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Uber is turning to a new source of cash in exchange for something other than equity.
The now six-year-old ride-hail company, valued at $68 billion after a recent $3.5 billion infusion of funding from the Saudi Arabian sovereign wealth fund, is in the middle of raising between $1 billion and $2 billion in leveraged loans, Recode has confirmed.
The company, which is pouring much of its resources into battling homegrown ride-hail competitors in places like China and India, isn't so much strapped for cash as it's strapped for equity. Turning to the leveraged loan market and issuing debt instead of shares ensures the company can raise more money without diluting the holdings of existing investors.
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It's not a typical move for startups, particularly for those that have been so public about losing money. Uber CEO Travis Kalanick said that the company is losing $1 billion in China alone. That's because for debt investors, it's rarely about a company's future growth and more about whether that company can actually pay those loans back, and that requires a company to make, not lose, money.
People at Uber are hoping the company's high valuation might alleviate any concerns debt investors have, according to the Wall Street Journal, which first reported on Uber's plans for a debt raise. At $2 billion, the loan would only amount to 3 percent of the company's total equity. The company is looking to raise the loan at a 4-4.5 percent yield rate, according to the Journal.
It's worth mentioning that the leveraged loan, akin to a junk bond, affords the company a certain degree of privacy, given that the investing bank sells the debt to private and professional investors like mutual funds. That means banks don't have to publicly report any of the financial information associated with the loans. That's a huge advantage for any private company, but particularly for Uber, which has kept much of its financial information under wraps.
—By Johana Bhuiyan, Recode.net.
CNBC's parent NBCUniversal is an investor in Recode's parent Vox, and the companies have a content-sharing arrangement.