10.08.2017

Tesla to raise $1.5 bn junk bonds to support Model 3 production

400Tesla is selling bonds to bolster its balance sheet and support spending on the Model 3 sedan. The company plans to offer $1.5 billion in senior unsecured notes due in 2025, according to a statement. Tesla said it intends to use the proceeds to produce its most affordable model and for general corporate purposes. It would be the company’s first sale of non-convertible bonds, according to data compiled by Bloomberg.

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.

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.

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 on March 31.

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.


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