Tesla Motors Announces Offerings of Common Stock and Convertible Senior Notes

[jeffro01]

Just got the following email from Tesla:

Elon Musk to Lead Common Stock Offering; Tesla Intends to Pay Off Department of Energy Loan With Interest
PALO ALTO, CA -- (Marketwired) -- 05/15/13 -- Tesla Motors, Inc. (NASDAQ: TSLA) announced today offerings of 2,703,027 shares of common stock and $450 million aggregate principal amount of convertible senior notes due 2018 in concurrent underwritten registered public offerings. In addition, Tesla has granted the underwriters a 30-day option to purchase up to an additional 405,454 shares of common stock and $67.5 million in aggregate principal amount of the notes.​

In addition,
Elon Musk, Tesla's chief executive officer and cofounder, intends to purchase shares of common stock at the same public offering price for an aggregate purchase price of $100 million. Of this amount, approximately $45 million would be purchased in the common stock offering, and approximately $55 million would be purchased directly from Tesla in a subsequent private placement due to the waiting period requirements of the Hart-Scott-Rodino Act.

The aggregate gross proceeds of the offerings, including the options granted to the underwriters, and the private placement is expected to be approximately $830 million. Tesla intends to use the net proceeds from the offerings to prepay Tesla's outstanding loan from the United States Department of Energy, pay the cost of convertible note hedge transactions and for general corporate purposes.The notes will be convertible into cash and, if applicable, shares of Tesla's common stock. The interest rate, conversion price and other terms of the notes are to be determined.In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions which are generally expected to prevent dilution up to 100% over the offering stock price. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes.

Can someone explain this to me? What does it mean?

Jeff​

 

[dsm363]

Tesla Motors Announces Offerings of Common Stock and Convertible Senior Notes


Exciting news. Paying back the loan even earlier than planned it looks like.

 

[gaswalla]

"Tesla intends to use the net proceeds from the offerings to prepay Tesla's outstanding loan from the United States Department of Energy, pay the cost of convertible note hedge transactions and for general corporate purposes."

 

[AnOutsider]

Nice, it was expected/discussed someone like this would happen. Though, aside from trash talking, how much benefit does tesla gain from early repayment? Could that cash be better used elsewhere?

 

[ckessel]

Can someone explain what this means in layman's terms? I read the release and it's like it was in another language. It's not just another stock offering, it's different somehow?

 

[mitch672]

Nice, it was expected/discussed someone like this would happen. Though, aside from trash talking, how much benefit does tesla gain from early repayment? Could that cash be better used elsewhere?

It could put TSLA in play for a buyout, under the loan program Tesla could not be sold, it will now have that as an option. Perhaps there's a lot more to this than meets the eye

It also gets rid of a debt they would have to reserve cash to pay, allowing them to not worry about it, in the event of a slowdown/downturn in the global economy.

 

[ShortSlaver]

This is great, doesn't dilute much and increases the companies chance of success greatly.

 

[nygiants242]

How are you able to invest in the bonds? What is Tesla's credit rating/what type of return can you expect?

 

[StapleGun]

Aside from the good publicity from repaying the loan, what is the advantage of paying off a low-interest loan instead of using the extra cash for more conventional business operations (R&D, increasing production, etc...)?

 

[DaveT]

Can someone explain how a common stock offering works? At what price is the new common stock sold at? Is it determined by the market or does Tesla/underwriters determine it?

 

[JoNoSaisQuoi]

Nice, it was expected/discussed someone like this would happen. Though, aside from trash talking, how much benefit does tesla gain from early repayment? Could that cash be better used elsewhere?

	cash	shares	price
bonds	67,500,000.00	405,454.00	166.48
bonds	450,000,000.00	2,700,000.00	166.67
stock	224,999,967.48	2,703,027.00	83.24
elon!	100,000,000.00	1,201,345.51	83.24
	842,499,967.48	7,009,826.51
	(465,000,000.00)	USG Loan
	377,499,967.48	cash for second shift

 

[NigelM]

Aside from the good publicity from repaying the loan, what is the advantage of paying off a low-interest loan instead of using the extra cash for more conventional business operations (R&D, increasing production, etc...)?

