I would also note 2019 convert trades above par - but that's a reflection of the fact it's essentially got 2.8 calls embedded in it. Mar 19 360 calls currently trade around $30/share, so the bond has ~$83 of option premium per $1000 face built in. That implies an option adjusted price of 91.7, and with a trading price of 104, the market is suggesting a ~13% unsecured cost of debt for TSLA. That's pretty steep, but it's tough to draw too much of a conclusion from convert markets - the bond price may be over inflated by hedge funds shorting the stock and buying the convert as a hedge,
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Tesla's Upcoming Debt Obligations (12 Months)
- Thread starter bdy0627
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for the longest time there's been a huge disconnect between options pricing implied in bond prices and options prices in the equity market. i haven't been able to figure it out but generally options embedded in the convertibles have been dramatically cheaper than those in the equity options. it could be you have too much speculation in equity calls, pushing their prices to obscene levels.
i feel there's zero chance of bankruptcy by march 2019, and so a simple arb would be to buy the convert and sell the calls. but it takes a lot of balance sheet and savvy to make the trade worthwhile.
i feel there's zero chance of bankruptcy by march 2019, and so a simple arb would be to buy the convert and sell the calls. but it takes a lot of balance sheet and savvy to make the trade worthwhile.
weird, you truly believe 0% BK before 4/1/19? Part of my thesis is that I think that is over 50% likely
This debt was originally 18 month, 6.5% solar "bonds" marketed by SCTY in August 2016 during the uncertainty about the Tesla's acquisition. Of the $124 million issued, Elon bought $65 million while Lyndon and Peter Rive each bought $17.5 million.
https://solarbonds.solarcity.com/assets/bond_document/184/?filename=prospectus
In April 2017 Tesla/SCTY called early a series of solar "bonds", including these, paying full interest through maturity to the holders (likely to avoid breaching a covenant in SCTY's revolver.) SEC Filing | Tesla, Inc. When questions arose about self-dealing, Electrik checked and was told the insiders had issued promissory notes rather than accepting the early repayment with full interest.
When the promissory notes matured in 1Q18, Lyndon took his $17.5 million plus interest. Elon and Peter Rive extended their promissory notes for another six months until August, 2018. Elon will definitely extend. IMO, even though 6.5% interest for 6 months is attractive, Peter Rive may follow his brother and cash out (he left about a year ago)
i think you'd need a structural event of default.
and still they have assets they can sell or mortgage - including now the gigafactory.
the only way i could see it happening is some event that accelerates debt repayments. and even so, the stock price would have to be such that raising equity to get out of the jam wouldn't solve the problem.
i guess i shouldn't be so brash to say zero, but i'd confidently say an order of magnitude different than your 50%+ estimate.
and still they have assets they can sell or mortgage - including now the gigafactory.
the only way i could see it happening is some event that accelerates debt repayments. and even so, the stock price would have to be such that raising equity to get out of the jam wouldn't solve the problem.
i guess i shouldn't be so brash to say zero, but i'd confidently say an order of magnitude different than your 50%+ estimate.
Some of that cash could have been in lieu of fractional shares.
Yes, even though Tesla had stated for nearly five years that it expected to use cash to settle the principal amount. The shares issued were under a special SEC registration exception.
" Such issuance was conducted as a private placement pursuant to an exemption from registration provided by Rule 4(a)(2) of the Securities Act and was offered only to persons believed to be either (i) “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act or (ii) “qualified institutional buyers” within the meaning of Rule 144A promulgated under the Securities Act."
The $300/share reference is to SCTY's 2020 "Zero" notes (shares only at $300/share--no coupon). Elon has previously converted his, the other larger holder has not. BRIEF-Musk converts SolarCity senior notes into shares of Tesla...
http://ir.tesla.com/static-files/6db4f56e-1532-4cd6-b8dc-3ffbffe35e26
We may also (but are not required to) increase the Conversion Rate as permitted by law for at least 20 Business Days, if our board of directors determines that such increase would be in our best interest, so long as the increase is irrevocable during the period...Notwithstanding the foregoing, in no event will the conversion rate per $1,000 principal amount of notes exceed 21.4868, subject to adjustment in the same manner as the conversion rate as set forth under “—Conversion Rate Adjustments”.
http://ir.teslamotors.com/static-files/8b505499-9f93-48ca-b236-f57aa4f18ef0
(It would not help--only drops the share price from $560.60 to $512.82)http://ir.teslamotors.com/static-files/8b505499-9f93-48ca-b236-f57aa4f18ef0
Two paragraphs below the "best interests" paragraph on page 56 of the prospectus.
"Notwithstanding the foregoing, in no event will the conversion rate per $1,000 principal amount of 2019 notes exceed 3.9597 or the conversion rate per $1,000 principal amount of 2021 notes exceed 3.9597, subject in each case to adjustment in the same manner as the applicable conversion rate as set forth under “—Conversion Rate Adjustments”."
Ironically, the Sunbird checked the Indenture and confirmed that the cap operates in all cases (with the "subject to" caveat for specifically delineated events allowing for other adjustments).
It's not the production of cars but the leasing of cars that allows access to capital under the WareHouse agreement
See Exhibits 10.4 and 10.5 to http://ir.teslamotors.com/static-files/4a522a09-6db4-4503-aca2-bb18f87f6289
Draws against the Warehouse Line are secured by directly leased vehicles. In 1Q18, Tesla transferred most of its "seasoned" S & X direct leases to the trustee of the Asset Backed Notes:
"Cash flows from financing activities during the three months ended March 31, 2018 consisted primarily of $546.1 million from the issuance of automobile lease-backed notes and $177.0 million of net borrowings under the Credit Agreement. Additionally, there were net repayments of $337.6 million under the Warehouse Agreements."
Tesla is not yet leasing M3s (why would they now?) The Warehouse Agreements provide negligible liquidity in 2H18.
The Credit agreements (as opposed to the warehouse agreement) provides this liquidity, and I believe this includes cars in transit along with the Fremont factory that was added recently.
Concur . Are you in agreement that counting un-drawn amounts for the same vehicles under unused commitments in both the ABl and the Warehouse line is duplicating the amount of available cash liquidity?
You're convincing me that I should buy the convertibles. I just haven't been willing to make the effort.
I do not think there's any double counting going on with the same collateral being used for ABI as well as the warehouse line.
So which creditor has a secured interest in a vehicle that Tesla directly leases? Both?
Very small part at most. To witness : if you total the 250 000 shares @ conversion price ($124) + 32M on cash you go well above the $42M of principal that covered this transaction. This was really a conscious decision of Tesla to dilute less and instead pay more cash. Remember this is also the quarter they did the $1.8B junk bond. My best guess it has to do something with some internal valuation rules related to that one or a covenant or something that made it better to take the cash hit instead.
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