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

0 views
Skip to first unread message

Leroy N. Soetoro

unread,
Aug 9, 2017, 6:41:23 PM8/9/17
to
https://www.reuters.com/article/us-tesla-offering-idUSKBN1AN13I

DETROIT (Reuters) - Tesla Inc (TSLA.O) 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 (GM.N) and Ford Motor Co (F.N), 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 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 more
money.

BURNING CASH

The latest effective yield on single-B rated bonds maturing in seven to
eight years, the class for a Tesla issue, is around 5.5 percent, according
to Bank of America/Merrill Lynch Fixed Income Index data.

Tesla’s bond will price later this week after several days of meetings
with credit investors, who will weigh factors including the absence of a
borrowing history, its lack of profit and its high cash-burn rate against
its growth potential and its attractiveness as an environmentally-friendly
“green” issuer.

Ultimately, the depth of investor interest will determine the bond's
interest rate.

Elon Musk-led Tesla is counting on the Model 3, its least pricey car, to
become a profitable, mass market manufacturer of electric cars.

Tesla said last week that it had 455,000 net pre-orders for the Model 3,
which has a $35,000 base price, and that the sedan was averaging 1,800
reservations per day since it launched late last month.

At the launch, Musk, however, warned that Tesla would face months of
"manufacturing hell" as it increases production of the sedan.

Tesla had over $3 billion in cash on hand at the end of the June quarter,
compared with $4 billion as of the previous quarter and $3.25 billion a
year earlier.

The company has said it expects capital expenditures of $2 billion in the
second half of this year to boost production at its Fremont, California
assembly plant and a battery plant in Reno, Nevada.

Tesla's cash burn has prompted short-sellers like Greenlight Capital's
David Einhorn to bet against the Palo Alto, California company.

Musk said last week the company was considering debt to expand cash on
hand.

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.

Shares of Tesla, which have risen 67 percent this year, were down 9 cents
at $356.82.


--
Donald J. Trump, 304 electoral votes to 227, defeated compulsive liar in
denial Hillary Rodham Clinton on December 19th, 2016. The clown car
parade of the democrat party has run out of gas.

Congratulations President Trump. Thank you for ending the disaster of the
Obama presidency.

Under Barack Obama's leadership, the United States of America became the
The World According To Garp.

ObamaCare is a total 100% failure and no lie that can be put forth by its
supporters can dispute that.

Obama jobs, the result of ObamaCare. 12-15 working hours a week at minimum
wage, no benefits and the primary revenue stream for ObamaCare. It can't
be funded with money people don't have, yet liberals lie about how great
it is.

Obama increased total debt from $10 trillion to $20 trillion in the eight
years he was in office, and sold out heterosexuals for Hollywood queer
liberal democrat donors.
Reply all
Reply to author
Forward
0 new messages