Tesla Upsizes Junk Bond Offering After Excess Demand

There's covenant-lite and then there's "zero covenant" junk debt, and moments ago Tesla just sold $1.8 billion of the former, upsizing what was previously expected to be a $1.5 billion issue. The deeply junk "B3/B-" rated bond was priced at par to yield 5.25%, with Goldman - who famously slashed its Tesla price target to $180 a month ago - as lead left.  It was unclear how many times the offering was oversubscribed but one guess offered was "many."

The details from Bloomberg:

  • Issuer: Tesla Inc
  • $1.8b, up from $1.5b, 8NC3 sr notes
  • Launch: 5.25% (Talk 5.25%)
  • Maturity: 08/15/2025
  • Pricing at par
  • Trade date: Aug. 11
  • Settles Aug. 18
  • 144a for life
  • Rated B3/B-
  • Bookrunners: GS/MS/BARC/BofAML/C/DB/RBC
  • Proceeds to strengthen balance sheet and GCP

As for the reason why the bond is, as we call it, "zero covenant", Bloomberg explained two days ago that Tesla's biggest asset, its Gigafactory, has been carved out from the debt incumbrance basket, meaning when, not if, Musk needs to raise more debt, he can simply layer the just issued notes under the new debt offering that assures those who ran to give Musk $1.8 billion today get much less, if anything, back. Here's Bloomberg:

Valerie Potenza, the head of high-yield research at Xtract Research LLC, said "it’s a very lousy set of covenants." ... analysts combing through terms of the company’s plan to raise $1.5 billion with its debut offering in the junk-bond market [are] citing language that exempts Gigafactory 1 from the usual curbs that would prevent Tesla from using the factory as collateral for even more debt.


The result: Buyers of these unsecured, high-yield bonds could find themselves buried under a mountain of newer, higher-priority debt sold in the future.


"To carve out an asset, especially one that would be considered a very valuable asset, is a meaningful exclusion,” said Alexander Diaz-Matos, an analyst at Covenant Review. "That’s important, because that is considered the crown jewel in the Tesla empire."


The offering also contains permissive covenants normally granted to companies with much higher ratings, as well as redemption terms that favor the company, Diaz-Matos said.

Luckily, the Fed has not made everyone into an idiot just yet:

Mark Holman says he’ll pass. The chief executive officer of London-based TwentyFour Asset Management, which manages $13 billion, said Tesla will need to raise more debt because it’s burning so much cash, and it’s likely to layer on new secured bonds. At this early stage of expansion, a company like Tesla should be funded with equity, Holman said.


“No way am I buying it,” he said. “We are only at the very start of electric cars. Tomorrow, the German carmakers could all get together and fund a new type of battery. Where will Tesla be then?”

The answer, Mark, is raising even more debt, especially since at the current burn rate, today's proceeds will last Tesla about 3-6 months before it has to raise even more debt, slamming the 18 year old hedge fund managers who just couldn't wait to give Musk their money in exchange for a paltry 5.25% coupon.


Losingbear Fri, 08/11/2017 - 14:50 Permalink

sure when the Italian junk bonds are trading below US 10 year Treasuries, why not TSLA, at least they can own the company in the end while the imbecile equity holders are holding a big bag

knukles The Cooler King (not verified) Fri, 08/11/2017 - 15:18 Permalink

Here's my astute bond daddy analysis.A middling investment grade good credit 30 year muni with a 5% to 5.5% coupon's gonna be priced somewhere like $120.So that means that Elon's Dingleberrybond should be at least 20% under; taxes, higher risk, market segmentation, etcLike priced at $80How's that for apples and whatevers.CNN and MSNBC can pull worthless crap outta their butts and so can I and I am a professional, even though I didn't stay at a Holiday Inn bugXpress last night.I love meaningless analytics

In reply to by The Cooler King (not verified)

Anteater Fri, 08/11/2017 - 14:57 Permalink

Interpretation: He's run out of seller rebates by looting C-class deposits,and he's maxed out on 90-day APs, his suppliers have stopped shippinguntil he coughs up the junk in the trunk.Tesla is ASS.

