NEW YORK: Tesla Inc should find no shortage of demand for the US$1.35 billion convertible bond the electric carmaker is selling even though the terms it is offering look inferior on paper to a similar deal two years ago, bond investors said Thursday.Convertible securities feature the income and protections of a low-yielding bond but offer the potential to profit far more from a jump in the stock price that triggers repayment in shares rather than cash.
Investors, however, said the new deal in fact looks appealing when compared with Tesla's existing convertibles, which now feature even leaner yields and, because the stock has been so wobbly, an even lower chance at striking a rich equity conversion before those bonds mature in the next three years. The new convertible bond is seen carrying a coupon of between 1.5per cent and 2.0per cent with a conversion premium of between 27.5per cent and 32.5per cent over the reference price for Tesla shares at the time of the sale, according to a trader who saw preliminary marketing materials for the deal on Thursday.
On its face, the conversion premium being touted, with a midpoint at 30per cent, also compares unfavorably to the 2022 bond's lower conversion premium of 25per cent. But the underperformance of the stock, which closed at US$244.10 on Thursday, means holders of the 2022 bond need at least a 34per cent rise in the stock to a price ofUS$327.50 in order to trigger a conversion.