Brian Chappatta, Columnist

Elon Musk Faces New Tesla Foes in Default-Swap Market

The upstart derivatives are pricing in a greater than 40 percent chance of default in the next five years.

July 25, 2018 at 6:09 PM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Tesla’s stock and debt aren’t setting off warning lights.
Photographer: Sean Gallup/Getty Images

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Tesla Inc. Chief Executive Officer Elon Musk already had no shortage of supporters and enemies before the company reportedly asked some suppliers to return a portion of their payments. Since that news broke, he can add traders in credit-default swaps to his list of naysayers.

The cost to insure against Tesla failing to make debt payments surged this week, with five-year credit-default swaps implying a 42 percent chance of a missed debt payment in the next half-decade. As Bloomberg News’s Claire Boston reported, at those levels, it costs about $2 million to protect $10 million of debt. The derivatives go so far as to imply a 10 percent chance of default in the coming year, even though Tesla projected adequate liquidity for at least 12 months in its first-quarter filings.