Holders of Tesla bonds issued in 2017 in the amount of $1.8 billion at 5.3% maturing on August 15, 2025, received a message from their brokers that the manufacturer plans to redeem them on August 15, 2021.
Tesla released $1.8 billion of 5.3% bonds in August 2017. They were to be redeemed on August 15, 2025. One of the provisions allows Tesla to buy back bonds ahead of schedule, but at a premium to face value, which decreases each August 15 as the maturity date becomes closer.
Specifically, the annual premiums are as follows:
Now, one of the holders of some of these bonds—Bill Cunningham—has received a notice from his broker that Tesla bonds are being redeemed early on August 15, 2021, as confirmed on the Morningstar FINRA. That is, Tesla will buy them back four years earlier than the final date. Given the premiums, Tesla will pay $1.8477 billion to redeem them. This means that the company will pay $47.7 million in excess of the nominal amount, but is saving $95.4 million in interest per year over the next four years. So this redemption makes a lot of economic sense, especially given that Tesla currently has significant cash on its balance sheet.
At the moment, Tesla has not officially announced this. More details are expected to be revealed during the Q2 2021 Earnings Call.
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