NEW YORK (Reuters) - Investors in the debt and in the equity options of electric carmaker Tesla (TSLA.O) are betting the take-private deal described by Chief Executive Elon Musk will not materialize.
FILE PHOTO: A Tesla electric car supercharger station is seen in Los Angeles, California, U.S. August 2, 2018. REUTERS/Lucy Nicholson/FIle Photo
Like its stock price, Tesla bonds have given up all of the gains they made after Musk shocked investors with a tweet on Aug. 7, saying he had “funding secured” for a possible buyout deal at $420 per share.
This suggests the credit market has scaled back the chances of a deal, and data showed activity on the equities options market also indicates those investors also are skeptical.
Tesla’s high-yield debt trades at around 87.5 cents on the dollar, down from 93.0 cents on Aug. 7, according to Thomson Reuters data. Tesla’s convertible bonds due in 2021 88160RAC5=RRPS are trading around 107.20 cents on the dollar, down from 120.46 cents on the dollar on Aug. 7.
Convertible bonds give bondholders the right to trade their debt for equity after shares rise over a certain price.
Bondholders are paid back in full in the event of a buyout - at 101 cents on the dollar for the junk bond coming due in 2025 88160RAE1=RRPS if certain conditions are met. The company’s longer-dated convertible debt would earn an additional premium above par if Tesla were taken private.
“The smart trade at the moment is to short the converts and go long the high-yield bonds, because that spread will collapse” in the event Tesla files for bankruptcy, said Lawrence McDonald, founder of the Bear Traps Report.
McDonald believes bankruptcy is the path for Tesla if it does not find a buyer
