2017 Investor Roundtable:General Discussion

[30seconds]

Do you think it may have anything to do with this from p 35 of SCTY's 10k ?:

"As of December 31, 2016, we were in compliance with all financial covenants contained in our debt agreements, and we expect to remain in compliance with these financial covenants. However, if our assumptions prove inaccurate and we are unable to adjust our operating plan to comply with these financial covenants, then we could be in default under our debt agreements. In that circumstance, the amounts outstanding under our debt agreements could be accelerated, which would negatively impact our liquidity and capital resources. In particular, under the terms of our secured revolving credit facility, the occurrence of an event of default with respect to a credit facility (including both recourse and non-recourse indebtedness) having an aggregate principal amount of more than $10.0 million could trigger a cross-default that could result in the acceleration of or the taking of other remedies under our secured revolving credit facility. In addition, the occurrence of an event of default that results in the acceleration of more than $50.0 million of recourse indebtedness could trigger a cross-default that could result in the acceleration of or the taking of other remedies under our convertible senior notes.

Under the terms of our secured revolving credit facility, we are subject to the following financial covenants:

Interest Coverage Ratio: We are obligated to maintain an interest coverage ratio of at least 1.5-to-1 as of the end of each fiscal quarter. The interest coverage ratio is measured by dividing (a) an amount equal to the excess of (i) our trailing 12-month consolidated gross profit over (ii) 20% of our trailing 12-month consolidated general and administrative expenses by (b) our unconsolidated trailing 12-month cash interest charges excluding interest charges on non-recourse debt.

Unencumbered Liquidity: We are obligated to maintain unencumbered liquidity at an amount equal to at least 20% of the sum of (a) the amount committed under our secured revolving credit facility plus (b) the aggregate outstanding principal amount of Solar Bonds that mature prior to our secured revolving credit facility’s maturity date, as of the end of each month. However, unencumbered liquidity must always be greater than $50.0 million, as of the end of each month. Unencumbered liquidity is defined as our average daily balance of cash and cash equivalents, in deposit accounts controlled by the borrower or the guarantors of our secured revolving credit facility.

Under the terms of a borrowing by one of our subsidiaries, the subsidiary is obligated to maintain a debt service coverage ratio of at least 1.05-to-1 as of certain specified dates and periods. The debt service coverage ratio is measured by dividing (a) the specified cash receipts of the subsidiary less the specified cash payments made by the subsidiary in the period by (b) the scheduled principal payments due and payable by the subsidiary plus the interest payments due and payable by the subsidiary, at the end of the period."

hmm, it may be the Interest Coverage Ratio as SCTY growth stalled as their G&A increased. Since it was a trailing 12 month calculation it may just be hitting now.

 

[MitchJi]

I doubt the nVidia board will cost Tesla $1k. nVidia sells the same GP102 chip to consumers at an MSRP of $699 in the GTX1080 Ti. Tesla's order for these boards was likely the biggest order, in dollar terms, in nVidia's history. I'd be surprised if Tesla is paying more than $800 per board if there are two GP102 chips on the board, if there's a single GP102 it should be well under $500.

Now we just need someone to do a teardown.

But Nvidia is selling Tesla the entire computer and not just the board.

Tesla's version is not liquid cooled. (It has fans on top.) And Elon did say that they reworked the board to take the EyeQ3 chip off. (He said it during the ER call on 2/22/2017.)

Adam Jonas says that it's a liquid cooled super computer.

Costs should decline rapidly due to higher volume a time (Moore's law).

I think that Mike and Ham are underestimating the costs, but are probably close to the ballpark.

 

[elasalle]

Here's When You Can Order Tesla's Solar Roof Tiles this was supposed to happen in April. So there might me more goodies next week.(like midway between quarterly numbers and earnings ..)

 

[brian45011]

Looking at the 10-K I'm seeing $205M of one kind of bonds due in 2018 and $230M of a different kind.
This filing showed up yesterday. These appear to be the closed out bond series. Can anyone find how many of these were issued?
SolarCity - Certification of Termination of Registration

3.00% Solar Bonds, Series 2014/3-3 - $10M

3.00% Solar Bonds, Series 2015/3-3 - $10M

4.40% Solar Bonds, Series 2016/9-1 - $100M, $90M of which was bought by SpaceX

6.50% Solar Bonds, Series 2016/13-18M - $124M, $100M of which was bought by Elon and friends.

So $244M it looks like to me. A bit more than $250M after interest payments. Oddly close in value to the equity portion of the cap raise from a couple weeks ago.

Anybody have any other plausible explanation for what is going on here?

