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Tesla Plans To Issue $1.5B In Junk Bonds To Ramp Up Model 3 Production


Tesla’s newest stunt to raise capital for the production of Model 3 will lead it to issue $1.5 billion in high-yield junk bonds, according to a new report by Reuters.

Road-shows for the much-awaited vehicle are due to begin on Monday, an official IFR report said.

The Model 3, Tesla’s $35,000 mass market electric car, is expected to be an international success. Anticipation of its release has buttressed the company’s market value to above that of American manufacturers General Motors and Ford.

Equity offerings and convertible jobs have been Tesla’s primary source of new capital so far, but that strategy had an expiry date. Expendable equity characteristically runs out.

The bond issue earned a “B-“ rating from Standard & Poor’s – identical to the company’s credit rating from the same agency.

“We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns," S&P said in a statement after the bonds were announced.

Moody’s rated the bonds B3, without adjusting the corporate credit rating.

"The major challenge facing the company during the next twelve months will largely be the considerable execution risks associated with the rapid ramp-up in production of a totally new vehicle," the agency’s senior vice president Bruce Clark said in a statement.

Related: Is The Shale Rebound Causing A Return Of Flaring?

Credit investors are due to price Tesla’s bonds later this week based on financial statements and borrowing history. The issue will attract environmentally conscious investors who have boarded the “green bond” train.

The first of 500,000 model 3 deliveries are slated for some time between November 2017 and January 2018, according to estimates from late last month. Tesla handed over 30 Model 3 cars to employees in July.

By Zainab Calcuttawala for Oilprice.com

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