Articles
March 12, 2025
Lyft’s Winning Convertible Strategy: An Advisor Steers the Deal
# Capital Markets
# People and Talent
Lyft CFO Erin Brewer on the benefits of hiring Matthews South to advise on a $460 million convertible bond deal.
Lyft CFO Erin Brewer recently described to NeuGroup members attending a virtual session the benefits of engaging a capital markets advisor, Matthews South, to help navigate decisions, strategy and bank negotiations to structure, schedule and execute a $460 million 5-year convertible bond deal in 2024 to refinance about half of an existing convertible coming due in 2025.
- The multistep Lyft transaction designed by Matthews South also included the purchase of a capped call to minimize potential dilution; a share repurchase to mitigate stock price pressure during execution; and the amendment of Lyft’s existing credit facility to ensure future financial flexibility.
- “The Matthews South team acted as a quarterback for the whole process, soup to nuts,” Ms. Brewer said during a discussion with Vijay Culas, the firm’s founder and CEO. “Making sure everything was on track and coordinating every piece of the work stream was being handled correctly. That was essential.”
- She added, “It’s not only advising me and playing quarterback, but it’s the expertise on documentation which made it easier on our accounting and legal teams to really streamline the workload that they had to carry as well.”
Lyft CFO Erin Brewer
Refinancing and the revolver. Ms. Brewer, named Lyft CFO in May 2023, contacted and ultimately engaged Matthews South in the fall of that year on the advice of the chairman of the company’s audit committee as she and David Risher, named CEO in March, restructured the company after a tumultuous period. At the time, the consensus of Lyft’s banking group was to refinance the entire convertible without delay. “I was not convinced of that,” Ms. Brewer said.
- Nor, it turned out, was Matthews South. It conducted a thorough review of the company’s business model and worked with Ms. Brewer and the FP&A team to understand the company’s capital structure, liquidity needs and long-range plan. Making matters more challenging, Lyft at the time did not have a treasurer (it does now).
- “Our recommendation in the fall of 2023 was to say that we don’t see any need to rush to do a refinancing, especially because Lyft just announced a great Q3 and Q4 is shaping up to be good,” Mr. Culas said. Instead, Mathews South wanted to let stock investors react to Lyft’s solid performance before refinancing the convertible.
- “We said if there’s anything we would do now,” he added, “it was ‘let’s see if we can fix the revolver to be more advantageous for the company to create more accessible rainy day insurance if we needed it.’”
A fix: credit for cash. Lyft and Matthews South wanted the banks in the revolver group to give the company credit for more than $1 billion of cash on its balance sheet. That required changing the calculation of debt in a covenant that restricts drawing on a revolver unless the corporate’s debt to EBITDA ratio is below a certain threshold.
- Switching from a so-called gross leverage ratio to net leverage would allow Lyft to net some cash against the debt, making it easier to draw down funds. Matthews South helped frame the question for the banks in Lyft’s revolver that had to decide whether to agree to the amendment, Mr. Culas explained.
- “We made it an open-ended question to the bank group: How many of you are buying into this new management team and what they’re trying to do? And that’ll come out in your support for this amendment or not, because the amendment makes all the sense in the world if you think that there’s a new Lyft and a new trajectory.
- “To us, the fundamental question was have we hit a new inflection point? Is this a new Lyft and should capital structure and corporate finance advice reflect that?”
Gauging support for the vision. The exercise helped reveal which banks shared the view that the company was on an upward trajectory. And it was those banks that received prominent roles in the convertible offering that took place, Mr. Culas said. “The process that we ran for Erin was really like telling the banks we’re going to do this convertible financing; it’s not as big as you want, but it’s still a financing.
- “Your support of this amendment is an important part of how the company’s going think about roles for new transactions. That’s where we saw a difference in how the banks responded. Ultimately, the ones that had the more front-facing roles in transactions were the ones who bought in.”
- Ms. Brewer acknowledged the “tricky” aspects of needing to preserve valued banking relationships and the benefit of Matthews South’s credibility in negotiating on Lyft’s behalf with banks that were not initially disposed to the changes the company wanted.
- Lyft issued the convertible in February 2024 at the low end of the coupon range, 0.625%, and the high end of the premium range, 32.5%, which determines the price where the stock must trade for an investor to convert the bond into shares. Lyft stock declined just 1.4% the day of the transaction, which Mr. Culas described as a “rounding error.”
Fresh eyes, no skin. Looking back at the successful, multifaceted transaction, Ms. Brewer underscored the value of having an independent advisor that won her trust by doing a deep dive to gain a “truly holistic” view of the company’s finances and outlook. She said she prized “having a team that could come in with fresh set of eyes with no particular skin in the game helping lay out various scenarios based on a range of assumptions on capital structure.”
- In addition, she said, Matthews South brought in “the perspective of other types of financing that should be looked at in this broader portfolio; and other terms on the revolving credit facility, that depending on your point of view on the forward path of the company, needed to be changed or could be more beneficial overall.
- “It was also helpful to me to know that, just to put it bluntly, the way you were going make money advising us wasn’t dependent on pushing for a particular outcome,” she told Mr. Culas.
- The transaction marked the first time Ms. Brewer had worked on a convertible, whose moving parts included evaluating the company’s stock price under various scenarios and determining the size of the deal. “Being able to understand and stare at some of those trade-offs was incredibly helpful, to begin wrapping my mind and then broader collective minds in the company, around narrowing down on a range of options,” she said.
The growing role of advisors. Perhaps because Lyft had not traditionally used outside advisors extensively, some banks did not expect the company to hire Matthews South. However, Mr. Culas said advisors are used on about half the convertible deals today, far more than in the past when banks were more resistant.
- NeuGroup senior executive advisor Paul Dalle Molle noted that in a prior session on convertibles, each of five member companies issuing convertibles recommended using a financial advisor “based on complexity of the instrument, the hedging, but especially managing the many internal voices who have opinions about stock prices, issuance levels and hedging levels.”
- Mr. Culas summed up the sentiment about advisors this way: “I think lots of clients feel the way that Erin did, which is that it can be a real needle mover—in a somewhat opaque product that’s complicated—to have an expert that’s sitting at your side of the table.”
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