Morning Commentary: Uber convertibles offering eyed to start holiday-shortened week

By Abigail W. Adams

Portland, Me., Nov. 20 – While expectations for new deal activity were low for the holiday truncated week, the convertibles primary market surprised after a more than one week hiatus with a large offering on deck.

Uber Technologies Inc. plans to price $1.2 billion of five-year convertible notes after the market close on Monday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 225 basis points over SOFR and a 39% vol.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk, a source said.

Another source pegged the deal at 3 points cheap.

The offering looked attractive and was expected to be well received.

“It’s certainly a good name,” a source said.

While the credit spread was in line with the company’s outstanding debt, there was some debate about the it.

Some sources pegged it as too conservative while others felt that it was too tight.

Uber is both a straight debt and convertible debt issuer with about $2.15 billion coming due in 2025.

Proceeds from the offering will be use for the repayment or redemption of outstanding debt, including the company’s $1 billion outstanding 7.5% senior notes due 2025.

The 7.5% convertible notes currently trade at 101 with a yield to maturity of 5.35%.

“That’s really no spread over Treasuries,” a source said.

Uber also currently has $1.15 billion outstanding in 0% convertible notes due 2025.

The refinancing was a good, proactive step for the company in addressing its 2025 maturities with the convertible market offering a cheap financing alternative for higher coupon straight debt.

While Uber has some time, the 0% convertible notes due 2025 will also have to be addressed.

However, there is the possibility that stock will continue to its bull run and the 2025 convertible notes will be in-the-money and converted for stock at the time of their maturity.

However, some sources questioned the company’s current valuation and market expectations for its growth.

Uber’s stock has been a straight up graph throughout the year with the company’s market cap rising from $51 billion in the third-quarter of 2022 to its current $113 billion market cap.

There was fundamental justification for the bull run with the company’s cash flow ballooning to $2.291 billion from $506 million year over year.

Analysts are projecting the company’s growth to continue at a rapid clip with cash flow projections of $4.1 billion.

“It just seems like such a large jump in expectations. The question is, has the stock already taken it into consideration,” a source said. “It seems like it was either heavily undervalued a year ago, heavily overvalued now, or somewhere in between.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.