New York: Uber Technologies Inc is selling bonds with ratings in the lowest tier of junk to help finance its acquisition of Careem Inc, its first debt offering as a public company.

The ride-sharing company is looking to issue $750 million of debt due in 2027 to help fund its $3.1 billion purchase of Dubai-based competitor Careem as part of a bid to expand its global footprint.

Uber is looking to price the new note at a yield of around 7.5 per cent, according to people familiar with the matter. As of early Thursday afternoon in New York, it had received over $2 billion in orders from investors, said the people, who asked not to be identified because the discussions are private.

It’s only the second bond sale in Uber’s 10-year history, and the first since it went public 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.


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 is relying on a group of eight banks led by Morgan Stanley to distribute the bonds, which are the first to be issued with public credit ratings.

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 assigned the new notes a B3 rating, one step higher than S&P’s.

Uber is only the second borrower to market a bond sale 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.

The company 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.”