Uber Launches Exchangeable Bond Deal Featuring Rare Structure

A $1.2 billion exchangeable bond deal announced last week by Uber Technologies reportedly features a rare structure that is appealing to investors and to Uber.

The deal is tied to Uber’s shares in self-driving truck firm Aurora Innovation and includes bonds that turn into equity if the stock exceeds a set price after a set period, Bloomberg reported Tuesday (May 20).

The deal allows investors to participate in the upside of Aurora’s business while limiting the downside, as they could end up with a valuable stake if the price of the shares rises above the conversion threshold, while they can get paid back the par value of the bond at maturity if the stock drops, according to the report.

For Uber, the deal provided favorable terms that included zero coupon and a conversion premium above the marketed range, the report said. Uber retains some upside and can defer tax on the gains.

Only about 6% of total U.S. convertible debt over the past five years has had an exchangeable bond structure, but that share may increase among companies with solid credit and adequate stakes in other companies, the report said.

Uber announced its plans for a private placement of exchangeable senior notes in a May 13 press release. It announced the pricing of the offering in another press release on the same day.

“Uber intends to use the net proceeds from the offering for general corporate purposes, which may include strategic investments, although Uber has not designated any specific uses at this time,” the company said in the first release.

Aurora is developing self-driving systems for commercial vehicles like trucks and plans to deploy driverless trucks at scale.

When announcing the company’s first quarter results on May 8, Aurora Innovation Co-Founder and CEO Chris Urmson noted that its self-driving trucks are now hauling commercial freight on Texas roads.

“We are the first company to operate commercial driverless heavy-duty trucks on public roads,” Urmson said in a press release. “From here we’ll focus on proving the promise of the technology, increasing the value of our product for customers and ultimately becoming an essential partner in the freight industry.”

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