Tesla to ride on junk bid
TESLA Inc says it would raise about $US1.5 billion ($A1.9 billion) through its first-ever high-yield junk bond offering, as the US luxury electric carmaker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.
The debt offering marks Tesla’s debut in the junk-bond market and the company will start roadshows on Monday, IFR reported, citing lead bankers on the deal.
Tesla has been riding high on investor expectations that its Model 3 will be a mass-market hit, with shareholders pushing its market value above that of General Motors and Ford, the top two US carmakers that produce millions of cars each annually.
But Tesla has yet to make an annual profit and its stock is a favourite among short-sellers, who continue to bet Tesla will fall short of its shareholders’ high hopes.
So far, Tesla has been raising money to pay its bills with a combination of equity offerings and convertible bonds, which eventually convert into shares. In March, the company raised $US1.4 billion through a convertible debt offering.
Following the announcement, Standard & Poor’s reaffirmed its negative outlook for the carmaker and assigned a “B-” rating for the bond issue — deep into junk credit territory. S&P also maintained its “B-” long-term corporate credit rating on Tesla.
Moody’s assigned a junk “B3” rating to the bond issue and said the company’s rating outlook was stable.
The rating agency said the overall company’s “B2” rating was supported by the fact that if Tesla ends up in serious financial trouble, its brand name, products and physical assets would be of “considerable value” to other automakers.
S&P Capital senior equity analyst Efraim Levy said the bonds provide Tesla with funds “at least into mid-2018”.
Elon Musk-led Tesla is counting on the Model 3, its least pricey car, to become a profitable, mass market manufacturer of electric cars.
Tesla said last week that it had 455,000 net pre-orders for the Model 3, which has a $US35,000 base price, and that the sedan was averaging 1800 reservations per day since it launched late last month.