Tesla will channel the fund to ramp up the production of the Model 3 by nearly 6 times their current levels.
Tesla’s Balance sheet got a boost when yield-hungry investors snapped up Tesla’s $1.8 billion junk bond, as they raced to lock in relatively higher returns.
Robust returns in the junk bond market have however shrunk a strong reservoir of ready to deploy cash in the riskiest areas of the high-yield fixed income market. This has given junk-rated issuers, such as Tesla, an opportunity to raise cash cheaply.
According to a filing with the SEC, the Palo Alto, California, based carmaker sold $1.8 billion of eight-year unsecured bonds at a interest rate of 5.30%.
According to a source familiar with the deal who spoke on the condition of anonymity, the bond was sold at par.
According to IFR, initially Tesla wanted to sell $1.5 billion worth of debt, it however enlarged the offering due to overwhelming demand. In fact, the bond’s yield was slightly higher than the 5.25% cited at the initial launch.
Tesla hope to channel this cash proceed to finance the production of its Model 3. The future of the company banks on to success of the Model 3 which could help turn the tide and enable Tesla to make a profit.
Tesla is aiming to boost production to 500,000 cars next year, nearly six times its 2016 output levels
“It’s a milestone for a company from a relative unknown to what it is today,” said David Knutson, head of credit research at Schroders Investment Management.
Founded in 2003 by Musk, Tesla has plowed revenues back into its businesses, which now includes solar and energy storage.
During the launch of the Model 3, which has a base price of just $35,000, Musk had warned that Tesla would face months of “manufacturing hell” as it ramps up the production levels of this sedan.
Standard & Poor’s have assigned a B-minus on Tesla’s junk bond issue while Moody’s Investors Service gave it a B3 rating.
“I won’t call it a bubble,” said Andrew Feltus, co-head of high yield and bank loans at Amundi Pioneer Asset Management in Boston. “The (market) fundamentals are pretty good.”
Despite a wave of skepticism, there has been no shortage of funds to fuel Tesla’s growth to popularize electric cars. Importantly, investors who have sided on this bandwagon have been rewarded.
Tesla has raised $3.3 billion in convertible bonds, which have performed well, in step with its stock.
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