Tesla Bond Feeling 100: Hits Face Value for First Time Since 2017
January 08 2020 - 12:31PM
Dow Jones News
By Matt Wirz
Tesla Inc.'s $1.8 billion high-yield bond is trading at its full
face value for the first time since the electric-vehicle maker
issued the debt in 2017.
Crossing the 100-cents-on-the-dollar mark is a symbolic victory
for the company because the bond has traded poorly for years and
hit a low of 81 cents on the dollar in May, according to data from
MarketAxess.
The bond rally comes as prices of Tesla stock and convertible
debt rose to records, which some analysts said gives Chief
Executive Elon Musk a range of attractive funding options if he
chooses to raise new capital.
"The bottom line is he has everything open to him," said Eli
Pars, co-head of convertible bonds at Calamos Investments, which
owns Tesla convertible debt. "Most of the time, it would have been
hard to bring another high-yield deal."
Tesla's high-yield bond traded around 100 cents on the dollar
Wednesday morning and late Tuesday with a yield of about 5.3%, down
from a yield of approximately 9.5% when the bonds bottomed out in
late May. Bond yields fall as prices rise and investors require a
lower risk premium to own the debt.
The rally in the bonds tracks a surge in Tesla shares as the
company has hit targets to deliver new vehicles and expand into
Asian and European markets.
Bond investors have been taking comfort from the company's
ballooning stock valuation, analysts said. While most junk debt
with the same triple-C credit rating as Tesla's bond dropped in the
second half of 2018 amid concerns about rising defaults, the auto
maker's bonds climbed in line with a broad rally in U.S.
stocks.
Tesla expects to generate enough cash from operations to cover
capital expenditures and debt payments, but it may issue new
equity, convertible bonds or debt, the company said in an October
earnings report. Selling new stock would dilute existing
shareholders but avoid encumbering the car maker's balance sheet,
while issuing new bonds would increase its annual interest
expense.
Issuing new convertible bonds could strike a happy medium, Mr.
Pars said. The convertible bond Tesla sold at a 2% interest rate in
May has rallied about 60% since then and now trades around 167
cents on the dollar, according to data from MarketAxess. That
indicates Tesla could issue new convertible bonds at an interest
rate nearer to 1%, Mr. Pars said.
A spokesperson for Tesla couldn't immediately be reached for
comment.
U.S. Treasury yields rose Wednesday following strong employment
data after an initial drop from Tuesday's close spurred by
increased conflict in the Middle East. The yield on the benchmark
10-year note initially fell to around 1.770% from 1.825% Tuesday
but has since rebounded to about 1.820% after ADP's December jobs
figure came out stronger than expected.
The WSJ Dollar Index, which measures the U.S. currency against a
basket of 16 others, rose Wednesday to 90.15 from 90.04 on
Tuesday.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
January 08, 2020 12:16 ET (17:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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