Uber takes advantage of wave of leveraged loan repricing to cut debt costs
Uber Technologies Inc. has a $ 1.5 billion leveraged loan maturing Friday, capitalizing on a price revaluation frenzy sparked by low rates and strong investor demand.
The rideshare company’s transaction comes on top of a growing wave of businesses looking to reduce the amount they pay on existing loans. More than 100 repricing deals have been offered so far this year, according to data compiled by Bloomberg. That’s already almost as many covers launched throughout 2020, according to the data.
While the current wave of cost cutting is slightly weaker in volume than last year at this point, burgeoning appetites for leveraged loans suggest that the frenzy has room. Investors have has added liquidity to loan funds for six straight weeks, while funds from high-yielding U.S. companies have seen withdrawals for six of the seven weeks this year, according to Refinitiv Lipper. This week alone, seventeen price rallies were announced, with more expected as investors move in corporate bond loans.
“T-bill yields are rising, pushing investors into floating rate products such as loans,” Citigroup Inc. analyst Michael Anderson said. “Plus, loan yields are comparable to high yield, so investors don’t sacrifice a lot of yield to move up the capital structure and reduce duration exposure. This request supports repricings. “
San Francisco-based Uber reduced the margin on its loan due in 2025 by 50 basis points from the London interbank offered rate, according to a person familiar with the matter. He was also able to extend the maturity of a $ 1.1 billion loan by about four years, the person said.
There are also other important recoveries in the market. Blackstone Group Inc. is seeks to cut rates on $ 1.6 billion in debt sold less than three months ago to help fund its acquisition of DNA testing company Ancestry.com Inc. Meanwhile, Clarios Global LP is trying to reduced interest on a $ 4.1 billion loan, the second largest revaluation of the year after Athenahealth Inc.’s $ 4.6 billion agreement.
Last year’s price review frenzy has subsided as the coronavirus crisis caused a massive sell-off in secondary markets, but it’s unclear what would hold back this year’s wave.
“Sometimes it’s a schedule of building major deals that soaks up excess demand,” Citigroup’s Anderson said. He added that the most likely factors would be an economic slowdown where Treasury rates rebound and investors revert to products with more duration, or a collapse in fiscal stimulus expectations.