Where can I buy Tesla bonds?

[wayner]

Tesla's bonds are rated B- by S&P, and Caa1 by Moodys. That is well into junk territory, which is not surprising given the spread over US Treasuries - roughly 6% as Tesla bonds are 8.5% vs about 2.5% for Treasuries.

 

[daniel]

There's definitely risk in buying Tesla bonds, thus their junk-bond ratings, but most junk bonds do not default, and I'm confident that Tesla will remain afloat and pay its obligations. I would not put all my eggs in Tesla's (or any one) basket, but I'd increase my holdings a bit, especially at that coupon and discount.

 

[Sublimobile]

What you're missing is that you pay a discount to face value, but you get the full face value of the bond at maturity.
100 / 86.7 = 1.1534 (or 15.34%), which over 6 years is an annualized rate of 2.41%
6.11% + 2.41% = 8.52%

This isn't quite right, since I estimated 6 years and it's not *exactly* six years until maturity, but you get the idea.

Thanks for the explanation. That helps. Given this information, I would expect the cost of the bond to get closer to par as we get closer to the maturity date. Is that the case? Sorry to belabor the point, this is interesting though.

 

[neroden]

Thanks for the explanation. That helps. Given this information, I would expect the cost of the bond to get closer to par as we get closer to the maturity date. Is that the case? Sorry to belabor the point, this is interesting though.

Yes. This is only scratching the surface of bond pricing.

The usual rule of thumb is that bonds which are perceived by the big traders as having the same risk of default (which is NOT the same as ACTUALLY having the same risk of default) will trade at the same yield, and the price will adjust to make the yield match. The yields go up and down with Fed interest rates among other things.

 

[kelevra]

Those notes were not registered with the SEC. They can only be held by Qualified Institutional Buyers and certain foreign entities.

Tesla just transferred most of its outstanding S and X direct leases in the USA to the trustee of an Asset Backed Security. They have relatively short maturities and yields are in the ~2.3% to ~5% range. The B tranche is probably no more risky than the 2025 Notes. You can register at Moody's and review their Pre-Sale Analysis then see if your broker can find them.

Does this mean it is generally not possible to buy those bonds? (or do you have to use the right broker) My bank offers the 2025 notes and interactive brokers says you can buy the 2025 ones, but the other bonds are for qualified institutional investors only... I am specifically interested in the 2022 convertible.

Edit: I talked to my bank. There have been Regulatory changes to PSD 2 in Europa so it is no longer possible to buy any Tesla notes. Tesla first has to submit a stock exchange prospectus. I know for sure that is was possible to own the 2025 Notes as i owned some. My question is: Are the 2022 Notes the same as the 2025 notes from a regulatory perspective or are those QIB only. I contacted Tesla about the situation and will let you know more as soon as i know more.

 

[sunny-value]

I currently hold $200k worth of the tesla bonds, purchased through my broker at Merrill Lynch.

Nice to meet you, potential future owner of Tesla (based on what the media is writing these days, anyway)...I am what is called a recovering ex-owner glad to have gotten out during the massive take private lie. If I may ask what is your maturity structure exposure?

 

[sunny-value]

Does this mean it is generally not possible to buy those bonds? (or do you have to use the right broker) My bank offers the 2025 notes and interactive brokers says you can buy the 2025 ones, but the other bonds are for qualified institutional investors only... I am specifically interested in the 2022 convertible.

A QIB is basically an instituation or a retail investor who is considered "sophisticated". In practice its not about sophistication but income and wealth. You can either qualify by showing you have 250k in income for the last couple of years (apparently they think being a doctor makes you able to analyze convertible bonds or credit risk better than if you are a newbie CPA) or have a liquid (not counting house) net worth of $1 million or more. Usually if you have a large brokerage account (over 500k) such as with Schwab or Fidelity they put you into a "premier" or higher net worth group and if you call the number, they can usually find QIB restricted securities for you. Commissions could be higher if you pick up the phone though.

 

[Dwdnjck]

I hold the 2025 bonds. Thinking of getting more. Currently hold 450k.

 

[sunny-value]

The converts just issued (in May) around par are down around $87 this morning. So you can lock in a 5% yield, hedge default risk using stock, and basically have a 5% risk free return. I would use a recovery assumption of 30% though in setting hedge ratios. If they do go belly up there are two scenarios to consider as a bond investor, either they remain a going concern with bond holders owning the new company equity, or assets are auctioned off to highest bidder and bond holders are paid whatever is recovered, in order to priority (eg secured bond holders first, etc).

