In order to finance its expensive expansion and Model 3 production ramp-up, Tesla is reportedly raising over $500 million through debt backed by Model S and Model X leases.
And investors are tripping over themselves to subscribe to the deal, according to the report.
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The asset-backed bonds, which have yet to be officially announced by the company, are 14 times oversubscribed, according to Bloomberg.
The publication reported based on “people familiar with the matter”:
“Tesla has been marketing $546 million of bonds backed by leases of its Model X and Model S vehicles. It’s the company’s inaugural auto ABS deal after charming buyers in the equity, convertible bond and junk-debt markets. Tesla dangled juicy yields — as high as 2.9 percent over benchmarks on lower-rated portions of the debt — to lure investors. But the fact that it’s a well-known innovator with a charismatic chief and a hotly anticipated product didn’t hurt.”
The “innovator” is, of course, Tesla CEO Elon Musk.
If the deal is successful, the market expects that Tesla will use more asset-backed securities to raise more money and finance its many projects.
Tesla could either try to expand the size of the offering or reduce the yield due to the excessive demand.
We should have a better idea of Tesla’s plans to raise money by next week when the company releases its fourth-quarter and full year 2017 financial results on February 7.
On a side note, if I was someone shorting Tesla, I’d pay close attention to things like this, especially shorts based on the assumption that Tesla will go bankrupt because it will have to raise money in x number of quarters.
That’s based on the assumption that Tesla will not be able to raise more money, but I haven’t seen Elon Musk having any difficulty raising money over the last 5 years, and I don’t see any indication that it will change anytime soon.
The guy has detractors on Wall Street and they are fairly vocal, but I think overall he comes out on top in the world of finance. What do you think? Let us know in the comment section below.