshahi’s tenure. Uber also plans to issue $1.7 billion of convertible notes to help finance the acquisition, which is expected in the first quarter of 2020.

It may have to pay cash for the notes if Careem shareholders do not elect to convert into Uber stock at the predetermined price of $55 within 90 days of issuance.

Road Blocks

Uber still faces an uphill battle to convince investors that it can turn a profit anytime soon. Its stock has lost a quarter of its value since the IPO and the company reported a net loss of over $5 billion in the second quarter. Challenges are also mounting on the regulatory front.

California’s legislature is moving ahead with a bill that may force companies like Uber and its competitor Lyft Inc. to classify drivers as employees rather than contractors, guaranteeing them a minimum wage. Governor Gavin Newsom, who supports the bill, has said he is still open to negotiating possible exemptions. Wall Street analysts are hopeful the two sides can reach a compromise.

“While you can argue Uber’s business model is proven or not, regulation is a key issue for them that won’t be resolved anytime soon,” said John McClain, a high-yield portfolio manager at Diamond Hill Capital Management. “I see all these tech companies as having a regulatory arbitrage versus their competition.”

(Updates with pricing details starting in first paragraph.)

--With assistance from Gowri Gurumurthy, Sally Bakewell and Boris Korby.

To contact the reporters on this story: Davide Scigliuzzo in New York at dscigliuzzo2@bloomberg.net;Molly Smith in New York at msmith604@bloomberg.net

To contact the editor responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net

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