Uber Raises $1.2 Billion With Aurora-Linked Bond Deal
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Uber Technologies Inc.’s $1.2 billion exchangeable bond deal, linked to its shares in a self-driving truck firm, shows why the unusual financial maneuver can be more attractive than a typical stake sale, according to observers.
Last week, the San Francisco-based ride-hailing company issued exchangeable senior bonds tied to its stake in Aurora Innovation Inc. The deal was priced on favorable terms for Uber, with zero coupon and a 16.1% conversion premium that was above the marketed range.
Uber Freight ranks No. 14 on the Transport Topics Top 100 list of the largest logistics companies in North America.
The rare structure — bonds that turn into equity in another company if the underlying stock exceeds a set price after a specified period — offered investors a compelling combination of attributes. If the price of the shares rises above the conversion threshold, a bondholder could end up with a valuable stake. Should the stock plunge, the holder can wait and get paid back the par value of the bond at maturity.
Investors were drawn to the deal partly because of Uber’s investment-grade credit rating and the underlying equity in the self-driving truck firm’s stock, which is very volatile, according to David Hulme, Advent Capital Management’s managing director and portfolio manager.
“Your downside is par in three years’ time but you don’t know what’s going to happen with Aurora’s self-driving technology,” Hulme said. “It could be a home run, so you can participate in that upside while knowing your downside is par.”
Convertible instruments with volatile underlying shares have drawn interest not only from investors seeking to make a long-term bet on rising share prices but also from hedge funds that buy the bonds and sell the underlying stock short.
For Uber, an exchangeable issue was preferable to selling its Aurora stock via a block trade that may have necessitated a 5% to 10% discount, Hulme said. The company owns about a fifth of Aurora shares based on the outstanding stock listed in its filings, Bloomberg calculations show.
As well as retaining some of the upside, Uber is likely able to defer the tax on any gains from its investment until the exchangeable matures.
Rare Structure
The exchangeable bond structure is “pretty rare,” accounting for only about 6% of total U.S. convertible debt issuance over the past five years, according to strategist Michael Youngworth at Bank of America Corp., which worked on Uber’s bond sale.
Conditions for convertible deals are relatively favorable, with total U.S. equity-linked issues in the year to date down 12.5% versus the same period a year ago, according to Bloomberg league table data.
“The convertible market is starved for new paper — demand has outstripped new supply,” Youngworth said, speaking generally about the market and not Uber’s deal specifically.
Uber CEO Dara Khosrowshahi described the bond sale as “opportunistic” and a “creative financial mechanism” to fund future investments in the autonomous-vehicle ecosystem. The bond has already climbed to nearly $120, just days after pricing at par, Bloomberg data show.
Aurora shares have slumped 15% since the deal was announced. Khosrowshahi sought to reassure the company’s backers that Uber will be a holder of Aurora shares for the foreseeable future, despite the sale. He stepped down from Aurora’s board at the end of last year.
What seems to be a model capital-raising playbook for Uber might not work for many others. For the arbitrage trade, there need to be enough shares available for hedge funds to borrow to short the stock.
“The starting condition for issuing an exchangeable is a sophisticated company with solid credit and a big enough stake in another company,” said Raj Imteaz, ICR Capital’s head of convertible and equity derivatives advisory and an independent adviser to convertible debt issuers.
In the U.S., John Malone’s sprawling Liberty Media empire has consistently been an issuer of exchangeable debt. In June 2024, Liberty Broadband Corp. raised $860 million from the sale of 3.125% bonds exchangeable into its shares in cable company Charter Communications Inc. Charter agreed last week to combine with Cox Communications in a cash and stock deal valuing Cox at about $34.5 billion including debt, sending Charter’s shares to their highest level since late 2023.
Exchangeable instruments are relatively popular in Asia, where cross-shareholdings are more common. In March, Chinese internet company Baidu Inc. raised $2 billion from the sale of bonds exchangeable into shares of Hong Kong-listed online travel agency Trip.com Group Ltd.
With more deals getting done, companies looking to monetize their holdings of other firms will be watching the latest exchangeables with interest.
“Given how cheaply issuers can get financing from this structure these days, we do believe it is an attractive option for names looking to divest stakes in subsidiaries,” Bank of America’s Youngworth said.
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