Understanding Uber's $1.2 Billion Convertible Bonds

Uber's $1.2 billion convertible bonds are a complex financial instrument, but let's break it down. They were issued in 2019 to help the company raise funds.

These bonds have a maturity date of 2026, giving investors a fixed return on their investment. The bonds also come with a conversion feature, allowing investors to convert them into Uber shares at a predetermined price.

The conversion price is set at $49.00 per share, which is a significant discount to Uber's current stock price. This makes the bonds an attractive option for investors looking to get in on the ground floor of a high-growth company.

The bonds are traded on the open market, making it easy for investors to buy and sell them. This liquidity is a major advantage for investors, allowing them to quickly turn their investment into cash if needed.

Uber Technologies plans to raise $1.2 billion in convertible debt offering.

The company will use part of the proceeds to cover the cost of entering into capped call transactions that aim to reduce dilution upon conversion into equity.

The remainder of the funds will be used to repay, redeem or repurchase outstanding debt, including $1 billion of 7.5% notes that mature in 2025.

Shares of Uber Technologies slipped 2.5% in pre-market trading on Monday.

The company will grant the initial purchasers of the notes an option to purchase up to an additional $180.0 million total principal amount of the notes within a 13-day period.

Convertible debt offers flexibility in repayment terms, allowing companies to delay repayment or convert debt into equity if needed.

This flexibility is particularly useful for startups, which often have fluctuating cash flows and uncertain growth prospects.

By converting debt into equity, companies can avoid debt servicing costs and conserve cash for other business needs.

Uber's convertible bonds, for instance, allowed the company to raise capital without immediately committing to debt repayment.

In exchange for this flexibility, lenders typically demand higher interest rates or larger conversion premiums.

This trade-off can be beneficial for both companies and lenders, as it allows for more efficient allocation of capital.

Uber's convertible bonds had a conversion premium of 12.5%, which gave lenders a higher return on investment compared to traditional debt.

By offering convertible debt, companies can also attract investors who are willing to take on more risk in exchange for potential equity upside.

This can be a win-win for both parties, as companies get the capital they need and investors get a chance to participate in growth.

The financial statements of Uber's convertible bonds offer a glimpse into the company's financial health and growth prospects. In 2020, Uber's revenue was $14.1 billion, a 72% increase from the previous year.

One notable aspect of Uber's financials is the company's net loss, which was $6.7 billion in 2020. This is largely due to the company's significant investment in its ride-hailing and food delivery businesses.

Uber's convertible bonds offer a way for investors to participate in the company's growth without taking on the full risk of equity ownership. The bonds can be converted into shares of Uber stock at a predetermined price, providing a potential upside for investors.

In 2019, Uber issued $8.1 billion in convertible bonds, which was used to repay debt and fund the company's growth initiatives. This move helped reduce Uber's debt burden and improve its financial flexibility.

Uber's financial statements also highlight the company's significant cash burn, which was $3.3 billion in 2020. This is a concern for investors, as it indicates that the company may need to raise additional capital to sustain its growth.