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Thursday, July 19, 2018

Tesla Bond, again

Mike Smitka

I posted an article on Seeking Alpha on Tesla's junk bond. It may be behind a fire wall. In any case, here's the key chart, updated subsequent to the SA post to include data back to November 1, 2017 (previously I'd only taken things back to December 1st, 2017).

There's only a very weak correlation between the stock price and difference in the bond yield (relative to a "B" bond index) prior to the March 27th downgrade of Tesla's straight bond (5.3% yield, 8/15/2025 maturity, semiannual coupon). There's a strong correlation after the downgrade, usefully exactly 1:1, that is Stock $1 ↑ <==> Yield differential 1 bp ↓.

Regression results:
Stock price ==> bond price relative to "B" bonds

March 28 - Jul 18: 1.01 (±0.01) t=10.77 observations=77
Nov 1 - March 26: 0.38 (±.11) t=3.43 observations=100