 

[kelevra]

A QIB is basically an instituation or a retail investor who is considered "sophisticated". In practice its not about sophistication but income and wealth. You can either qualify by showing you have 250k in income for the last couple of years (apparently they think being a doctor makes you able to analyze convertible bonds or credit risk better than if you are a newbie CPA) or have a liquid (not counting house) net worth of $1 million or more. Usually if you have a large brokerage account (over 500k) such as with Schwab or Fidelity they put you into a "premier" or higher net worth group and if you call the number, they can usually find QIB restricted securities for you. Commissions could be higher if you pick up the phone though.

thx a lot. Do you know if the 2022 notes are QIB restricted? (I know that the 2025 have been not in Europe as i owned them)

 

[sandervl]

Edit: I talked to my bank. There have been Regulatory changes to PSD 2 in Europa so it is no longer possible to buy any Tesla notes. Tesla first has to submit a stock exchange prospectus. I know for sure that is was possible to own the 2025 Notes as i owned some. My question is: Are the 2022 Notes the same as the 2025 notes from a regulatory perspective or are those QIB only. I contacted Tesla about the situation and will let you know more as soon as i know more.

I'm in a similar position (bought some last year and unable to purchase more). My bank gives the same reason (lack of prospectus) so I hope Tesla can easily rectify the situation. Let me know what Tesla says. Thanks.

 

[Doggydogworld]

A QIB is basically an instituation or a retail investor who is considered "sophisticated". In practice its not about sophistication but income and wealth. You can either qualify by showing you have 250k in income for the last couple of years (apparently they think being a doctor makes you able to analyze convertible bonds or credit risk better than if you are a newbie CPA) or have a liquid (not counting house) net worth of $1 million or more

That's an accredited investor. QIB is a whole different deal, 100m in assets plus other restrictions.

 

[pend1971]

I think Tesla stock is a very funny joke but I like short term Tesla bonds. They definitely have enough cash to survive the next 3- 6 months and if not Elon can just start a GoFundMe page to raise cash from all his fanboys.

 

[Boomer19]

Someone gave you the wrong information on these, so I'm chiming in. Specifically, I'll use the Tesla 2024 convertibles as an example since this is what I bought. I'll also assume Tesla SP is $190 for the calculations. I'm new to corporate convertible bonds, but not totally new to convertible debt.
CUSIP 88160RAG6
Bonds Detail

The bond component of a convertible is like a normal bond, where it pays interest and pays back the face value at maturity. In the case of 88160RAG6, they're trading just below $90 for $100 face value and pay 2% a year. This means you get paid simple interest of $10 for 5 years plus $10 profit from trading below $100, which is $20 / $90 / 5 = 4.4%.

The bonds also have an option (but not required) to convert to Tesla shares at a minimum ratio of 3.22 per $1000 of bonds. The conversion price is therefore ~$310 a share or lower. You would only convert if the current SP is above the conversion price of course to net an immediate profit.

If Telsa SP is $500 in 2024, you'll make (500 - 310) = $190 / share = $59 / bond. Add the $20 from interest and discounted price today for a profit of $79 per bond, or 87% profit after 5 years.

Doing similar math for convertibles and summarizing 5 years out:
If Tesla SP is $10, profit is 22%
If Tesla SP is $95, profit is 22%
If Tesla SP is $190, profit is 22%
If Tesla SP is $310, profit is 22%
If Tesla SP is $500, profit is 87%
If Tesla SP is $1000, profit is 260%
If Tesla SP is $4000, profit is 1294%

Compare this to to buying shares.
If Tesla SP is $10, profit is -95%
If Tesla SP is $95, profit is -50%
If Tesla SP is $190, profit is 0%
If Tesla SP is $310, profit is 63%
If Tesla SP is $4000, profit is 2000%

I look at it this way, but this is solely my opinion.

1. I'm buying Tesla because it may go up 5x or 10x. If it only goes up 10% annually, I might as well invest in bonds or more conservative stocks. The convertibles ensure a profit except in the most unlikely case (bankruptcy AND assets can't cover debt). Even so, I should get a good chunk back in the worst case.

2. Although convertibles with TSLA SP $4000 nets 1/3 less than buying stock outright, the additional security and profit lets me invest more than double what I would with stocks. In the big win scenario, I'm ahead. And in the lose scenario, I'm ahead.

