Tesla seeks $1.5 billion junk bonds issue to fund Model 3 production

By Nick Carey

DETROIT (Reuters) – Tesla Inc said on Monday it would raise about $1.5 billion through its first-ever high-yield junk bond offering, as the U.S. luxury electric car maker 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 road-shows 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 Co and Ford Motor Co , the top two U.S. automakers 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 $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. S&P also maintained its “B-” long-term corporate credit rating on Tesla.

“We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns,” S&P said in a statement on the bonds.

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.

“The major challenge facing the company during the next twelve months will largely be the considerable execution risks associated with the rapid ramp-up in production of a totally new vehicle,” Mood’s senior vice president Bruce Clark said in a statement.

The automaker’s debt load increased significantly last year when it bought solar panel maker SolarCity.

CFRA equity analyst Efraim Levy said the bonds provide Tesla with funds “at least into mid-2018.”

“There is a risk they could still run out of money,” he said. “Then you’d go back to the equity markets and hope it’s not too late” to raise…

Read the full article from the Source…

Leave a Reply

Your email address will not be published. Required fields are marked *