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You can fool some of the people some of the time, but not usually those in the credit markets.

In the three weeks since Tesla (TSLA) Chief Executive Elon Musk’s controversial tweet about taking the electric-auto company private, its share price swung wildly amid the constantly changing odds that the scheme would actually come off.

By contrast, Tesla’s main junk-bond issue barely budged. While the stock popped as high as $379.57 on Aug. 7 in the frenzy after Musk’s going-private tweet that Tuesday afternoon, from $341. 99 at the previous day’s close, it subsequently gave back all of that gain, and then some. Monday’s close was $319.27.

The SEC filed a lawsuit against Elon Musk for securities fraud over a market-moving tweet in August about possibly taking Tesla private. The news is just the latest development in a tumultuous year for the CEO. Photo illustration: Heather Seidel/The Wall Street Journal

But after a small uptick in the week following the tweet heard round the financial world, the 5.30% bonds due Aug. 15, 2025, traded steadily lower. From a price of 91.41 ($914.10 per $1,000 face value bond) at the close on Aug. 6, the bonds fell to 90.40, according to TRACE data. The bonds traded up to 92.55 on Aug. 14 (still below their 93.58 recent high on Aug. 2 , which followed Tesla’s favorable quarterly earnings) before slumping to 87 on Aug. 20 and 87.50 by Monday’s close.

The failure of the Tesla bonds to trade up anywhere close to their par value implied significant doubt in the credit markets that any deal would be forthcoming. That’s because the bonds carried a feature that would give bondholders a price of 101 were there a change of control of the company.

High-yield bond investors were skeptical that a leveraged buyout or an equity-financed deal could be completed, which would have triggered that put option on the Tesla bonds, according to Cliff Noreen, deputy chief investment officer at MassMutual, the insurance company.

This was even before Musk’s confessional interview with the New York Times, which convinced the equity market that no deal was forthcoming and sent Tesla’s shares plunging almost $30 on Aug. 17.

From the debtholder’s unsentimental view, it seemed far-fetched that a low-junk-rated company (Moody’s Investors Service has Tesla at Caa1, and Standard & Poor’s rates it B-minus) could mount what would have been a record leveraged buyout, Noreen observes. Bond investors focus on the capacity to repay debt, which was difficult given nobody knew if Tesla’s borrowings would amount to $10 billion or $100 billion, he says with only slight exaggeration.

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More to the point, Ebitda (earnings before interest, taxes, depreciation and amortization) and free cash flow are highly uncertain. That’s the polar opposite of the classic LBO candidate, which provides steady free cash from a mature business to service debt, rather than burning cash to finance rapid growth.

Monday afternoon’s price of 87.25 left Tesla bondholders to mark the first anniversary of the bonds’ life this month with a loss of 12.75% relative to the original par issue price, bringing the yield to maturity to 7.70%. The price decline over the past year is more than twice the 5.30% coupon investors clipped.

In relative terms, which is how bond pros measure valuation, the bonds’ spread versus the yield on benchmark Treasury securities has widened to 4.89 percentage points from 3.20 percentage points at the original issue price.

That said, Tesla is “a great company with a great, high-quality product,” but whose stock is “years ahead” of itself, in Noreen’s view. But the high yield and wide spread on the bonds speak to financial risks the company still faces, whether private or public.

Write to Randall W. Forsyth at randall.forsyth@barrons.com