While the stock market was taking it on the chin late last week, hidden machinations were already underway to save it from further pain.
On Friday, as the S&P 500 was completing a 1.6% skid over four days, Tesla easily priced a $US1.8 billion bond offering. That it did so with such a highly publicized cash-flow burn — not to mention a junk rating — is downright incredible.
The deal ended up getting done at a record-low coupon for a bond of such maturity and low quality, according to a Bloomberg News report. What’s more, the originally sought $US1.5 billion was bumped up to $US1.8 billion because of outsize demand.
The ease in which Tesla raised such a large amount of money highlights just how favourable credit conditions are right now. And the S&P 500’s quick, two-day rebound reflects the extent to which equity traders are letting a strong bond market embolden them into buying on weakness — a dynamic that should help prop up the eight-year bull market.
“The ability of a deep junk, battleground company like Tesla and a jumbo bond deal to price in mid-August amid geopolitical worries is a vivid illustration of the strength of this credit boom,” Brian Reynolds, an analyst at Canaccord Genuity, wrote in a client note. “The credit market is indicating that any drawdowns are likely to remain brief and that the equity bull market is likely going to continue for a number of years.”
And it doesn’t stop at Tesla. Another one of the market’s hottest stocks is getting in on the credit-market action: Amazon.
The Jeff Bezos-led tech titan is looking to tap the bond market to raise $US16 billion to fund its recently announced $US13.7 billion acquisition of Whole Foods. And it looks to be going swimmingly, despite guidance from Amazon suggesting they will lose money next quarter for the first time in two years — at least according to Reynolds, who cites anecdotal reports of strong investor demand.
While Amazon has a better credit rating than Tesla, that’s still a huge chunk of debt to be assuming. The fact that nobody seems to be batting an eye is more good news for the online retail kingpin and, by extension, the broader stock market.
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