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Moody’s Investor Service on Monday upgraded Tesla Inc.’s (NASDAQ:TSLA) credit rating late Monday, moving it from junk territory to investment-grade status.
What Happened: Tesla’s long-term issuer rating has been upped by one notch from "Ba1" to "Baa3." Moody’s long-term obligation ratings are opinions of the relative credit risk of fixed income dent with an original maturity of a year or more. "Baa" correlates to obligations posing moderate credit risk.
Standard & Poor’s, a Moody's rival, upgraded its credit rating for Tesla from “BB+” to “BBB,” in October, premised on improving production and solid cash flow prospects.
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New York-based Moody’s also withdrew the Ba1 corporate family rating — a rating that denotes junk status, and the Ba1-PD probability of default rating and SGL-1 speculative grade liquidity rating. The outlook is “stable,” it said. A stable outlook indicates a low likelihood of a rating change over the medium term.
The rating changes reflect the agency’s expectation that Tesla, currently under the helm of CEO Elon Musk, will remain one of the "foremost manufacturers of battery electric vehicles with expanding global presence and very high profitability.”
The Austin, Texas-based company’s financial policy and management’s operational track record were also taken into account, it added.
See Also: Everything You Need To Know About Tesla Stock
Why It’s Important: Having an investment-grade credit rating is important because it indicates a relatively low risk of default. Therefore, it becomes easy for a firm to raise finances at relatively easier terms.
Investment grade ratings from two rating agencies are considered as signaling “blue-chip” credit by interest-sensitive investors, Bloomberg said. Even without the two recent upgrades, Tesla’s five-year credit-default swaps were trading in line with high-grade debt, it added.
The EV maker is currently a debt-light company. Debt and finance leases as well as "other long-term liabilities" totaled about $6.9 billion. Including deferred revenue, long-term liabilities come at $9.7 billion. Net debt, which is debt minus cash, is a negative debt of $12.1 billion.
As of now, Tesla may not be in dire need of debt financing and the rating upgrades could benefit by bringing in the positive sentiment attached to them. The EV maker is operating in a capital-intensive industry and it has several promising projects, products and service opportunities in its pipeline. In the eventuality of the company tapping the debt market, these upgrades can come in handy.
In premarket trading on Tuesday, Tesla stock rose 2.56% to $187.96, according to Benzinga Pro data.
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Posted In: TSLA