Right now I'm thinking this should be hugely good news come Monday once the analysts have had all weekend to digest what's happened.

Something is clearly up.

"As of December 31, 2016, we had the ability to draw up to an additional $468.0 million under all of our credit facilities. Our secured revolving credit facility, our primary working capital facility, currently has a maximum size of $500 million (with $393.5 million currently committed from several lenders and an additional $106.5 million subject to further conditions) that matures in December 2017"

"Secured Revolving Credit Facility

The Company has entered into a revolving credit agreement with a syndicate of banks to fund working capital, letters of credit and general corporate needs. Borrowed funds bear interest, at the Company’s option, at an annual rate of (a) 3.25% plus LIBOR or (b) 2.25% plus the highest of (i) the federal funds rate plus 0.50%, (ii) Bank of America’s published “prime rate” or (iii) LIBOR plus 1.00%. The fee for undrawn commitments is 0.375% per annum. The secured revolving credit facility is secured by certain of the Company’s accounts receivable, inventory, machinery, equipment and other assets."

The first two redemptions appear to have a lower interest rates than the secured revolver. All four of the Series mature within the next 12 months. Not sure why Series 2016/11-1 which matures 6/10/17 ($90 million of which SpaceX holds $75 million) wasn't included in the Form 15. Seems like it would have saved some pre-paid interest versus Series 2016/13-18M.

Dropping a filing over the transom just before a long holiday weekend (4 days if you count Emancipation Day) may be a coincidence or "hugely good news."

 

[elasalle]

Does anyone know or understand the purchase contracts between Panasonic and Tesla for the cell purchase at Giga factory, and solar panel purchase from Buffalo factory?
1. How many/amount to be purchased a month/quarter?
2. Price (if in contract), or pricing structure?

I'd think, Panasonic would like to make money on their investments in those two factories. This will set a floor to the prices of the solar panels and cells for Tesla.


Without the tweets, SP would be ~$296, below the $300 psychological threshold, leaving a sour mood for the Tesla longs during the long Easter weekend. So Elon came to the rescue with many promises of the future. But he doesn't really care for the SP.

Also, anyone investing in Panasonic? PCRFY ($11.22) does not seem to be going anywhere.

 

[JRP3]

Also, anyone investing in Panasonic? PCRFY ($11.22) does not seem to be going anywhere.

Yes, it's been a disappointment.

 

[erthquake]

Yeah, they do. There's an installed base problem. You have to be compatible with what already exists.

In this case, the *key* thing you have to be compatible with is the standard shipping container.

If I were designing the Tesla Semi, I'd have an integrated trailer (lots of room for batteries), designed specifically to carry a shipping container. This is actually a fairly common form of truck already. Other variations of truck can be made by using different sorts of shipping container.

You're right about the shipping containers. I was thinking they can automate the transfer from shipping container to whatever truck is appropriate for the destination. Perhaps there's not enough to be gained by going smaller than a shipping container. It wouldn't be difficult to design your trailer. Plus trains still use shipping containers as well.

 

[elasalle]

Yes, it's been a disappointment.

Thanks. Same here, still in the red. One would think that with both batteries and new Solar Roofs using panasonic tech, they would be lifted up by Tesla association.

 

[brian45011]

I just can't see the logic behind what they're doing here.

Looks like Elon & the Rive Cousins will get $9.75 million in interest on their $100 million in the 8 months since their August 2016 investment. If my math is correct, that's equivalent to a 14.6% annual interest rate.

 

[racer26]

Looks like Elon & the Rive Cousins will get $9.75 million in interest on their $100 million in the 8 months since their August 2016 investment. If my math is correct, that's equivalent to a 14.6% annual interest rate.

I understand it's good for them personally, but as the Tesla board of directors they have a fiduciary duty to shareholders to act in our best interests.

I can't really figure out how this is a good move from our perspective.

 

[AcesDealt]

I understand it's good for them personally, but as the Tesla board of directors they have a fiduciary duty to shareholders to act in our best interests.

I can't really figure out how this is a good move from our perspective.

(spitballing)

I know my credit score doesn't care how much money I have the bank only what my credit balances look like. This could be some variation of raising creditworthiness. That would imply more debt coming. And frankly, how the heck can they finance the kinds of things they are planning without boatloads more debt.

 

[JBRR]

Can someone think of a single good reason why a company pays pack a bond in full + interest due until maturity?
That is what they just did, correct?

 

[schonelucht]

The simple fact is that Elon stated that Tesla has the best battery at the lowest cost. It is like painting red bull's eye on Tesla's back. With so many "competitors" (a crowded field with a lot of competitors and solutions !) one would think that if anybody had an upper hand on cost, we would most assuredly heard of it.

