By Andrew Berlin
NEW YORK (LPC) - Uber Technologies’ self-arranged term loan B was increased to US$1.5bn, justifying the taxi app company’s unconventional approach to raising the loan and succeeding despite news that one of the company’s self-driving cars had killed a pedestrian.
The groundbreaking seven-year new-money loan was placed with investors directly through Uber's capital markets team, rather than through a syndication process led by arranging banks, and also priced tight of guidance.
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It is largely a bridge loan designed to fund Uber’s steep cash burn until its planned 2019 IPO, and also required investors to get comfortable with unusual credit metrics, including negative Ebitda.
The Uber car hit and killed Elaine Herzberg in Arizona late on March 18, in what is believed to be the first fatality involving a self-driving vehicle.
News of the accident emerged the following day, and Uber pulled forward the commitment deadline on its loan to March 21 from an original deadline of March 22.
Uber was still able to capitalize on strong investor demand and the deal size was increased by US$250m from US$1.25bn at launch.
After the accident, Uber said it would halt the self-driving program in Arizona, Pittsburgh, San Francisco and Toronto and continue to assist local, state and federal authorities as concern rippled through the auto industry.
Proceeds were earmarked for general corporate purposes – a generic use that includes investment in autonomous vehicle technology, investors said.
“I’m guessing the pullback [in that investment] will be temporary,” one investor said.
Another investor said: “I do not think the death changes anything. Six thousand pedestrians are killed a year. People are thinking, if everything craps out, will someone buy this money-losing operation for more than my loan balance?”
The loan ultimately cleared at 400bp with a 1% Libor floor at 99.5, versus opening guidance of a 425bp-450bp over Libor range with a 1% floor and 99 OID.
The direct placement strategy was intended to avoid attracting scrutiny from US banking regulators because the loan might breach leveraged lending guidelines. The rules raise concerns about transactions having a debt-to-Ebitda ratio of over six times or deals that are unable to be paid down by half with cashflow over five to seven years.
Uber reported roughly negative US$2bn of Ebitda in 2017, two sources said, leaving potential investors without the traditional debt-to-Ebitda credit ratio that they rely on to conduct analysis.
“It’s just too hard do a ‘real’ analysis on it,” said the second investor.
Unusually, the loan was marketed on a loan-to-value ratio. Uber is touting an equity value of US$75bn, which would provide ample coverage for lenders, although that valuation is only implied.
The current valuation follows the purchase of a 17.5% stake in the company in January by an investor consortium led by Japan's Softbank that included a tender offer for existing shares at a US$48bn valuation and new equity at a US$68bn valuation.
Including capital expenditure and interest expense, the company burned through roughly US$3bn of cash last year. The loan will boost balance sheet cash to nearly US$6bn.
Uber’s leveraged loan market debut in 2016 was criticised by regulators. Morgan Stanley led the US$1.15bn TLB with Barclays, Citigroup and Goldman Sachs. The deal priced at 400bp over Libor with a 1% floor.
Regulated banks could not play a direct role in the new deal as Uber is a "criticised name", and Uber was reluctant to go outside its relationship bank group to an unregulated lead arranger, which led to the unconventional structure.
Morgan Stanley was the only bank to play an active role in the new deal, but as Uber's financial advisor rather than a conventional arranger. The bank also stepped down from its administrative agent role to further distance itself from the transaction.
Macquarie is also serving as an intermediary to CLOs seeking to play the deal. As offshore vehicles, CLOs are prohibited from investing in US loans directly because doing so would be construed as origination, which could otherwise subject them to US corporate income taxes.
CLOs must wait for a seasoning period – typically around 48 hours – during which the originator closes and funds the loan, before it is moved into the CLO via assignment. The process avoids any potential tax liabilities.
Macquarie, which is nonregulated and therefore not subject to the leveraged lending guidance, is funding some of the loan that will be assigned to CLO accounts. Cortland Capital Market Services is the administrative agent.
(Additional reporting by Kristen Haunss)
(Reporting by Andrew Berlin; Editing by Tessa Walsh)