Bond investors give Tesla a $1.8-billion endorsement
Bond investors on Friday gave a $1.8 billion boost to Tesla’s balance sheet by snapping up the electric car maker’s first foray into the US junk bond market, where yield-hungry investors have raced to lock in relatively higher returns.
Those robust returns, however, have shrunk as a strong reservoir of cash ready to deploy in the riskiest areas of the high-yield fixed income market has pushed them to near their lowest levels in three years. That has given junk-rated issuers such as Elon Musk’s US car company the opportunity to raise cash cheaply.
Tesla sold $1.8 billion of eight-year unsecured bonds at a yield of 5.30 per cent, the Palo Alto, California-based company said in a filing with the Securities and Exchange Commission.
The bond was sold at par, according to a source familiar with the transaction, who requested anonymity because the detail was not publicly disclosed.
Tesla initially wanted to sell $1.5 billion worth of debt but enlarged the offering because of overwhelming demand, according to IFR, a Thomson Reuters unit. The yield was slightly higher than the 5.25 per cent cited at the initial launch.
Cash proceeds will help finance production of Tesla’s Model 3, which it is banking on to hit the mass market bullseye and finally help the company turn a profit. Tesla aims to boost production to 500,000 cars next year, about six times its 2016 output.
“It’s a milestone for a company from a relative unknown to what it is today,” said David Knutson, head of credit research at Schroders Investment Management. The company, founded by Musk in 2003, has plowed revenues back into its businesses, which now include energy storage.
At the launch of the Model 3, with a base price of $35,000, Musk warned that Tesla would face months of “manufacturing hell” as it increases production of the sedan.