Tesla (NASDAQ: TSLA) is seeking to attract potential investors for a new $1.8 billion securitization of its electric vehicle leases. This is the largest venture of its kind since the company began the practice in 2014, according to Fitch Ratings. The move follows the Federal Reserve's recent interest rate hike, which has not deterred Tesla drivers. Consumers are still eager to drive the brand's vehicles.
According to investing.com, the financing strategy involves converting a significant portion of Tesla's leases into bonds. The company aims to generate interest in approximately $1 billion of notes divided into five classes of bonds, rated from Triple A to Double A. Lower-rated tranches, however, will not be offered for sale.
Proceeds from this securitization will allow Tesla to enter into additional leases, providing an alternative source of financing outside of the corporate bond market. “Tesla bonds have yielded investor coupons ranging from 5.6% to 6.4%. In contrast, a 2021 bond deal offered only 0.16% to 1% amid near-zero Federal rates. However, corporate borrowing costs have risen in line with interest rates,” wrote investing.com.
The leases involved in this new Tesla deal are supported by prime borrowers paying a weighted average interest rate of 5.06%, a slight increase from the 4.9% seen in an earlier Tesla deal this year.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.