December 2, 2023

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Tesla Halts Bond Sale Backed by Auto Leases Amid Market Turmoil

(Bloomberg) — Tesla Inc. delayed a more than $1 billion offering of bonds backed by leases on its electric vehicles, the third issuer in the past week to halt a sale amid market turbulence, according to people with knowledge of the matter.

Bankers for the auto manufacturer had already placed a significant portion of the bonds with fund managers before marketing was halted, said the people, who asked not to be identified because the offering is private. Surging inflation and worries over the economic fallout from Russia’s war in Ukraine have sent short-term interest rate benchmarks sharply higher in recent weeks. That’s prompting issuers to pause their financing plans until markets have calmed.

Auto-finance company World Omni also postponed an auto lease-backed bond offering on Friday after it had already started marketing it. The same day, “buy now, pay later” lender Affirm Holdings Inc. also delayed an offering of debt backed by consumer installment loans.

Tesla didn’t respond to messages seeking comment. Representatives for the banks arranging the deal, Wells Fargo, Credit Suisse, Barclays, and Citigroup, declined to comment. 

At least seven securitized debt deals in all have been shelved since the Russian invasion. Last month, two commercial mortgage bonds and a residential mortgage bond were also delayed amid market weakness, which has been exacerbated by the Federal Reserve’s move toward monetary tightening to fight inflation. The central bank announced its first rate hike since 2018 on Wednesday. 

Read more: U.S. Companies and Governments Are Hesitating to Sell Bonds Now

The Tesla ABS offering, dubbed TESLA 2022-A, kicked off March 7, with pricing guidance issued three days later. Most of the tranches went “subject” by Tuesday, according to two investors familiar with the deal, meaning that they were sold and pricing was imminent. Communication on the deal went silent, however, before Tesla shelved it.

“Investors are never pleased when they put in all the work to analyze a deal and then it is pulled,” said John Kerschner, the head of U.S. securitized products at Janus Henderson.

Tesla started its ABS program in early 2018 and has issued seven transactions. The 2022-A collateral pool consists of strong, prime quality borrowers with an average FICO score of 774, according to presale reports from ratings firms. 

Despite Tesla having “limited experience” in originating, underwriting, and servicing auto leases, particularly through a full economic cycle, the company’s managed portfolio and securitizations have performed well, with low credit losses, Fitch Ratings analysts said in a report.


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