Uber Technologies, Inc. -- Moody's upgrades Uber's CFR to B1; outlook stable

Rating Action: Moody's upgrades Uber's CFR to B1; outlook stableGlobal Credit Research - 15 Mar 2022Approximately $8.2 billion of rated debt affectedNew York, March 15, 2022 -- Moody's Investors Service ("Moody's") upgraded Uber Technologies, Inc.'s (Uber) Corporate Family Rating (CFR) to B1, from B2, its senior secured term loan ratings to Ba3, from B1, and its senior unsecured debt ratings to B2, from B3. The ratings outlook is stable. Uber's Speculative Grade Rating of SGL-1, which reflects its very good liquidity, is unchanged.Upgrades:..Issuer: Uber Technologies, Inc..... Corporate Family Rating, Upgraded to B1 from B2.... Probability of Default Rating, Upgraded to B1-PD from B2-PD....Senior Secured Bank Credit Facility, Upgraded to Ba3 (LGD3) from B1 (LGD3)....Senior Unsecured Regular Bond/Debenture, Upgraded to B2 (LGD4) from B3 (LGD4)Outlook Actions:..Issuer: Uber Technologies, Inc.....Outlook, Remains StableRATINGS RATIONALEMoody's analyst Raj Joshi said, "The upgrade of the CFR to B1 reflects a significant turnaround in Uber's adjusted EBITDA in the second half of 2021 and our expectations for rapid and sustained improvements in profitability and operating cash flow over the next 12 to 24 months." Uber's adjusted EBITDA (as reported by the company) turned positive in the second half of 2021 driven by substantial cost reductions undertaken by the company after the COVID-19 pandemic started, divestitures of many loss-making businesses, and improving operating efficiencies. By the fourth quarter of 2021 adjusted EBITDA in both Mobility and Delivery segments had turned positive, despite ridesharing volumes in the Mobility segment being significantly weaker than pre-pandemic levels and increased spending to attract drivers amid constrained supply. Joshi added, "Management's commitment to maintaining profitable revenue growth, the growing mix of ridesharing and food delivery markets with good adjusted EBITDA margins, and high operating leverage in Uber's businesses underpin our expectations for increasing profitability in each of Uber's Mobility, Delivery and Freight segments." The stable ratings outlook reflects Moody's expectation that Uber's free cash flow will increase from approximately $300 million in 2022, to more than $1.8 billion in 2023 (>16% of Moody's lease-adjusted total debt). The company has very good liquidity and its meaningful prospective free cash flow alleviate the risk of further borrowings that have historically funded its substantial losses and growth initiatives.The B1 CFR is additionally supported by Uber's substantial scale with $103 billion in annualized gross bookings on its commerce platforms, very good geographic and business diversity, and leading category positions in several key ridesharing and food delivery markets globally. Moody's believes that the company has strong growth prospects over the next 2 to 3 years driven by increasing penetration of its existing services and expanding use cases of its transportation platforms. Uber's profitability will continue to improve as the company leverages its scale to increase consumer engagement, driver earnings and consumer spending on its platforms.At the same time, Uber faces intense competition in all of its service lines. Its businesses are vulnerable to swings in profitability due to the low switching costs for independent drivers as well as consumers, and aggressive competitors that have access to ample funding. Uber's high regulatory and litigation risks also constrain its credit profile. The company had $2.2 billion of aggregate liabilities related to legal and regulatory matters and certain non-income tax disputes.Moody's rates Uber's senior secured term loans Ba3, or one notch higher than the CFR, which reflects a security interest in certain of Uber's intellectual property and the pledge of 64% of stock from Uber Singapore Technology Pte. Ltd., a subsidiary of Uber, under which Uber's minority equity interests in Yandex and Didi are held.The SGL-1 Speculative Grade Liquidity rating reflects Uber's very good liquidity primarily comprising $4.3 billion of unrestricted cash and Moody's expectation for free cash flow increasing from $300 million in 2022 to more than $1.8 billion in 2023. Uber had access to about $2 billion of funds under its $2.3 billion of revolving credit facility. In addition, Uber holds minority equity interests in multiple on-demand transportation businesses globally that have substantial value.ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSEnvironmental, Social and Governance considerations are material to Uber's ratings. Governance considerations reflect management's commitment to improving profitability which was evidenced by Uber's rapid improvements in adjusted EBITDA during 2021 despite a very challenging operating environment. Uber's very good liquidity, increasing profitability, and revenue diversity mitigate its significant environmental and social risks.Uber has high exposure to social risk factors. Moody's believes that Uber, through its on-demand transportation platforms, provides affordable and convenient services to millions of consumers and an opportunity to supplement incomes to millions of freelance drivers. The company and its peers have increased the supply of transportation services in urban areas that are challenged by growing population and lack of transportation alternatives. But these positive societal and demographic trends are more than offset by the high social risks arising other factors that could potentially harm Uber's brand reputation and negatively impact its financial profile. Uber faces high regulatory uncertainties and litigation risks primarily from its reliance on independent contractors in the majority of its businesses. Its classification of drivers as independent contractors and/or whether statutory pay, benefits and taxes apply in such relationships have been challenged in several jurisdictions. Moody's also believes that regulations governing the nature of relationship between businesses that rely on freelance workers and their workers will evolve over time. Uber's license to operate in London, which was renewed in November 2020 with certain conditions, is due for renewal by the local transportation regulator in May 2022.In the ridesharing business, managing the safety of drivers and riders is a key challenge for Uber that became paramount during the COVID-19 pandemic. The company's rapid growth and disruptive transportation services have significant social impacts that result in elevated scrutiny from regulators and public concerns. The displacement of traditional regulated taxi businesses and its adverse impact on millions of drivers employed in that industry have resulted in adverse publicity. Uber and its peers also face allegations of contributing to increasing traffic congestion and a decline in use of public transportation, and in the delivery business, of charging high fees for food delivery service to restaurants. Regulatory actions to address these concerns in certain markets have increased Uber's costs of providing services and impacted demand for its services. In addition, Uber's also faces risk of reputational harm from potential cybersecurity breaches as the company's information technology systems and those of its third-party technology services providers store personal data of millions of its consumers and business partners.Uber's environmental risk exposure is significant over the long term, mainly as a result of its high carbon transition risk. Uber's on-demand transportation platforms facilitated more than 6.3 billion Mobility and Delivery trips globally in 2021, and a growing number of freight shipments, primarily through fossil-fuel powered vehicles that are owned by third parties. The company has committed to zero emissions in its Mobility business by 2030 in the US and Europe, and in the remaining regions by 2040. As regulatory policies increasingly target carbon reduction goals, Moody's believes that the potential for higher costs to the company for providing its transportation services, increase in investments, or reduced supply of vehicles and drivers increase Uber's credit risks in the long-term.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade Uber's ratings if: (i) the company remains on a path toward generating free cash flow of more than 15% of total Moody's adjusted debt, (ii) increasing financial strength leads to growing flexibility relative to legal and regulatory risks, and, (iii) the company maintains balanced financial policies.Although not expected, Moody's could downgrade Uber's ratings if Moody's expects operating challenges, increase in debt, elevated regulatory risks or adverse outcome from legal proceedings will erode Uber's liquidity and it is unlikely to sustain free cash flow of 5% of total debt (Moody's adjusted).Uber Technologies, Inc., through its proprietary technology applications facilitates transportation services by connecting consumers with drivers in its Mobility and Delivery segments, and shippers with carriers in its Freight segment.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Raj Joshi VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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