Tesla sells US$1.8B of bonds to finance Model 3

Tesla Inc. increased its debut bond deal to US$1.8 billion as it seeks to finance production of the Model 3 that the electriccar maker has staked its future on.

The eight-year bonds will have a yield of 5.3 per cent, above initial talk of 5.25 per cent, according to a person with knowledge of the matter, who asked not to be identified because the sale is private. Elon Musk’s company boosted its offering from the original US$1.5 billion.

“Take it when you can,” said Hitin Anand, an analyst at CreditSights. “It made sense for Tesla — what they really need is a lot of cash.”

The 5.3 per cent coupon is a record low for a bond of its rating and maturity, according to data compiled by Bloomberg.

Musk brought his charm offensive to the debt market at a meeting for prospective bond buyers in Manhattan earlier this week. He walked away with orders for US$600 million after just a few hours, according to investors briefed on the matter. The session, which featured a gleaming blue Model 3 on display, was part of a four-day debt-marketing extravaganza, which included an invitation to tour the firm’s assembly plant.

The tactics worked, as noteholders proved willing to overlook the company’s negative cash flow and its repeated trips to capital markets to bolster its balance sheet.

The debt offering, Tesla’s first of non-convertible bonds, represents the latest sign of froth in the highyield market, where investors have been turning a blind eye to bondmarket basics in search of yield.

People at the Manhattan meeting with Musk this week estimated the company could wind up paying no more than five per cent on the junk-rated bonds. The Bloomberg Barclays High Yield Index closed at a five-week high of 5.71 per cent on Thursday, amid escalating tension in the Korean Peninsula.