Tesla seeks US$1.5 bln junk bond issue to fund Model 3 production
DETROIT: Tesla Inc said it would raise about US$1.5 billion through its first-ever offering of junk bonds as the US luxury electric car maker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.
The move to issue junk bonds – lower-quality investments that offer higher yields – represents a bet by Tesla chief executive Elon Musk that bond investors will be as hungry as stock investors to back the company on expectations that its Model 3 will be a hit.
Tesla shares are up 67 per cent this year, pushing the company’s market value to about US$60 billion, above that of top US automakers General Motors Co and Ford Motor Co , even though Tesla has yet to make an annual profit.
“Bond investors, who typically don’t love companies that don’t make money, will be far more forgiving when it comes to Tesla,” said bond expert Robbie Goffin, managing director of FTI Consulting, citing the company’s stellar stock market value.
Tesla was to start pitching potential investors on Monday, IFR reported, citing lead bankers on the deal.
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 US$1.4 billion through a convertible debt offering.
Following the announcement, Standard & Poor’s reaffirmed its negative outlook for the automaker and assigned a “B-” rating for the bond issue – deep into junk credit territory. — Reuters