Tesla gets US$5b credit line in sign it’s nearing investment-grade status

TESLA has secured a new US$5 billion revolving credit facility with banks, in the latest sign that the company is nearing investment-grade status.

The electric-vehicle seller may increase the revolving credit facility by up to US$2 billion, according to a filing. Citigroup is administrative agent for the revolver, which has a five-year maturity.

Revolvers are like a credit card that a company can borrow, payback, and then borrow again over a period of time. Investment-grade rated companies typically do not draw on their revolvers and instead use the loan as a backup in case other sources of liquidity dry up.

Tesla currently has a high-yield rating from Moody’s with a positive outlook. In October it got upgraded to a high-grade rating by S&P. It needs just one more upgrade from another major credit grader for its debt to be broadly considered investment grade. It’s unrated by Fitch.

The car and battery maker has largely been seen as a blue-chip company aside from its ratings. Most of the bonds it has sold are unsecured, a sign that investors are not worried they won’t get paid back. Its credit default swaps — which protect investors from default — are trading on indexes more like high-grade swaps than high-yield.

Tesla has cut about US$9.5 billion of debt since its peak in Jun 30, 2020, Bloomberg Intelligence analyst Joel Levington wrote in a Jan 12 note. It’s also been improving its cash generation while building a war chest of more than US$21 billion, the note said.

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“Tesla’s creditworthiness may approach Porsche, Honda and Volkswagen within the next 12 to 18 months, making its Ba1/BBB ratings look stale despite an unprecedented upgrade cycle for the automotive sector,” Levington wrote.

Tesla reported better-than expected profits in the latest quarter, signalling strength as it faces growing questions about car buyer demand for its all-electric vehicle lineup. BLOOMBERG