Will last week’s $1.8 billion financing of Tesla, a company with no profits, mark the pinnacle of this debt bubble?
It’s possible. But whether or not this is the peak, it’s becoming harder to argue with the evidence of an unstable market in American securities.
“That Tesla could come to the market at a little over 5 percent yield for a low-single B rated company, is something of a sign of exuberance,” said Gene Tannuzzo, senior portfolio manager at Columbia Threadneedle, with about $467 billion under management. “Elon Musk is a pretty cool guy but they haven’t figured out how to make money yet and that’s not a lot of yield.”
Traces of froth are also starting to show up in M&A financing. Masayoshi Son’s SoftBank Group Corp., one of Japan’s most indebted companies, still was said to be able to line up as much as $65 billion in financing as it weighs a formal takeover offer for Charter Communications Inc. and looks to possibly merge it with Sprint Corp.
Charter already has $63 billion of debt on its balance sheet, while Sprint carries $40.9 billion. SoftBank has total debt of about $130 billion. Meanwhile, Son’s rival billionaire Patrick Drahi is working on his own potential offer to buy Charter, even though Charter’s market value is about double that of Drahi’s Altice NV and its U.S. unit combined.
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Jeremy Jones, CFA
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