UPDATE 2-Tesla boosts bond offering as investor demand strengthens

Thu May 16, 2013 4:45pm EDT

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By Stephen Lacey and Deepa Seetharaman

NEW YORK/DETROIT, May 16 (IFR) - Tesla Motors Inc boosted the size of its convertible bond by 17 percent to $525 million, the bulk of which will be used to repay the company's U.S. Department of Energy loan, according to two market sources close to the situation.

The maker of the Model S electric sedan was also able to secure more attractive terms for its bond offering than originally planned due to high demand from investors, the sources said on Thursday.

Initially, Tesla set out to raise $450 million by selling senior convertible notes due 2018. Tesla made the announcement on Wednesday as part of several moves to raise an estimated $830 million in a stock and bond offering.

The increased bond offering means Tesla stands to raise as much as $944.5 million. The financing is due to price after market close on Thursday.

This is the latest in a string of positive news for Tesla, which posted its first quarterly profit last week and got a near-perfect rating for the Model S from Consumer Reports magazine. Since May 8, Tesla shares have risen nearly two-thirds on the Nasdaq.

More than 200 investors participated in a group investor call, in addition to the series of one-on-one meetings Tesla management held with investors, according to the sources.

The $450 million five-year convertible bond had been talked at a coupon between 2 percent and 2.5 percent with a conversion premium between 30 percent and 35 percent, sources said.

But strong investor demand allowed Tesla to increase the size of the bond to $525 million and secure more favorable terms. Price talk on the bonds was revised to a coupon of between 1.5 percent and 2 percent with the conversion premium set at 35 percent.

Tesla will use $452.4 million of the net proceeds from the bond and stock offering to repay the unpaid portion of its $465 million DOE loan with interest.

The loan was extended to Tesla in June 2009 to cover the cost of engineering and building the Model S, which starts at $70,000 before a federal tax credit.

Tesla has about $440 million outstanding on its DOE loan, Tesla spokeswoman Shanna Hendriks said in an email.

Goldman Sachs, Morgan Stanley, JP Morgan are joint bookrunners on the convertible bond placement, while Goldman Sachs is sole books on the common stock.

TESLA EYEING $43.2 BLN MARKET VALUE

Tesla shares rose 8.7 percent to $92.25 on the Nasdaq. The stock's run-up reflects in part covering by short-sellers, who bet on the stock's decline, analysts and sources said.

Tesla was worth about $10 billion as of Wednesday, more than the market value of Italian automaker Fiat SpA, the majority owner of U.S. automaker Chrysler Group LLC.

In a proxy filed last month, Tesla said Chief Executive Elon Musk has "significant" investment and options in Tesla that can only be tapped if the company completes its DOE loan project and meets several performance milestones.

Musk, a billionaire who is also a Tesla co-founder, now gets paid $1 a year. He now owns more than 33 million shares, accounting for 27.5 percent of Tesla, according to the proxy.

Those options will become vested if Tesla's market value increases to $43.2 billion by 2022, putting the 10-year-old car company on par with General Motors Co, the largest U.S. automaker, which is worth around $45 billion.

The proxy says Musk must meet 10 operational milestones, including successfully developing a third-generation Tesla vehicle that will be priced between $30,000 and $35,000.

This week, Musk personally committed $100 million to buy Tesla shares. Tesla is selling 2.7 million common shares, with Musk committed to buying $45 million worth of shares. Musk has also committed to invest an additional $55 million through a separate private placement at a later date.

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