Tesla Motors, the US electric car manufacturer, announced plans to sell at least $1.6bn in convertible senior notes to raise funds for a vast new battery factory as its shares hit a record high on Wednesday.
The group filed a prospectus for its second offering of convertible bonds at a time when technology companies, with soaring share prices, are increasingly looking to such instruments to raise funds at cheaper borrowing costs.
Tesla's stock was boosted earlier this week after a Morgan Stanley analyst said its shares could rise significantly if its effort to construct its own lithium ion batter factory puts it in a position to disrupt the wider US energy industry.
Morgan Stanley, Goldman Sachs, JPMorgan Chase and Deutsche Bank are managing the offer, which could be priced as early as Thursday. All four banks participated in the company's 2010 initial public offering.
Convertible bonds allow issuers to offer debt with ultra-low coupons but also give investors the option to convert the securities into stock if the company's share price reaches a preset premium during the bond's tenure.
Tesla's offer will be split in two tranches of $800m maturing in five and seven years, each with an overallotment provision for underwriters of as much as $120m. If exercised, that could bring the total size of the debt deal to $1.84bn, according to its regulatory filing.
The five-year notes could be offered with a coupon of 0.25-0.75 per cent with an equity conversion premium of 37.5 to 42.5 per cent, people familiar with the sale said. The seven-year notes may come with a coupon of 1.25-1.75 per cent, and an equity conversion premium of 37.5 to 42.5 per cent.
Tesla shares have climbed 68 per cent since the start of the year and closed up 2 per cent at $253 on Wednesday, valuing its equity at $31bn. In after-market trading, the stock gained an extra 2.7 per cent to $259.75 following the deal's announcement.
The Silicon Valley-based company will use the funds to finance a new plant to produce ultra-efficient batters that could be used in future models and to help it expand in the US and abroad, the filing said.
Elon Musk, Tesla's chief executive officer, has called the facility a "gigafactory" and analysts have said it raises the potential of the group one day challenging the US power industry.
The convertible bond issue would be the latest by a high-profile technology company seeking to take advantage of conditions that favour issuers in a market that has seen a slowdown in new deals. Yahoo and ServiceNow were able to raise $1.25bn and $575m respectively last year in deals that priced at par and offered no coupons to investors.
One convertible bond trader said market conditions were still very favourable to issuers such as Tesla.
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