Again, no. There does not need to be one competitor that rules them all. In one market supplier A has the upper hand because they have access to cheap land grants while others don't (Australia). In a different market supplier B may have the upper hand since they already have the grid connection for a different application (Vattenfall). In yet another market supplier C may have the upper hand because there are import taxes and it it considered local (China). In yet a different market supplier D may have the upper hand because they have a software platform that integrates with a specific utilities platform (the Netherlands). In yet another market supplier E may have the upper hand because they bried the minister involved (Not going to name this one but it's pretty easy to imagine).

The reality is that Tesla went in very hard for the Australian project, then it politics became involved and now there is a public tender for which reportedly they received around 100 tenders. That's the reality of the game Tesla is facing.

 

[geneclean55]

Again, no. There does not need to be one competitor that rules them all. In one market supplier A has the upper hand because they have access to cheap land grants while others don't (Australia). In a different market supplier B may have the upper hand since they already have the grid connection for a different application (Vattenfall). In yet another market supplier C may have the upper hand because there are import taxes and it it considered local (China). In yet a different market supplier D may have the upper hand because they have a software platform that integrates with a specific utilities platform (the Netherlands). In yet another market supplier E may have the upper hand because they bried the minister involved (Not going to name this one but it's pretty easy to imagine).

The reality is that Tesla went in very hard for the Australian project, then it politics became involved and now there is a public tender for which reportedly they received around 100 tenders. That's the reality of the game Tesla is facing.

It's already been reported that the number of battery suppliers for the 90 tenders is a lot less than 90.

 

[brian45011]

That is what they just did, correct?

Yes

Can someone think of a single good reason why a company pays pack a bond in full + interest due until maturity?

I was trying to evaluate whether it might have had something to do with the various covenants in their debt instruments and indentures, but then I recalled being assured:

Those covenants mean next to nothing. ..
"Waiving covenants" is just a standard thing, happens routinely. Particularly when the lenders are investment banks...
Basically, the lenders will agree to additional corporate indebtedness on demand under nearly all circumstances.

so it must be something else. It may be just the substitution of a more favorable variety of "additional corporate indebtedness" that makes up for the early redemption interest penalties. We'll all find out early next week. Before there is an official explanation, trading could be volatile.

 

[Turing]

Looks like Elon & the Rive Cousins will get $9.75 million in interest on their $100 million in the 8 months since their August 2016 investment. If my math is correct, that's equivalent to a 14.6% annual interest rate.

Still would have been way better off buying TSLA shares.

 

[brian45011]

I understand it's good for them personally, but as the Tesla board of directors they have a fiduciary duty to shareholders to act in our best interests.

I can't really figure out how this is a good move from our perspective.

I suggest that a few days ago but was told: URL="2017 Investor Roundtable:General Discussion"]2017 Investor Roundtable:General Discussion[/URL]

 

[Intl Professor]

Yes


I was trying to evaluate whether it might have had something to do with the various covenants in their debt instruments and indentures, but then I recalled being assured:



so it must be something else. It may be just the substitution of a more favorable variety of "additional corporate indebtedness" that makes up for the early redemption interest penalties. We'll all find out early next week. Before there is an official explanation, trading could be volatile.

I'm way out of my knowledge confidence here, but does it relate to an evaluation we are in longer term low interest rate regime and the fed is unlikely to tighten as they were wont to do just a month or so ago? Or is that just another way to understand what you just said? (You can tell why I'm intellectually underwater here.)

 

[schonelucht]

My take : SolarCity is renewing their revolving credit line (matures 2017). But they need to maintain unencumbered liquidity (within the SolarCity part of the company) of 20% of committed funds (roughly $100M) plus the outstanding amount of Solar Bonds that mature before the maturity date of the revolving credit line. By paying back those Solar Bonds, they reduce the need for unencumbered liquidity.

Total outstanding Solar bonds is roughly $300M. I haven't done the math to estimate how much of that is due before let's say end of 2018. But it could be substantial. Add $100M and unencumbered liquidity needed quickly gets close to cash and cash equivalents of $290M.

There is some obvious positive to this with a longer revolving credit line but it clearly comes at an interest expense cost and reduced overall borrowing capacity.

 

[racer26]

I suggest that a few days ago but was told: URL="2017 Investor Roundtable:General Discussion"]2017 Investor Roundtable:General Discussion[/URL]

Do not misunderstand me.

I believe this *is* indeed in our best interests. I do not believe there is any impropriety in this decision. I just can't explain how.