Monday, August 21, 2017

Tesla’s Priced-for-Perfection Bonds Fall Within Week of Sale

From Bloomberg, Friday Aug. 18:
  • Company’s new debt issue traded below par almost immediately
  • Notes due in 2025 had sold at record low yield last Friday
Tesla Inc. bonds slid a week after they were sold, as excitement over Elon Musk’s ambitious rollout of the Model 3 was tempered amid geopolitical tensions and second thoughts among investors about how little they’re getting paid.

The company’s $1.8 billion of 5.3 percent notes due 2025 slipped below par almost immediately, trading as low as 97.4 cents on the dollar on Friday, according to data compiled by Bloomberg. The eight-year securities had priced a week ago at a record-low yield for a bond of its rating and maturity -- a touch higher than initial talk of 5.25 percent -- and Tesla had added $300 million to the offering to meet demand.

Musk had personally pitched investors for Tesla’s debut offering in the junk-bond market, ultimately drawing orders for about double the initial offering. The demand allowed the company to boost the size of the sale even as investors and analysts highlighted Tesla’s lack of profit and record cash burn.

“The way that it’s traded is showing that portions of the market just weren’t long-term holders at that price,” Gershon Distenfeld, director of credit at AllianceBernstein LP, said in an interview. “I own a Tesla, I love the product. But I think investors recognize that 5.3 percent was probably not the right price.”...MORE