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Tesla Inc.’s 5.3% bonds due 2025 have been plunging sharply in price following the company’s recent debacles, including a fatal crash of its Model X SUV which was using Autopilot driver-assist technology and a credit rating downgrade. Tesla had raised a more-than-expected US$1.8 billion just last August to fund accelerated production for its Model 3 sedan, despite poor appetite at the time for risky assets. Amid high demand, Tesla CEO Elon Musk had convinced debt investors to pay a record-low yield of 5.3% for the 8-year junk bonds which subsequently traded as low as 97.375 cents just one week after issuance. Investors have since dumped the bonds on skepticism about Tesla’s long-term outlook, with the issue dropping to an all-time low of 86 cents on the dollar after the latest news.
Moody’s Investors Service cut the electric car company’s corporate rating to ‘B3’ from ‘B2’, with a negative outlook, and downgraded its senior unsecured notes to ‘Caa1’ from ‘B3’. The international rating agency reported that the downgrade reflects “very high credit risk, poor standing”, due to a “significant shortfall in the production rate of the company’s Model 3 electric vehicle”. Tesla “also faces liquidity pressures due to its large negative free cash flow and the pending maturities”, with Moody’s saying that its cash needs may require a near-term capital raise of more than $2 billion.