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Tesla seeks $1.5 bln junk bonds issue to fund Model 3 production

Markets2017-08-08

Tesla said on Monday it would raise about 1.5 billion US dollars through its first-ever high-yield junk bond offering, as the US luxury electric car maker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.The debt offering marks Tesla's debut in the junk-bond market and the company will start roadshows on Monday, IFR reported, citing lead bankers on the deal.(The first 30 Tesla Model 3 cars are handed over to employee buyers at the company’s Fremont facility in California, US, July 28, 2017. /CFP Photo‍)Tesla has been riding high on investor expectations that its Model 3 will be a mass-market hit, with shareholders pushing its market value above that of General Motors Co and Ford Motor Co, the top two US automakers that produce millions of cars annually.But Tesla has yet to make an annual profit and its stock is a favorite among short-sellers who continue to bet Tesla will fall short of its shareholders' high hopes.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 US dollars 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.(A Tesla electric car pulls into a supercharger station in north China's Tianjin Municipality, Jan. 24, 2015. /Xinhua Photo)"We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns," S&P said in a statement on the bonds.Moody's assigned a junk "B3" rating to the bond issue and said the company's rating outlook was stable."The major challenge facing the company during the next 12 months will largely be the considerable execution risks associated with the rapid ramp-up in production of a totally new vehicle," Moody's Senior Vice President Bruce Clark said in a statement.The automaker's debt load increased significantly last year when it bought solar panel maker SolarCity. CFRA equity analyst Efraim Levy said the bonds provide Tesla with funds "at least into mid-2018.""There is a risk they could still run out of money," he said. "Then you’d go back to the equity markets and hope it’s not too late" to raise more money.

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Tesla said on Monday it would raise about 1.5 billion US dollars through its first-ever high-yield junk bond offering, as the US luxury electric car maker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.

The debt offering marks Tesla's debut in the junk-bond market and the company will start roadshows on Monday, IFR reported, citing lead bankers on the deal.

(The first 30 Tesla Model 3 cars are handed over to employee buyers at the company’s Fremont facility in California, US, July 28, 2017. /CFP Photo‍)

Tesla has been riding high on investor expectations that its Model 3 will be a mass-market hit, with shareholders pushing its market value above that of General Motors Co and Ford Motor Co, the top two US automakers that produce millions of cars annually.

But Tesla has yet to make an annual profit and its stock is a favorite among short-sellers who continue to bet Tesla will fall short of its shareholders' high hopes.

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 US dollars 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.

(A Tesla electric car pulls into a supercharger station in north China's Tianjin Municipality, Jan. 24, 2015. /Xinhua Photo)

"We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns," S&P said in a statement on the bonds.

Moody's assigned a junk "B3" rating to the bond issue and said the company's rating outlook was stable.

"The major challenge facing the company during the next 12 months will largely be the considerable execution risks associated with the rapid ramp-up in production of a totally new vehicle," Moody's Senior Vice President Bruce Clark said in a statement.

The automaker's debt load increased significantly last year when it bought solar panel maker SolarCity. CFRA equity analyst Efraim Levy said the bonds provide Tesla with funds "at least into mid-2018."

"There is a risk they could still run out of money," he said. "Then you’d go back to the equity markets and hope it’s not too late" to raise more money.

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