Some other pluses for convertibles:
1. There's cases where the conversion ratio increases (share price is cheaper) if Tesla has a change of control (bought out) for around $250 and higher. This adds extra profit in the event things don't work out.
2. Conversion is possible anytime if SP stays above ~30% + conversion price for awhile.
3. Bond holders may even come out whole or mostly whole in the event of bankruptcy, assuming Tesla assets are worth a decent amount.
4. Convertible bonds can be sold and bought like stocks, but goes down about half the rate of TSLA stock when it falls.

Disadvantages:
1. The spread for convertibles ranges from 1-4 points, so it's much higher than stocks, but generally better than options.

good reference for users

 

[Boomer19]

Someone gave you the wrong information on these, so I'm chiming in. Specifically, I'll use the Tesla 2024 convertibles as an example since this is what I bought. I'll also assume Tesla SP is $190 for the calculations. I'm new to corporate convertible bonds, but not totally new to convertible debt.
CUSIP 88160RAG6
Bonds Detail

The bond component of a convertible is like a normal bond, where it pays interest and pays back the face value at maturity. In the case of 88160RAG6, they're trading just below $90 for $100 face value and pay 2% a year. This means you get paid simple interest of $10 for 5 years plus $10 profit from trading below $100, which is $20 / $90 / 5 = 4.4%.

The bonds also have an option (but not required) to convert to Tesla shares at a minimum ratio of 3.22 per $1000 of bonds. The conversion price is therefore ~$310 a share or lower. You would only convert if the current SP is above the conversion price of course to net an immediate profit.

If Telsa SP is $500 in 2024, you'll make (500 - 310) = $190 / share = $59 / bond. Add the $20 from interest and discounted price today for a profit of $79 per bond, or 87% profit after 5 years.

Doing similar math for convertibles and summarizing 5 years out:
If Tesla SP is $10, profit is 22%
If Tesla SP is $95, profit is 22%
If Tesla SP is $190, profit is 22%
If Tesla SP is $310, profit is 22%
If Tesla SP is $500, profit is 87%
If Tesla SP is $1000, profit is 260%
If Tesla SP is $4000, profit is 1294%

Compare this to to buying shares.
If Tesla SP is $10, profit is -95%
If Tesla SP is $95, profit is -50%
If Tesla SP is $190, profit is 0%
If Tesla SP is $310, profit is 63%
If Tesla SP is $4000, profit is 2000%

I look at it this way, but this is solely my opinion.

1. I'm buying Tesla because it may go up 5x or 10x. If it only goes up 10% annually, I might as well invest in bonds or more conservative stocks. The convertibles ensure a profit except in the most unlikely case (bankruptcy AND assets can't cover debt). Even so, I should get a good chunk back in the worst case.

2. Although convertibles with TSLA SP $4000 nets 1/3 less than buying stock outright, the additional security and profit lets me invest more than double what I would with stocks. In the big win scenario, I'm ahead. And in the lose scenario, I'm ahead.

Some other pluses for convertibles:
1. There's cases where the conversion ratio increases (share price is cheaper) if Tesla has a change of control (bought out) for around $250 and higher. This adds extra profit in the event things don't work out.
2. Conversion is possible anytime if SP stays above ~30% + conversion price for awhile.
3. Bond holders may even come out whole or mostly whole in the event of bankruptcy, assuming Tesla assets are worth a decent amount.
4. Convertible bonds can be sold and bought like stocks, but goes down about half the rate of TSLA stock when it falls.

Disadvantages:
1. The spread for convertibles ranges from 1-4 points, so it's much higher than stocks, but generally better than options.

good reference for users

 

[RiverCard]

Does this mean it is generally not possible to buy those bonds? (or do you have to use the right broker) My bank offers the 2025 notes and interactive brokers says you can buy the 2025 ones, but the other bonds are for qualified institutional investors only... I am specifically interested in the 2022 convertible.

Edit: I talked to my bank. There have been Regulatory changes to PSD 2 in Europa so it is no longer possible to buy any Tesla notes. Tesla first has to submit a stock exchange prospectus. I know for sure that is was possible to own the 2025 Notes as i owned some. My question is: Are the 2022 Notes the same as the 2025 notes from a regulatory perspective or are those QIB only. I contacted Tesla about the situation and will let you know more as soon as i know more.

Only the junk rated 2025 notes are subject to QIB restrictions--all the converts are freely tradeable in " 'Murica" for those with sufficient funds/margin.