highwaytoserfdom Fri, 08/11/2017 - 15:15 Permalink

Who does he think he is Milken baling out Volker?    https://www.sec.gov/Archives/edgar/data/1318605/000156459017015705/tsla… is a big Fother Mucker  of a joke right?    Elon #AlanBenFelon  buying your bonds like the guns had Abe buying ETF's     Gold  1295  silver 17.07  sept contract Man the people need to be impeached... You let your pensions 401 buy this junk..   wow yeild seek is like betting in 1:1 odds pay on single number roulette wheel..Comprehensive loss $(304,667,000)  three months ended June 30

FringeImaginigs Fri, 08/11/2017 - 15:12 Permalink

This is so funny and so very sad. To think that the state of capitalism has degenerated to dog and pony shows and carnival busking.  So the bankers mispriced the issue - proof that it was oversubscribed by "many" times. It could have been sold with a lower interest rate. Musk, are you pissed now?  Even in the slightest? And of course NO profits to ever pay it back. The fun continues for those of us who like to watch. For others, they will get severly burned someday. 

oncemore Fri, 08/11/2017 - 15:36 Permalink

Free B. Maddof poor Ken Lay.This is unheared off As for the reason why the bond is, as we call it, "zero covenant", Bloomberg explained two days ago that Tesla's biggest asset, its Gigafactory, has been carved out from the debt incumbrance basket, meaning when, not if, Musk needs to raise more debt, he can simply layer the just issued notes under the new debt offering that assures those who ran to give Musk $1.8 billion today get much less, if anything, back. Here's Bloomberg:.,

jmack Fri, 08/11/2017 - 16:12 Permalink

i guess we know someone that is going to be having a good time at burning man.     as to the article mentioning the german manufacturers inventing a new kind of battery and where that leaves tesla.  Most probably Tesla will be quite thankful that someone has developed the tech they claimed they were going to invent.  At least then it would be available for them to liscense.  

Rex Andrus Fri, 08/11/2017 - 16:37 Permalink

This junk is backed by the full faith and credit of Jerry Brown's syndicate that they can taxrape every US citizen as much as they want, whenever they want.

not dead yet Fri, 08/11/2017 - 17:37 Permalink

Maybe the Gigafactory is off the table because Tesla does not own it. Panasonic does. Wall Street is gaga over Musk and has done stupid things but when Musk went looking for money for this factory no one in IMHO would have given him a nickle unless there was a cosigner. As it is Panasonic has publically stated about the hundreds of millions in cash they put into the project. Panasonic is also managing the construction. Then there's the myth of Tesla's battery technology which in reality is all Panasonic. The free factory that New York state built for Solar City to make solar cells is being turned over to Panasonic, billed as venture of both Tesla and Panasonic, where they will produce Panasonics current product line of cells. Tesla, having no technology of it's own, getting credit for Pansonics technology. The Japanese are great for secret agreements and no doubt Panasonic has their ass covered in case Tesla bites the dust. No doubt the factory is off the table because they don't want those agreements revealed which would hurt the Tesla stock big time. Musk shouting from the rooftops of how Tesla is a technology company and will lead the world in tech, with many analysts buying the BS to jusify even higher stock price, but reality says it's just a user not an inventor.Except for an experimental production line Solar City does not makes it's cells. Musk conned the state of New York into building him a factory for free contingent on creating jobs. Now that the factory is done it's now called a venture of both Panasonic and Tesla using Panasonic tech and current product line. I'll bet this was the plan all along and they would have never gotten this free factory if Tesla was honest and said the deep pocket Japanese were involved.

Anopheles not dead yet Fri, 08/11/2017 - 19:51 Permalink

There's NOTHING special about Tesla's battery tech. They'rebuilding more of the most commonly produced lithium cell in the world the  18650 size 18mm diameterand 65mm long.  Their "new" size is the 21700, which is just a couple mm larger diameter and 5 mm longer.   Anyone in the world can make the new cells, same machines, just adjusted to make the batteries a little larger.And this is special, how?  

In reply to by not dead yet