At the St. Regis Hotel in New York, this coming Friday debt investors will hear what is becoming a recurring request: a high-tech company with a charismatic leader, but no real cash flow will ask them to borrow money.
This time it’s Uber Technologies Inc., the car-hailing company which has shaken up the taxi business around the world. The company is seeking a loan of US $ 1,250 million, according to people familiar with the matter. It is expected that its new chief executive, Dara Khosrowshahi, will be present among senior management to explain to investors why it is a good business.
And considering Uber’s expense and annual loss, investors will probably be asked to rate the company under other parameters. One could be their combined valuation of US $ 54,000 million by an investment group led by SoftBank Group Corp. This made it the largest technology company with venture capital support without a stock market quote. Management can also mention the US $ 4,500 million in cash that the company kept in its balance as of December 2017, according to documents that Bloomberg had access to.
It would not be the first time that investors have engaged in businesses in which the financial reference indicators on which they are normally based seem difficult to reach. Take the example of Tesla Inc., whose chief executive, Elon Musk, undertook a campaign that helped the electric car manufacturer to sell $ 1.8 billion in bonds in an agreement that was subscribed in excess. Netflix Inc., which like Tesla also has a negative available cash flow, made a debt sale in October. The aid for all three is a wide-open credit market where investors are eager to get returns after years of depressed interest rates.
A representative of Uber declined to comment beyond the prior confirmation of the San Francisco-based company on the loan plan.
Another twist in Uber’s plan is that it is presenting the debt directly to the investors, avoiding the traditional route of using the banks to open the loan to the group of lenders. This is the first time in the recent history of the credit market and an innovation in the way that borrowers tend to work with banks that take advantage of relationships with institutional investors.
Although Uber does not have a bank to lead the syndication of the loan to investors, it does have Morgan Stanley as advisor, said the people, who asked to keep their identity in reserve given that the details are private. A representative of Morgan Stanley declined to comment on his participation.
The New York-based bank led the company’s first foray into the loan capital market for a loan of US $ 1,150 million in 2016. On that occasion, the bank managed the syndication of the loan with investors.
What makes Uber atypical for a borrower of a leveraged loan is its lack of profits. Of particular importance to leveraged loan investors is a measure of the debt in relation to the profits used to measure the risk of the loan. With its rapid cash outlay, Uber generated a negative adjusted pro forma profit before interest, taxes, depreciation and amortization, or Ebitda, for a negative sum of US $ 2.2 billion last year, according to the documents. This makes the calculation of the debt ratio basically meaningless.