Tesla TSLA May Get Up to $7B Credit Line, Indicating It’s Nearing Investment-Grade Status

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Tesla is getting a $5 billion line of credit as a sign that it is moving towards investment-grade status. According to the filing, Tesla could expand that scope by another $2 billion.

Tesla has secured a new $5 billion revolving credit line, another sign that the company is nearing investment-grade status, says Bloomberg. According to the application, the manufacturer can increase it to $2 billion. Citigroup Inc. is the administrative agent for the revolver, which has a five-year maturity.

Revolvers are like credit cards that a company can use to borrow, pay back, and then borrow again over a period of time. Investment-grade companies typically do not use their revolvers, but instead, use them as a reserve in case other sources of liquidity dry up.

Tesla currently has a high-yield rating, one notch below investment grade from Moody's Investors Service, with a positive outlook. S&P Global Ratings in October upgraded the company to high-grade status. Tesla is not rated by Fitch Ratings. The company needs one more rating upgrade to be considered broadly investment grade.

Many investors and analysts already view Tesla as a blue-chip company. Most of its bonds are unsecured, indicating that investors have confidence in the company's ability to repay its dues. Its credit default swaps—which protect investors from default—are trading more like high-grade swaps than high-yield. Tesla’s five-year CDS is currently trading at 208 basis points.

Tesla has cut about $9.5 billion in debt since its short- and long-term obligations peaked at $15.3 billion in late June 2020, Bloomberg Intelligence analyst Joel Lewington wrote in a Jan. 12 note. The company also improved cash generation and built up capital buffers, Leavington said.

“Tesla’s creditworthiness may approach Porsche, Honda and Volkswagen within the next 12 to 18 months, making its Ba1/BBB ratings look stale despite an unprecedented upgrade cycle for the automotive sector,” Levington wrote.

Upgrading from high-yield to investment status provides companies with additional benefits, including greater access to financing. Tesla's revolver is the largest one yet. US companies in January 2022 took out $23.8 billion in new revolvers.

© 2023, Eva Fox | Tesmanian. All rights reserved.

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