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.

This post was published at Zero Hedge on Aug 11, 2017.