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What are the characteristics of the $2 billion in bonds that Tesla Motors is issuing?

What are the characteristics of the $2 billion in bonds that Tesla Motors is issuing?. Original blog posting (May 7, 2014 ). Tesla Motors Inc., to issue $2 billion in bonds. To fund the building of their $4 to $5 billion battery production plant

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What are the characteristics of the $2 billion in bonds that Tesla Motors is issuing?

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  1. What are the characteristics of the $2 billion in bonds that Tesla Motors is issuing? Original blog posting (May 7, 2014)

  2. Tesla Motors Inc., to issue $2 billion in bonds • To fund the building of their $4 to $5 billion battery production plant • The bonds are broken up into two instruments: $800 million of five-year notes with a coupon payment rate of 0.25 and $1.2 billion of seven-year notes with a coupon payment rate of 1.25%

  3. Question 1 Is Tesla issuing bonds/notes receivable or bonds/notes payable?  How do you know?

  4. Question 2 Will the $2 billion of bonds appear on the balance sheet or the income statement for Tesla? In what section?

  5. Question 3 Will Tesla pay or will it receive interest on these bonds?

  6. Question 4 How much annual interest will Tesla pay on the five-year notes?

  7. Question 5 How much annual interest will Tesla pay on the seven-year notes?

  8. Question 6 Why would the coupon (interest) rate on the seven-year notes be greater than the coupon rate on the five-year notes?

  9. Question 7 The equity conversion feature allows Tesla to issue these bonds at much lower coupon rates than if the bonds were not convertible.  Why are investors willing to take less interest on these bonds than on a non-convertible bond?

  10. Question Recap • Is Tesla issuing bonds/notes receivable or bonds/notes payable?  How do you know? • Will the $2 billion of bonds appear on the balance sheet or the income statement for Tesla? In what section? • Will Tesla pay or will it receive interest on these bonds? • How much annual interest will Tesla pay on the five-year notes? • How much annual interest will Tesla pay on the seven-year notes? • Why would the coupon (interest) rate on the seven-year notes be greater than the coupon rate on the five-year notes? • The equity conversion feature allows Tesla to issue these bonds at much lower coupon rates than if the bonds were not convertible.  Why are investors willing to take less interest on these bonds than on a non-convertible bond?

  11. For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/Related video resources can be found at http://www.youtube.com/user/accountingheadlinesQuestions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu

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