A possible move by Tesla to go private could hurt the electric car maker’s credit standing as cash flow remains tight, according to Moody’s Investors Service.
The ratings agency did not cut it its rating of Tesla’s debt but did express concern about the potential move, calling it “credit negative.”
Tesla founder Elon Musk earlier this week shocked markets when he said he is contemplating moving the company out of the public realm, saying he had the financing for a deal that would be worth $420 a share. Moody’s estimated the size of the transaction would be $71 billion.
Moody’s noted that the company is making progress in production and delivery of its Model 3, has a strong list of orders and is keeping its capital investments lower than expected.
“Despite these positive factors, the company’s liquidity position remains tight,” the agency said. “Tesla’s cash and marketable securities position stood at $2.2 billion at June 30, 2018, as Free Cash Flow was heavily negative through the 2nd quarter.”
The company also has $1.2 billion in convertible debt maturing in less than a year, and could be impacted by Chinese tariffs of U.S. exports. China accounted for 17 percent of Tesla’s revenue in 2017, Moody’s said.
Moody’s has a B3 rating on Tesla’s corporate family rating debt, equating to speculative and below investment grade. It has a Caa1 rating on the senior unsecured debt, which translates to high-yield or junk.
The credit outlook remains negative.
source : CNBC