Bond investors on Friday were poised to give a $ 1.8 billion boost to Tesla’s balance sheet by snapping up the electric car maker’s first foray into the U.S. junk bond market, where yield-hungry investors have raced to lock in relatively higher returns.
Those robust returns, however, have shrunk as a strong reservoir of cash ready to deploy in the riskiest areas of the high-yield fixed income market has pushed them to near their lowest levels in three years. That’s given junk-rated issuers such as Elon Musk’s U.S. car company the opportunity to raise cash cheaply.
For Tesla, cash raised from the bond issue will help finance production of its Model 3, on which it is banking to hit the mass market bullseye.
“It’s a milestone for a company from a relative unknown to what it is today,” said David Knutson, head of credit research at Schroders Investment Management.
Tesla was set to sell $ 1.8 billion of eight-year unsecured bonds at a yield of 5.25 percent, more than the $ 1.5 billion originally intended because of overwhelming demand, according to IFR, a Thomson Reuters unit.
Tesla, founded by Musk in 2003, has yet to book a profit. Musk has plowed revenues back into his businesses, where he has expanded into energy storage.
Despite lingering skepticism, there has been no shortage of funds to fuel Tesla’s ambition to popularize electric cars. Investors who jumped on the bandwagon have been rewarded.
Tesla has raised $ 3.3 billion in convertible bonds, which have performed well, in step with its stock. The stock ended up 0.7 percent at $ 357.72 on Friday, a near 1,400 percent increase since its debut in June 2010 at $ 17 a share.
Reporting By Richard Leong. Additional reporting by Nick Carey in Detroit; John Balassi, Paul Kilby and Will Caiger-Smith at IFR
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