[dragontamer]

That's a solid point, and I guess the stock market is a bad figure to talk about bankruptcy.

Instead, we can look at the Bond market for that. Moody's rates Tesla 2025 bonds at Caa1, and today the interest rate on Tesla has risen above 8.8%

The bond market certainly is pricing in the risk of default and/or bankruptcy at this point. 9%ish bonds are really bad on a 7-year bond, especially in today's market that's got relatively low-interest rate.

[whatok]

I work at a hedge fund specializing in corporate credit. No serious market participants think that Tesla is going actually bankrupt but does run the risk of debt restructuring. Bankruptcy vs debt restructuring would happen under very different terms. As a better metric clogged by less noise, Tesla 1yr CDS is pricing in a 12% chance of default while 2yr is 20%. The bonds you mentioned should actually be a lot lower but they had a large retail allocation and are hard to borrow to short.

BTW, you mention the "interest rate" on those bonds when I think you meant yield. Very big difference.

[phamilton]

> BTW, you mention the "interest rate" on those bonds when I think you meant yield. Very big difference.

I'm not very knowledgeable here, but is the key difference that yield is more a result of the market (i.e. bonds fluxuate in value but the return on the bond itself is fixed, so the yield reflects the relationship between cost and payout)?

[dragontamer]

He's right. I misused the terms. "Interest rate" isn't precise at all, and since we're talking finances, the details are actually important and I should have been more careful about which terms I used.

There is a "coupon", which is the amount a bond pays each year. Which is one kind of interest rate.

There is the "yield to maturity", and since Tesla's 2025 bond seems like a normal bond, so Yield implies yield-to-maturity. This is another "interest rate" but just saying "interest rate" is meaningless.

Since coupon vs yield is ambiguous, I should have used more precise language earlier.

> bonds fluxuate in value but the return on the bond itself is fixed, so the yield reflects the relationship between cost and payout

Yes.

[whatok]

If I were to hear interest rate mentioned in relation to a bond, I would assume they were talking about the coupon which in this case is fixed. I think you have the right understanding, various yield methods basically are just the IRR of the security under different assumptions. If you bought at par and held to maturity, the yield would be equal to the coupon which in this case is 5.3%. Without knowing where the bond is actually trading, given that it has a yield higher than its coupon, you know that it is trading below par; the difference is how much it is trading below par under the assumption you get 100% of the principal at maturity.

I wouldn't normally refer to the return as "fixed" as that is primarily only used in reference to the coupon and because of the fact that you mentioned earlier in that sentence; bonds fluctuate in price so the yield is regularly changing given a change in price.