Telsa Inc., after reporting a surprising second-quarter profit, plans to raise $ 779.53 million this week in the asset-backed bond market.
The Palo Alto, California-based electric vehicle maker is offering eight classes of bonds to investors maturing in 2.7 years or less and most of which have the best AAA ratings from Moody’s Investors Service.
It is the company’s first debt deal of the year, after similarly raising funds once last year and twice in 2018, according to Moody’s data.
But it will also be Tesla’s TSLA,
first asset-backed bond sale during the global pandemic, which has Americans in the midst of a deep economic downturn caused by restrictions on social distancing and other orders designed to limit the spread of contagion.
Leases for Tesla’s Model S sedans and Model X SUVs make up half the guarantee for the bail agreement, and those for comparatively less expensive Model 3 sedans comprise roughly the rest, according to Moody’s.
During the last major crisis, American consumers shocked lenders by prioritizing their car payments over their home mortgages, resulting in fewer credit issues on vehicle-backed bonds during that cycle, but in their A wave of foreclosures took place. That fact can help bolster demand for Tesla debt.
Meanwhile, Tesla’s assets have been coveted amid the pandemic that has rocked most other industries.
Last week, Tesla surprised investors by reporting earnings of $ 104 million, or 50 cents a share, in the second quarter, in contrast to a loss of $ 408 million, or $ 2.31 per share, in the prior-year quarter. .
Tesla shares soared 8.7% on Monday, raising shares 268% on the year, as high-flying tech stocks led to major U.S. equity benchmarks.
even as policymakers in Washington argued over the next round of pandemic aid, and infections stemming from the new strain of coronavirus gained strength.
Related: Here are 5 reasons why the pandemic has not collapsed the US housing market.
In terms of prices, the largest 1.1-year portion of the AAA-rated Tesla bond deal is being offered to investors with an extension of about 50 to 55 basis points above a risk-free benchmark, according to an investor who tracks the offer.
Prices may change, depending on the demand for the bonds, but current levels would indicate a significant differential premium of about 40 basis points on generic 3-year car lease bonds last week, according to data from BofA Global.
Spreads are the level of compensation investors get from the bonds on a risk-free benchmark like US Treasurys TMUBMUSD10Y,
with wider spreads that often point to higher default risk.
Tesla did not immediately respond to a request for comment.
Moody’s said the economic impact of the “rapid spread” of the coronavirus pandemic and related government closings were considered in its analysts by the new Tesla bond sale, which comes with larger credit buffers to help protect the bonds. of losses than the previous ones.
However, Moody’s also said the gradual economic recovery it expects to see in the second half of the year “depends on whether governments can reopen their economies while safeguarding public health and preventing a further increase in infections.”
Dr. Deborah Birx, lead coordinator of the White House Task Force created to oversee the response to the pandemic, urged Kentucky and other states battling growing infections on Monday to reimpose bar closures and limit meetings under ceiling.
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