Tesla Inc. (TSLA) completed its first ever traditional, non-convertible bond sale on Friday, raising $1.8 billion of much-needed cash. The bond auction went off without a hitch for Tesla and was an encouraging sign to Tesla bulls that bond investors are as optimistic about the company as shareholders.
The most encouraging news for Tesla investors was the bonds’ yield of just 5.3 percent, a record-low yield for U.S. corporate bonds with the same rating and maturity, according to Bloomberg. On Aug. 7, credit rating agency Moody’s rated Tesla bonds a B3, the lowest rating a bond in the “highly speculative” category can receive. Bonds rated in the speculative and highly speculative categories are considered non-investment grade, or “junk” bonds.
By comparison, Tesla rival Ford Motor Co. (F) recently auctioned bonds with a similar maturity at a yield of about 4 percent, according to FactSet. These bonds received a rating of Baa2 from Moody’s, seven levels higher than Tesla’s. These numbers suggest bond buyers still see legacy automakers Ford and General Motors Co. (GM) as much safer long-term bets.
Friday’s auction was the first time Tesla has sold non-convertible junk bonds. The company has previously raised cash by selling convertible bonds, which buyers may choose to convert to shares of Tesla common stock prior to maturity.
Bonds are lower-risk long-term investments than stocks, but Tesla’s successful auction demonstrates that a relatively risk-averse group of bond investors believes as much in Tesla’s long-term prospects as its shareholders.
While common stocks trade higher or lower based on market fluctuations, bond yields are guaranteed for investors as long as the company has the ability to pay them. That structure makes…
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