Tesla (TSLA) uses Model S, 3, X leases to back $780 million bond deal

The Tesla Model S, X, and Model 3. (Photo: MotorTrend)

Tesla (NASDAQ: TSLA) is planning to raise $779.53 million this week in the asset-backed bond market. The company’s bonds will be backed by Tesla vehicle leases, made up of mostly the Tesla Model S and Model X.

The electric automaker is offering eight classes of bonds, a majority of which carry mostly top AAA ratings from Moody’s Investors Service. The bonds will mature for investors in 2.7 years or less.

The asset-backed bond move from Tesla is the first time the Silicon Valley-based electric car manufacturer has made a debt deal in 2020. Moody’s data suggests the company raised funds three times prior: once in 2019 and twice in 2018. MarketWatch initially reported the agreement.

Impressively, it is the first time Tesla has used the strategy during the global COVID-19 pandemic, which has crippled many industries since the virus arrived in the U.S. in January.

The coronavirus’s presence in the United States has slowed the economic surge that the U.S. stock market was experiencing toward the tail end of 2019. Many of the country’s sectors have felt profound economic consequences that were brought on by mandatory Stay-at-Home orders and social distancing measures that were recommended by state and local governments.

Tesla is one of the few businesses that has managed to gain momentum amidst the pandemic. The company has experienced some of its most substantial gains throughout the past several months.

Leases on the Model S sedan and Model X SUV make up half of the collateral for the bond deal. The remainder comes from the Model 3, the company’s most popular vehicle, Moody’s says.

During the last U.S. economic crisis, consumers prioritized auto payments above their home mortgages. This option ultimately benefitted automakers because there were few credit issues on bonds backed by vehicle leases. Instead, the housing market felt the brute of the consequences as homes were foreclosed on.

If the trend remains consistent throughout the current economic recession, it may solidify the demand for Tesla’s debt.

The company’s Q2 Earnings Call on July 22 showed the company managed to turn a profit for the fourth consecutive quarter. After reporting a net GAAP income of $104 million and non-GAAP earnings of $2.18 per share, the company surprised many people because of extended closures at its Fremont production facility in Northern California.

At the time of writing, TSLA stock was trading at $1,507.45. It remains the most valuable automotive company in the world, with a market cap of $279.81 billion.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Joey Klender: Joey has been a journalist covering electric mobility at TESLARATI since August 2019. In his time at TESLARATI, Joey has broken several big stories, including the first images of the Tesla Model S Plaid, the imminent release of the 4680 Model Y through EPA certification, and several expansions to the Lucid AMP-1 factory in Arizona, to name a few. His stories have been featured in several publications, including Yahoo! Finance, Fox News, CNET, and Seeking Alpha. In his spare time, Joey is playing golf, watching MMA, or cheering on any of his favorite sports teams, including the Baltimore Ravens and Orioles, Miami Heat, Washington Capitals, and Penn State Nittany Lions. You can get in touch with joey at joey@teslarati.com. He is also on Twitter @KlenderJoey.
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