Tesla said on Monday it would raise about $1.5 billion (€1.27bn) 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.
So far, Tesla has been raising money through 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 automaker’s debt load increased significantly last year when it bought solar panel maker SolarCity.
Bond price
The effective yield on seven to eight year single B rated bond, the class for a Tesla issue, is 5.5 per cent, according to Bank of America Merrill Lynch. However, the Tesla bond price has not been set and factors including its lack of borrowing history and its attractiveness as an environmentally friendly “green” issuer could affect the interest rate the car company has to pay.
Elon Musk-led Tesla is counting on the Model 3, its least pricey car, to become a profitable, mass market manufacturer of electric cars.
Pre-orders for the Model 3, which has a $35,000 base price, have surpassed half a million, averaging about 1,800 a day since its launch late last month.
Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and RBC are the book-runners on the bond offering, IFR reported. – (Reuters)
