Tesla Plans $837 Million Auto Lease Bond in ABS Market Return

(Bloomberg) -- Tesla Inc. plans to offer $837 million of bonds backed by auto leases in its second trip to the market for asset-backed securities this year.

The electric-car maker is betting investors will look past broader market volatility to load up on the securities, which may sell as soon as this week, according to people familiar with the matter. The company found strong demand for its inaugural bond sale in February, and people familiar with the matter said at the time that it had plans to become a regular issuer in the ABS market.

The largest portion of the offering, a $674 million slice, may carry Aaa ratings from Moody’s Investors Service, said the people, who asked not to be named because the deal is private. Citigroup Inc. and Deutsche Bank Group AG are managing the sale.

While Tesla is building an asset-backed bond program, it’s seeking to cut its reliance on other parts of the capital markets. Musk told investors on an October conference call to discuss earnings results that the company was focused on reducing its debt load and didn’t intend to raise equity or debt, though that could “change in the future.” Tesla reported $881 million in positive free cash flow for the third quarter and a growing cash balance.

Tesla’s earlier track record in the capital markets has been mixed. The auto lease bonds it sold in February trade hands near par, while $1.8 billion of high-yield notes the company sold in 2017 have whipsawed this year amid Musk’s failed plan to take the company private. The junk debt now trades below 88 cents on the dollar. Convertible bonds have fared better, and the company has notified the holders of notes due in March that it may repay the debt with a mix of cash and stock.

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