Tesla investors are demanding the biggest return in history to hold the company's debt

Elon MuskKyle Grillot/Reuters

  • Tesla junk bonds hit a new record low price on Tuesday as the company's stock price also plummeted.
  • The company's 2025 notes were trading at $82.012 with a yield of 9.18%, according to data from Bloomberg.
  • Credit-default swaps, products that allow traders to protect against a potential default, also hit a new record.

Tesla's stock price isn't the company's only financial metric tumbling this week.

The price of Tesla debt has plummeted alongside the company's equity shares, hitting a new record low of $82.012 Tuesday morning, according to Bloomberg data.

Tesla's junk bonds, $1.8 billion of which are due in 2025, were trading at a yield of 9.18% Tuesday morning compared to the originally issued 5.3%. The notes are rated CCC+ by the Standard and Poor's, putting them right in the middle of the firm's "non-investment-grade" ratings.

Traders were also paying substantial amounts to protect against a Tesla default, with the price of five-year credit default swaps hitting 674, according to Morgan Stanley, versus 200 at Ford for comparison. In other words, costs to insure $100 of Tesla debt hit $6.74, surpassing the previous record of $6.58 from July 2018.

Tesla's stock price briefly opened below $200 for the first time since 2016 on Tuesday. Shares are now down more than 34% since the beginning of the year.

That slide could be affecting Tesla's credit, Adam Jonas, an analyst at Morgan Stanley, said Tuesday.

"From our perspective at least, it appears movements in news flow and sentiment in the equity market are informing moves in the credit market for Tesla," he said in a note to clients in which the firm cut its worst-case scenario target for shares to $10 from $97, citing the company's increased debt load and uncertainty in China, where the company is constructing its new Gigafactory.

"As the shares trade near a 3-year-low, we review key investment considerations and scenarios for a name that is arguably the most strategically important but has among the widest ranges of outcomes and uncertainty of any major auto firm," Jonas said.

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