Tesla Bond Investors Sit Back, Enjoy the Ride
January 29 2020 - 7:47AM
Dow Jones News
By Julia-Ambra Verlaine
Tesla Inc. stock has soared, pushing the company's market value
over $100 billion. Its bonds, however, are a whole lot calmer.
Tesla's bond maturing in 2025 traded recently at 99.50 cents on
the dollar, little changed from 97 cents since the start of the
year. Shares have risen over 35% in that time and some analysts are
saying the stock could hit $600 -- up from Tuesday's close of
$566.90. Investors will get another look at the company's prospects
Wednesday when it reports earnings after the market close.
Behind the relative quiet: bond investors tend to care less
about the company's long-term growth prospects than what happens to
its roughly $10 billion of debt if it defaults or declares
bankruptcy. That leaves them digging into cash flows to understand
how even a crippled Tesla could raise cash, keep the lights on and
repay creditors.
Most bond investors and analysts believe they would receive full
repayment on the electric-car maker's debt even in a
bankruptcy.
Even if Tesla were to go bust, a last-resort buyer would likely
buy the company for at least $10 billion, several investors said.
The company has numerous assets that would appeal to other auto
makers, they said, including a factory in Nevada, intellectual
property, the Tesla brand and the company's lead in battery
technology.
Common shareholders, on the other hand, are last in line to be
compensated, after holders of all other debt and equity
securities.
When the stock traded down in 2019 toward a low point, below
$200, Tesla's $1.8 billion of high-yield bonds issued in 2017
remained relatively stable. They bottomed out to 81 cents on the
dollar in May before trading at face value for the first time
earlier this month, according to data from FactSet.
Some hedge funds that were betting against Tesla bonds,
expecting the company to default on the debt, gave up during that
period. And those optimistic about the company's prospects used the
dip to build up existing positions, according to analysts and
traders.
Compared with other high-yield issues in the auto sector,
Tesla's debt struck many as being cheap, attracting investors
toward the end of 2019. Investing giants such as Invesco Ltd. and
Lord Abbett & Co., own Tesla bonds, according to Bloomberg
data.
Write to Julia-Ambra Verlaine at Julia.Verlaine@wsj.com
(END) Dow Jones Newswires
January 29, 2020 07:32 ET (12:32 GMT)
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