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The bonds fell but remained above Friday's lows, suggesting that the growing threat to the future general manager of Elon Musk from the electric car maker has not yet changed his mind about the ability of the company to pay its debt.
According to MarketAxess, Tesla's 5.3% senior unsecured debenture, maturing in 2025, was close to 84.5 cents on the dollar on Friday, representing a return of approximately 8.3%.
The bonds traded around 87 cents on Thursday before the Securities and Exchange Commission filed a lawsuit in federal court alleging that Musk had misled his shareholders when he tweeted he had secured funds for an agreement privatization of Tesla. The SEC is seeking to prevent Mr. Musk from being an officer or director of a corporation. a US public company.
The bonds, which were issued in August 2017, reached their all-time low of 81.75 cents on Sept. 7, after the company's chief accountant left the firm and Musk appeared to be smoking marijuana at the time. an interview broadcast online.
A month ago, bonds traded at more than 90 cents. But they started falling shortly after Mr. Musk's infamous tweet, essentially explaining the likelihood of a situation similar to Thursday's.
Since its publication, Tesla's bonds have been penalized by the company's fragile finances and supported by its high stock market valuation, which has suggested that bond investors always raise funds by issuing shares if they have to meet their needs. urgent liquidity.
The SEC filed a lawsuit against Elon Musk for securities fraud following a tweet in August over the possible takeover of Tesla. The news is just the latest developments in a tumultuous year for the CEO. Photo Illustration: Heather Seidel / The Wall Street Journal
Tesla spent about $ 1 billion a quarter and finished the second quarter with $ 2.2 billion. If the share does not reach the conversion price of $ 560.64 and a convertible note of $ 920 million in March if the share does not reach $ 359.87, it will have to repay a convertible bond of $ 230 million. dollars. Stocks dropped about 11% early Friday to about $ 274.
At the current level, Tesla's bonds show "there is stress in history," said Hitin Anand, senior analyst at research firm CreditSights. Their returns, however, suggest a risk profile between a single credit rating of B and triple C, he said, and not a company facing an imminent liquidity crisis.
Tesla bondholders are barely out of the woods. Given the company's dependence on the valuation of its equities, bonds will certainly continue to deteriorate if equities continue to slide, according to investors and analysts.
The fact that some Tesla bond holders are hedge funds that have bet on the stock is potentially a source of food. If Tesla shares continue to fall, these investors could liquidate their positions and record their profits by selling bonds and buying back shares or by selling put options. This would require bonds to fall further, increase yields, and make it more difficult, or at least more expensive, to borrow Tesla in the future.
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