Business & Investing
Sponsored by

TSLA

1,067 Views | 3 Replies | Last: 6 yr ago by SparkE
jamaggie06
How long do you want to ignore this user?
AG
I am not personasly well versed in finance. I am en engineer by education and occupation.

Tesla issued almost $2B in bonds recentky, and I read that they immediately began to trade below PAR.

Is that significant? What are the implications? Are institutions souring on TSLA?
SparkE
How long do you want to ignore this user?
The bonds were issued yielding 5.3% and had a B2 rating from Moody's; B2 corporates have a historical default rate of 30% or so. Tesla isn't profitable and burns through cash, so the near term default risk is high if they don't start converting hopes and dreams to cash flows. The market overpriced them at issue and corrected.
SparkE
How long do you want to ignore this user?
double
jamaggie06
How long do you want to ignore this user?
AG
I agree. However, are the incredibly favorable terms tesla received on the bonds (I believe I read these bonds had atypical covenants and were barely better than being an equity holder) an indicator of still favorable status from financial institutions?

To buy these bonds, you basically know you can only be repaid via furthef debt or equity issue and not real earnings or profit.

And I still wonder, with the stock as high as it was/is, why not issue additional equity? $2B against $60B? Not very dillutive, despite the fact the previous dilution has been rewarded with increased share price.

I'm just spitballing. Trying to see when the time may be right to take a short position.
SparkE
How long do you want to ignore this user?
jamaggie06 said:

I agree. However, are the incredibly favorable terms tesla received on the bonds (I believe I read these bonds had atypical covenants and were barely better than being an equity holder) an indicator of still favorable status from financial institutions?

To buy these bonds, you basically know you can only be repaid via furthef debt or equity issue and not real earnings or profit.

And I still wonder, with the stock as high as it was/is, why not issue additional equity? $2B against $60B? Not very dillutive, despite the fact the previous dilution has been rewarded with increased share price.

I'm just spitballing. Trying to see when the time may be right to take a short position.
1) I think the covenants (or lack thereof) are just a symptom of the bond bubble, and Tesla took advantage of that. I don't think they're indicative of the market having a favorable view of TSLA itself. Howard Marks has been commenting that yields are too skimpy and covenants too loose in the high yield market for a while now.

2) Why they issued debt is a fantastic question. Damodaran commented on it and said an equity dilution must have been taken off the table for some reason because the bond issue just didn't make sense. He went so far as to call the bond investors naive and Tesla imprudent.

3) Puts still look pricey and I don't know that I'd get the timing right, and I wouldn't straight up sell short with as irrationally as the stock behaves. There are worse companies that don't have cult followings to bet against IMO. If you do short, I'll be rooting for you
Refresh
Page 1 of 1
 
×
subscribe Verify your student status
See Subscription Benefits
Trial only available to users who have never subscribed or participated in a previous trial.