It makes things much easier for Tesla to raise future capital; given the recent astronomic rise in the share price, this makes sense. I'm not certain that the interest rates were ever published but the level the loans were priced originally priced at may not be as "low" as Tesla might find today.

Can someone explain how a common stock offering works? At what price is the new common stock sold at? Is it determined by the market or does Tesla/underwriters determine it?

Usually it will be at the spot price at the time of the offering. It obviously can't be below market price and nobody would subscribe if it was above market price.

 

[CanuckS#69]

The other interesting thing that this will do is remove the loan payments from the bottom line in future quarters, which could potentially increase profitability substantially.

 

[kenliles]

Why would a dilutive offering that clears substantial short positions be a positive mover on the stock that is already short squeezed beyond 'normal' valuations?

 

[ModelS8794]

Why would a dilutive offering that clears substantial short positions be a positive mover on the stock that is already short squeezed beyond 'normal' valuations?

Musk buying 1/3 of the equity raise is a major factor contributing to that, IMO. Vote of confidence (at a "high" price), and those shares will not add to the float. The net common stock offered (net of Musk's participation) is about 2.6 million shares, only about 2-2.5% of shares outstanding and maybe 10%(?) of the open short interest.

 

[gregincal]

Why would a dilutive offering that clears substantial short positions be a positive mover on the stock that is already short squeezed beyond 'normal' valuations?

There were 27 million short shares a couple weeks ago and well over a hundred million shares changes hands over the last few days. Any short that wanted to cover did. Volume was down today and the price held, which shows that the current price is no longer due to shorts being forced to buy. An additional couple million shares being sold isn't going to change the short situation any and the market obviously feels it puts Tesla in a stronger position.

 

[ckessel]

Why would a dilutive offering that clears substantial short positions be a positive mover on the stock that is already short squeezed beyond 'normal' valuations?

Given so much of TSLA's price is banked on future potential, I can understand if the market thinks this gives Tesla's potential enough additional upside to offset the dilution.

I'm still not clear on what the offering actually means. What does it mean for "notes to be convertible into cash" and what art the "convertible note hedge transactions and warrant transactions"?

 

[kenliles]

There were 27 million short shares a couple weeks ago and well over a hundred million shares changes hands over the last few days. Any short that wanted to cover did. Volume was down today and the price held, which shows that the current price is no longer due to shorts being forced to buy. An additional couple million shares being sold isn't going to change the short situation any and the market obviously feels it puts Tesla in a stronger position.

yep, clearly it does. but if 27M short shares still exist, how was today's action not supporting by that- I read the charts to say after an early fall to $78, the shorts stepped in big time to clear. I'm clearly wrong though as at least the AH market seems to like this well enough to add valuation;

 

[Zythryn]

Aside from the good publicity from repaying the loan, what is the advantage of paying off a low-interest loan instead of using the extra cash for more conventional business operations (R&D, increasing production, etc...)?

Other thoughts/advantages:
Makes it easier for ultra conservatives to change laws (NC, Texas, etc) making life difficult for Tesla to do business in their state.

Takes away one of the few negatives people are still making. While any PR is good to get name recognition, TESLA is getting better and better known. So taking the air out of negative Nellie's still out there is big. Especially since all of Tesla Sales are basically word of mouth sales.
Or in short, Tesla wants Rush Limbaugh and Fox viewers as customers too

No more interest or principal payments making it easier to reach profitability as ZEV credits dry up.

I personally think this is bigger than any one of the other announcements so far.

Oh, and isn't it fun to think we have JP and the people shorting the stock to thank, in part, for this?

 

[NigelM]

JP will soon be claiming that Tesla was running out of cash again.....but that's for another thread.