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The financing strategy involves converting a significant portion of leases from Tesla into bonds. The company aims to generate interest in approximately $1 billion of notes divided into five classes of bonds, rated from Triple A to Double A. Lower-rated tranches, however, will not be offered for sale.
The proceeds from this securitization will enable Tesla to produce additional leases, presenting an alternative funding source beyond the corporate bond market. This announcement coincided with a 1.8% rise in Tesla’s shares on Thursday and a year-to-date increase of 124.1%.
Historically, Tesla bonds have yielded investor coupons ranging from 5.6% to 6.4%. In contrast, a 2021 bond deal offered only 0.16% to 1% amid near-zero Federal rates. However, corporate borrowing costs have risen in line with interest rates.
This substantial transaction reflects recent data showcasing the resilience of U.S. consumers, even amidst aggressive interest rate hikes by the Federal Reserve since last year aimed at controlling inflation. Nonetheless, the burden of costlier debt appears to be impacting subprime borrowers more heavily.
A specialist at Penn Mutual Asset Management expressed a preference for shorter-duration bonds backed by prime borrowers, particularly given the resumption of student debt repayments and increased household leverage since pandemic lows.
The leases involved in this new Tesla deal are supported by prime borrowers paying a weighted average interest rate of 5.06%, a slight increase from the 4.9% seen in an earlier Tesla deal this year.
In related financial news, the Dow Jones Industrial Average posted a gain of more than 300 points, ending up by 1%, while the S&P 500 index and the Nasdaq Composite Index each advanced by 0.8%.
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