Uber's Sub-Prime Auto-Leasing Business Gets $1 Billion Credit Facility: What It Means

For almost a year now, Uber has been offering short-term car leases for car-less people interested in becoming drivers for the ride hailing company. Xchange Leasing, LLC, a Uber subsidiary, usually partners up with auto dealerships, but takes care of advertising, risk management and even repossession, when needed, and might be one of the main elements behind the app’s continued expansion in the U.S. and international markets.

Interestingly, Uber recently disclosed that, through Xchange and other financing and discount programs, it plans to incorporate more than 100K drivers to its team, a Bloomberg article explained, adding that this would probably require “dipping into the vast pool of people with bad or no credit.” In fact, Xchange already offers leases to people who have been rejected by other creditors. However, it should be noted, some auto-finance experts have classified the monthly payments they charge as excessive, even “predatory.” However, the company has argued that Xchange is not meant to make money, but to help drivers get on the streets.

Somewhat ignoring the risks of offering sub-price car leases, Goldman Sachs Group Inc GS and other large financial institutions gave Xchange access to a $1 billion credit facility to fund new car leases, people familiar with the matter told Bloomberg.

What’s interesting about Xchange's new credit facility is that a considerable portion of the financial risk will be transferred to Goldman Sachs, Citigroup Inc C, Deutsche Bank AG (USA) DB’s New York branch,

will transfer much of the financial risk from Xchange to the banks who are participating in the deal. Besides Goldman Sachs, that includes Citigroup, JPMorgan Chase & Co. JPM, Morgan Stanley MS and SunTrust, among other banks, sources have assured. While the terms of the deal have not been disclosed yet, "the banks' profit is limited to their returns on the loan to Xchange, not the performance of the leases,” Bloomberg’s Eric Newcomer and Olivia Zaleski concluded.

 

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Posted In: NewsFinancingTechSunTrustUber
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