Tesla Seeks $1.5 Billion Junk Bonds Issue To Fund Model 3 Production (reuters.com)

As Tesla seeks fresh sources of cash to increase production of its new Model 3 sedan, the company announced on Monday that it would raise about $1.5 billion through its first-ever high-yield junk bond offering. "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," reports Reuters. From the report: 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 favorite 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 assigned a "B-1" 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 is 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. Meanwhile, Moody's assigned a junk "B3" rating to the bond issue and said the company's rating outlook was stable.

Comments

Re:So pre-orders aren't enough?

[thomst]

Rei observed:

Selling more convertible stock means more dilution. Selling bonds means that they want to hang onto their share in the company, and feel that paying interest after the plant is online is worth the benefit of not having to dilute.

Exactly so.

Junk bond status begins at BBB- rating. That doesn't mean they aren't a good investment. It merely means that they carriy greater risk than do "investment grade" bonds. What type of risk that consists of, and the degree of risk involved varies from bond issue to bond issue. Wikipedia's article on high-yield debt is fairly well-written, and it does a good job of explaining the basics. I recommend it to people who feel tempted to throw the term "junk bond" around without actually understanding what that actually means.

Elon haters are legion. Many of them are "car guys" who bet their reputations - and in some cases their shirts - that Tesla would fail before it ever sold a car. They resent Musk because he proved them wrong. Others are Washington beltway bandits who fear the disruptive effects of SpaceX's success on the defense industry gravy train, because it's their oxen that stand to be gored by it ...