Tesla Bond Investors Sit Back, Enjoy the Ride - The Wall Street Journal

Most bond investors and analysts believe they would receive full repayment on Tesla’s roughly $10... — Most bond investors and analysts believe they would receive full repayment on Tesla’s roughly $10 billion of debt even in a bankruptcy. Above, Tesla’s chief executive, Elon Musk, at the company’s design studio in Hawthorne, Calif. Photo: Ringo H.W. Chiu/Associated Press

Julia-Ambra Verlaine

The Wall Street Journal

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@JAVerlaine
julia.verlaine@wsj.com

Jan. 29, 2020 7:17 am ET

Tesla Inc. stock has soared, pushing the company’s market value over $100 billion. Its bonds, however, are a whole lot calmer.

Tesla’s bond maturing in 2025 traded recently at 99.50 cents on the dollar, little changed from 97 cents since the start of the year. Shares have risen over 35% in that time and some analysts are saying the stock could hit $600—up from Tuesday’s close of $566.90. Investors will get another look at the company’s prospects Wednesday when it reports earnings after the market close.

Behind the relative quiet: bond investors tend to care less about the company’s long-term growth prospects than what happens to its roughly $10 billion of debt if it defaults or declares bankruptcy. That leaves them digging into cash flows to understand how even a crippled Tesla could raise cash, keep the lights on and repay creditors.

Most bond investors and analysts believe they would receive full repayment on the electric-car maker’s debt even in a bankruptcy.

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Even if Tesla were to go bust, a last-resort buyer would likely buy the company for at least $10 billion, several investors said. The company has numerous assets that would appeal to other auto makers, they said, including a factory in Nevada, intellectual property, the Tesla brand and the company’s lead in battery technology.

Common shareholders, on the other hand, are last in line to be compensated, after holders of all other debt and equity securities.

When the stock traded down in 2019 toward a low point, below $200, Tesla’s $1.8 billion of high-yield bonds issued in 2017 remained relatively stable. They bottomed out to 81 cents on the dollar in May before trading at face value for the first time earlier this month, according to data from FactSet.

Some hedge funds that were betting against Tesla bonds, expecting the company to default on the debt, gave up during that period. And those optimistic about the company’s prospects used the dip to build up existing positions, according to analysts and traders.

Compared with other high-yield issues in the auto sector, Tesla’s debt struck many as being cheap, attracting investors toward the end of 2019. Investing giants such as Invesco Ltd. and Lord Abbett & Co., own Tesla bonds, according to Bloomberg data.