Carmageddon Sinks Tesla’s Bonds
Carmageddon Sinks Tesla’s Bonds by Wolf Richter for Wolf Street
Tesla is steeped in chaos – and chaos is absolutely the opposite what a complex manufacturing, distribution, and retail operation needs.
When bonds dive, it’s a bad sign. And Tesla’s bonds dove today to new all-time lows, and the yield spiked to new highs. In August 2017, Tesla sold $1.8 billion in senior unsecured notes due in August 2025, with a coupon rate of 5.3%. The most recent transaction at the moment that I see recorded by FINRA/Morningstar this afternoon was at 82.375 cents on the dollar. This is what these bonds have done in their lifetime:
Tesla’s shares are volatile and jump up and down. So they’ve been jumping down, down, down, leaving out the ups in between, as some long-term investors finally threw in the towel. They’re down 47% from their 52-week high last December, a big move in five months, when other stocks have rallied in a historic manner. However, at $205 at the moment, they’re still ridiculously overvalued, according to Tesla’s bonds.
The bonds tell a story of a company that is facing a considerable risk it might default on its debts. If this scenario comes about, it would trigger a restructuring of the company, possibly in bankruptcy court, where creditors would get most or all of the equity, and current shareholders would be mostly or totally wiped out. The bond market is now saying that this risk – the risk that existing shareholders might get wiped out in a restructuring – though still distant, is getting closer.
The yield on these notes due in August 2015 has shot up to 9.06% this afternoon, the highest ever (when the price of a bond falls, the yield rises):
Standard and Poor’s rates these notes a B-. Moody’s recently downgraded them to Caa1, one notch below S&P’s rating. Both ratings are deep junk (here is my cheat sheet on the corporate bond rating scales by S&P, Moody’s, and Fitch and what they mean in painfully plain English). Moody’s Caa1 means “substantial risk” of a default.