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

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 TianjinMunicipality, 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.