A new player has appeared on the market of high-yield (or «junk») bonds. This is a well-known Uber: https://read.bi/2P7Qwo5
Under strict secrecy, the company placed $ 2 billion in debt obligations — 1.5 billion for 8 years at 8% per annum and 0.5 billion for 5 years at 7.5% per annum. There was a re-subscription (applications came in for 3 billion), and the “lucky ones” who got the papers had to sign a confidentiality agreement.
Perhaps this event in preparation for the IPO. A couple of days ago there was an article in the WSJ that investment banks offered Uber to hold an IPO in 2019 at an estimated $ 120 billion. This is despite the fact that in the last round of private placement the valuation was 72 billion. Demand is likely to be high, and we suspect that investors who have agreed to buy these bonds have thus received an entrance ticket to the front row.
Otherwise it is difficult to explain their motivation. There are much more interesting ways to risk capital. The company continues (so far) to stubbornly burn the cache, and it’s still far from reaching profitability. In such conditions, it is better to take the risk of business through stocks, since, at least, you get the whole potential upside in case of success. What is the point of limiting your profitability to some 8% per annum, risking losing everything (and this is possible if the company does not learn how to earn)? This return on the horizon of 8 years can be obtained on a portfolio from different asset classes with rebalancing, and not to concentrate all risk in one name. And the fact that a company with a capitalization of 120 billion is located at 8% per annum is surprising. Something is wrong here. What exactly? A rhetorical question, the answer to which we will probably get from the disclosure of information before the IPO.