Uber convertibles offering a ‘food fight,’ outstanding notes active; VNET comes in

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.’s plans to price an offering of five-year convertible notes after the market close on Monday.

The offering was a “food fight,” a source said, with the deal upsizing and pricing narrowing to the tight end of talk.

While the offering played to strong demand, some sources did raise doubts about the high expectations for the company.

Meanwhile, the secondary space saw a relatively active session with equity markets strong and business getting done before liquidity thinned ahead of the Thanksgiving holiday in the United States on Thursday.

The Dow Jones industrial average closed Monday up 204 points, or 0.58%, the S&P 500 index closed up 0.74%, the Nasdaq Composite index closed up 1.13% and the Russell 2000 index closed up 0.52%.

There was $54 million in reported convertibles trading volume about one hour into the session and $398 million in reported volume about one hour before the market close.

Uber’s new offering sparked activity in its outstanding 0% convertible notes due 2025, which were weaker in heavy volume as holders switched to the newest offering.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB/BBB-) saw heavy volume although with little movement in price.

VNET Group, Inc.’s (formerly 21Vianet Group Inc.) 0% convertible notes due 2026 gave back some of their spectacular gains from the previous week with the market expressing less certainty about the notes’ redemption on their upcoming put date.

Uber a ‘food fight’

Uber’s offering of five-year convertible notes played to heavy demand with the deal upsizing to $1.5 billion from $1.2 billion and talk narrowing to the tight end of the range.

Revised talk is for a coupon of 0.75% to 1% and an initial conversion premium of 32.5%. Initial talk was 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 initial talk, a source said.

Another source pegged the deal at 3 points cheap at the midpoint of initial talk.

The offering looked attractive and was heard to have played to strong demand.

“It’s a food fight,” a source said.

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

There is the possibility that stock will continue its bull run and the 2025 convertible notes will be in-the-money and convertible 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.”

While the lofty expectations for the company raised some questions, it did not affect demand for Uber’s new offering.

However, Uber’s outstanding 0% convertible notes due 2025 were weak on the heels of the latest deal as holders switched out of the old for a more balanced convertible note.

The 0% convertible notes were changing hand sat 97.375 versus a stock price of $54.99 in the late afternoon.

They contracted 0.75 point to 1 point dollar-neutral.

There was $17 million in reported volume.

Uber’s stock traded to a low of $53.76 and a high of $55.36 before closing at $54.75, up 0.57%.

Expedia active

Expedia’s 0% convertible notes due 2026 saw heavy volume on Monday although with little movement in price.

The 0% notes continued to trade on a 91-handle.

They were changing hands at 91.25 versus a stock price of $133.42 in the late afternoon.

The yield was 4.125%.

There was $36 million in reported volume.

Expedia’s stock traded to a low of $133.11 and a high of $136.77 before closing at $134.90, off 1.09%.

VNET comes in

VNET’s 0% convertible notes due 2026 gave back some gains in active trade on Monday after its spectacular rise the previous week.

The 0% notes fell 3.5 to 4 points outright.

They were trading at 86.5 with a yield to put of 81.5% in the late afternoon, according to a market source.

There was $8 million in reported volume.

The 0% notes are not equity sensitive and have long traded based on market expectations about the Beijing-based internet and data center service provider honoring the notes’ put date of Feb. 1, 2024.

The notes skyrocketed more than 15 points last Thursday after the company reported earnings and a fresh equity investment of $299 million.

The notes shot up from a 74-handle to close last week on a 90-handle with the notes now giving back some gains.

Mentioned in this article:

Expedia Inc. Nasdaq: EXPE

VNET Group, Inc. Nasdaq: VNET

Uber Technologies Inc. NYSE: UBER

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