It took a couple of weeks, Moody’s downgraded Tesla ink. (Nasdaq:TSLA,) 5.3% 2025 senior notes to Caa1 — not the worst among Moody’s speculative, but certainly high risk. This is not good news for Tesla stock, because it means that companies will have to make some serious financial decisions in the next 3-6 months to avoid a default on various convertible senior notes.
A big reason for the downgrade was the inability of the company to execute the model 3 production forecast he made in 2018. To make matters worse, corporate customers, Tesla could be downgraded from B3 should they continue to lag behind forecasts.
Moody’s estimates that the company will have to raise more than 2 until end 2018 billions of dollars to cover their cash burn and the maturity date of the convertible bonds.
Yes, his financial situation is serious, if not fatal.
It’s all very scary
For those who cannot cope with the risks Tesla shares or bonds should not be on your list. Repeat. They should not be on your list.
However, as I said on 4 April, I think that Tesla stock is in the dumpster; aggressive investors should be buying.
While data on volumes of production for the first quarter, may not have been hot, I don’t believe that they signal about the company raising the white flag of surrender; he smells.
Skeptics don’t see it getting up to 5,000 cars per week. I think there’s a real chance that they could make it to the end of the second quarter.
If he does so, Tesla stock is back in business. As I said, this is not your grandparents ‘ choice.
Tesla’s shares or Bonds
Hetty green was one of the richest women in the history of American business. She has inherited $2.2 billion in today’s dollars and turned in is worth 4.4 billion dollars at the time of her death in 1916. She bought real estate and bonds, believing that real assets have retained their value, although equity could be worthless paper.
The latest price of Tesla 5.30% 2025 senior note, as I write this $90.85 better than where it was trading after the downgrade, but still significantly below normal. It is currently yielding 7.3%; senior unsecured note, probably not the best bet among the proposals of the debt of the Tesla.
Instead, it is possible to consider Tesla 2.375% 2022 convertible note that converts into 327.50$. Currently yields 1.3% and is trading at $110.19, down from its 52-week high for 126$, the odds of Tesla to splurge before the note Matures relatively thin in my estimation.
Of course, this greatly depends on what Tesla is forced to make between now and then to keep the lights on. It is unlikely that he will be able to make another pure bond so will either have to offer a convertible loan to pay a much higher interest rate or additional shares; in any case, the cost of your 2.375% 2022 note down.
Investments in unprofitable stocks is not easy.
If you have a real desire to hold bonds, I would take Tesla stock or wait to see what comes down the pike in the form of a debt offering later this year.
In any case, you are looking at above-average risk and above average remuneration.
At the time of this writing, will Ashworth not to take a position in any of the above securities.