from a textbook standpoint you are correct. however in an adverse scenario the conversion option will be worthless anyway. the simple yield would be the end result in that case. to loan money to a company that posted a (meager) profit just once in its 10 year history at 1.5% is just plain dumb imo.
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from a textbook standpoint you are correct. however in an adverse scenario the conversion option will be worthless anyway. the simple yield would be the end result in that case. to loan money to a company that posted a (meager) profit just once in its 10 year history at 1.5% is just plain dumb imo.
totally agreed. shows just how frothy the capital markets are right now; kudos to elon and tesla for taking advantage of them at such an opportune time.
surfside
Citizen-T
Active Member
Yes. I wonder where the demand came from? Reports are that there was plenty of it.
deonb
Active Member
How much insider information does underwriters get? Do they perhaps have access to the upcoming announcements already?
Wouldn't think it be illegal - Elon has access to that info, and he bought.
ModelS8794
Member
Not textbook, real life. Who do you think ends up counterparty to the convert hedges? Tesla -> Goldman | Goldman -> convert buyer. Most of the convert buyers lock in the spread on day one.
I think the rate is very low too, but it's not 1.5% YTM to the convert buyer. Anyway, kudos to Musk for this whole set-up. Truly a master-class, and IMO he knows it (that's why he's playing the violin in his twitter pic).
Causalien
Prime 8 ball Oracle
As someone who's been eyeing the bond market in order to put some cash for the corporation that's just sitting on the sideline doing nothing. I am comparing TSLA's debt to treasury and the US government's balance sheet isn't something that's really attractive... the yield is worse. That is why, all corporation should issue bonds if they can right now. Fed has really messed up the fixed income market's risk valuation.
Citizen-T
Active Member
Did I miss this earlier? They raised the size of the debt offering, again? http://www.4-traders.com/TESLA-MOTORS-INC-6344549/news/Tesla-Motors-Inc-Tesla-s-Convertible-Note-Sale-Upsized-to-$600-Million-16869927/
Yep, as well as the number of common share sold (3.4 million instead of 2.7). One beeelion dollars!
deonb
Active Member
Mmm... Uhh... Carry the one.
Yeah, that's 2200 superchargers after the DOE loan payback :biggrin:.
Citizen-T
Active Member
What are they going to do with all that cash? Cash is not what is holding up most of their efforts.
May speed up SuperSwapper deployment. Wait for link with upcoming announcements.
Citizen-T
Active Member
luvb2b-
Look at the trading the past 2 days in TSLA. A marked decrease in price range.
The company selling convertibles is genius:
- It allows them to collect a the option premium which had been off the charts
- The holders of the convertible bonds will hedge the stock exposure to lock in the option value. If you are long volatility and hedging then you are selling stock as the price notches up and buying stock as the price notches down. This has the overall effect of dampening volatility. This is extremely beneficial after the huge move up. It helps anchor the price and reduces the future volatility. For long term holders it should help remove any short term anxiety about the stock topping here. Personally, I am much more relaxed holding it here at 92 than as as it was running from 55 to the 80s.
Look at the trading the past 2 days in TSLA. A marked decrease in price range.
The company selling convertibles is genius:
- It allows them to collect a the option premium which had been off the charts
- The holders of the convertible bonds will hedge the stock exposure to lock in the option value. If you are long volatility and hedging then you are selling stock as the price notches up and buying stock as the price notches down. This has the overall effect of dampening volatility. This is extremely beneficial after the huge move up. It helps anchor the price and reduces the future volatility. For long term holders it should help remove any short term anxiety about the stock topping here. Personally, I am much more relaxed holding it here at 92 than as as it was running from 55 to the 80s.
ShortSlaver
Member
I agree. I sold a ton at $80 last week. I figured it's in a short squeeze and should come back down to low $70's or $60's. The announcement of a secondary offering really stabalizes the company though and I agree, holding some at $92 feels safer.
I'm still going to wait for my price (which I'm still debatting) and patience is the key right now. Low $80's? Mid-$70's?
It's just hard to see through all the hype and noise right now to know what's real and fake.
at the current cost of borrowing, it's very tough to hedge a long call position with shorting stock.
as an aside, the cost of borrowing has dropped dramatically this week, by nearly half it seems. a huge amount of the shorts must have covered.
If they continue to kill the volatility they will be draining money from short term traders that lack conviction. Probably a lot of hot money traders are looking for continued quick gains from price swings, but I think it's more likely that were in a range for a bit. A couple of dollars up, a couple down and we're pretty much back where we started. Add onto that a drift due to hot money leaving netted out with shorties throwing in the towel. The rebate has fallen off a cliff so that gives the long term shorts a bit more time, if there are any left. Stock rebate climbing back up over 35% would be bullish in my opinion.
gg_got_a_tesla
Model S: VIN 65513, Model 3: VIN 1913
Would love to work on the software systems in the X and Gen 3!Borrow costs have dropped significantly. If convertible arbs purchased the bonds it's very possible that they were bundled with a stock borrow at a guaranteed rate and this was factored into the overall deal price.
CapitalistOppressor
Active Member
I just posted the link to the most current (and probably final) version of the prospectus for these notes here, and hope to have discussion on the details there as well -
Prospectus for the newly issued convertible notes
The actual prospectus is here -
http://www.sec.gov/Archives/edgar/data/1318605/000119312513226108/d538784d424b5.htm
I wasn't that familiar with this form of financing, but the more I research it and study the prospectus, I am shocked by how attractive this looks. The "problems" of having this debt on Tesla's books are overblown in comparison to the shear amount of capital this gives them going forward.
All of the shenanigans that Luvb2b was talking about earlier seems to just be a common feature of this kind of debt, as opposed to some kind of special attack on the shorts, though it might well end up having that effect. Tesla specifically expects these to be used for convertible arbitrage and lists that as a risk related to owning them.
After looking at the terms, I don't think i care. I am still trying to work through and model how the conversion ratios work, but off hand it looks as though most of this will eventually just be converted into shares if Tesla continues to execute and manages to develop and successfully market GenIII. And crucially, this gives them the capital to do exactly that.
- - - Updated - - -
The most recent number that I saw today was that 13% of the float was estimated to be short right now, compared to ~40% before. Don't have a link.
Prospectus for the newly issued convertible notes
The actual prospectus is here -
http://www.sec.gov/Archives/edgar/data/1318605/000119312513226108/d538784d424b5.htm
I wasn't that familiar with this form of financing, but the more I research it and study the prospectus, I am shocked by how attractive this looks. The "problems" of having this debt on Tesla's books are overblown in comparison to the shear amount of capital this gives them going forward.
All of the shenanigans that Luvb2b was talking about earlier seems to just be a common feature of this kind of debt, as opposed to some kind of special attack on the shorts, though it might well end up having that effect. Tesla specifically expects these to be used for convertible arbitrage and lists that as a risk related to owning them.
After looking at the terms, I don't think i care. I am still trying to work through and model how the conversion ratios work, but off hand it looks as though most of this will eventually just be converted into shares if Tesla continues to execute and manages to develop and successfully market GenIII. And crucially, this gives them the capital to do exactly that.
- - - Updated - - -
The most recent number that I saw today was that 13% of the float was estimated to be short right now, compared to ~40% before. Don't have a link.
Tesla’s Musk Channels Iacocca With Early U.S. Repayment - Businessweek
Looks like Tesla will repay the loan in full next week. Congrats to Elon and the Tesla team. Amazing what's happened in the past month.
Looks like Tesla will repay the loan in full next week. Congrats to Elon and the Tesla team. Amazing what's happened in the past month.
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