Remember when you made the specious and patently absurd assertion that if Tesla ever entered into a dealer franchise arrangement anywhere in the USA, California and New York would revoke Tesla's dealer licenses (like California would knee cap its fair haired wunderkind if it tried to sell more the cars it was producing within California in other states by entering into a commercially reasonable transaction that would benefit California rather than having an adverse effect) So as not to embarrass you, I PMed you asking for a reference or citation. You responded I should do my own research and your rate was $100/ hour. I'm not that petty, so I'll try to address your questions.
It would be interesting to see what ratio you think it is. As far as I can tell, the amount of the lines on these things is actually pretty close to dollar for dollar for non-depreciating, non-volatile assets. You can then ask the question of true depreciation rates and pricing volatility on the land, buildings, and manufacturing equipment, and to what extent Tesla makes capital expenditures which do not result in physical capital.
The initial ABL was June 15, 2015 with a limit of $750 million; amendment 5 in December 2015 increased it to $1.25 billion. The relevant definitions of collateral include:
Collateral ” shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document, including all Security Agreement Collateral, all Mortgaged Properties (if any) and all cash and Cash Equivalents delivered as collateral pursuant to Section 5.02 or 11."
ABL Priority Collateral ” shall mean (i) at any time when no Permitted Additional Secured Indebtedness is outstanding, the Collateral, and (ii) at all times when any Permitted Additional Secured Indebtedness is outstanding, “ABL Priority Collateral” as defined in the Intercreditor Agreement (which shall be defined on a basis customary for transactions of this type and, in any event, shall include all cash and Cash Equivalents related to Accounts, all cash and Cash Equivalents subject to a Cash Management Control Agreement, Accounts, Pledged Equipment, Inventory (other than Gigafactory Assets), assets (other than intellectual property) related to Accounts, Inventory and Pledged Equipment and proceeds thereof of the Credit Parties) in each case constituting Collateral."
Tesla - Current Report
The creditors wrote the ABL as expansively as they could to maximize their security. Total Assets at 2Q15 were $6.5 billion and at 4Q16 were $22.7 billion. Admittedly "total assets" is not the same as but could be an analogue to "collateral," but I'll leave it to you to parse through the balance sheet growth in the relevant asset categories over those 18 months if you still think a close to 1/1 ratio applies and the collateral has only grown by only two thirds.
{Also, Tesla's property in Nevada is excluded from the ABL.}
Citation please. I'll need a specific quote from Tesla or the bank.
"
Gigafactory Assets ” shall mean Inventory of the Company or any of its Subsidiaries manufactured, and located, at a Gigafactory and Equipment of the Company or any of its Subsidiaries located at a Gigafactory."
Section 1.1 "b) Notwithstanding anything herein to the contrary, in no event shall the security interest and lien granted under Section 1.1(a) hereof attach to, and
in no event shall the term “Collateral” (and the component terms thereof) include, (i) any property, interest or other rights for so long as the grant of such security interest shall constitute or result in (A) a breach or termination pursuant to the terms of, or a default under, any General Intangible, lease, license, contract, agreement or other document, (B) a breach of any law or regulation which prohibits the creation of a security interest thereunder (other than to the extent that any such term specified in clause (A) or (B) above is rendered ineffective pursuant to Section 9-406, 9 407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other then-applicable law (including the Bankruptcy Code) or principles of equity), (C) require consent of a Governmental Authority or any other Person (other than consent of the Company or any of its Subsidiaries) to permit the grant of a security interest therein (and such consent has not been obtained) or (D) materially adverse tax consequences as reasonably determined by the Company;
provided ,
however , that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation, unenforceability breach or termination shall no longer be effective and to the extent severable, shall attach immediately to any portion of such property or other rights that does not result in any of the consequences specified in clause (A),(B), (C) or (D) above; (ii) any property, interest or other rights with respect to which, in the reasonable determination of the Administrative Agent, expressed in writing, the cost or other consequences of granting a security interest in favor of the Secured Creditors is excessive in relation to the value afforded thereby; (iii) Non-Eligible Motor Vehicles, airplanes and other assets subject to certificates of title; (iv) Equity Interests; (v) Securitization Related Assets;
(vi) all interests in Real Property; (vii) Gigafactory Assets, (viii) Accounts that are identifiable proceeds of the sale or other disposition of property that is not Collateral, (ix) intercompany Accounts outstanding on the Effective Date and (x) Intellectual Property Rights (the assets described in preceding clauses (i) through (x) hereof, collectively, the “
Excluded Assets ”).
{PENA's rights}
Citation please. I'll need a specific quote from the lease terms or from Tesla about the lease terms.
“1.6 Quiet Enjoyment. For so long as Tenant is not in default under this Lease beyond any applicable cure period, Tenant will have, subject to the terms of this Lease, peaceful and quiet enjoyment of the Premises.”
8.1Mortgages. At Tesla’s written request, Tenant will subordinate this Lease and Tenant’s interest and rights under this Lease to any existing or future deed of trust, security deed, mortgage, security assignments and any other similar encumbrances (each, a “Mortgage”), provided that the holder of the Mortgage has executed, acknowledged and delivered to Tenant a commercially reasonable Subordination, Attornment and Non-Disturbance Agreement that provides that: (a) Tenant’s possession of the Premises and other rights under the Lease will not be disturbed in any proceeding to foreclose the Mortgage or in any other action instituted in connection with such Mortgage, (b) Tenant will not be named as a defendant in any foreclosure action or proceeding which may be instituted by the holder of such Mortgage, and (c) if the holder of the Mortgage or any other person acquires title to the Premises through foreclosure or otherwise, the Lease will continue in full force and effect as a direct lease between Tenant and the new owner, and the new owner will assume and perform Tesla’s obligations under this Lease. The holder of any Mortgage may, at any time, subordinate its Mortgage to this Lease, without Tenant’s consent, by giving written notice to Tenant"
tsla-ex101_182.htm
If you want to make the silly assertion that some creditor could be theoretically willing to loan money when PENA has rights of quiet enjoyment and non-disturbance, feel free. But then explain why no one has stepped up so far since Tesla "has incurred $825.3 million and $317.5 million of costs for our Gigafactory 1 as of December 31, 2016 and 2015," and "expects to spend a total of approximately $770.0 million during 2017." Also, note the putative creditor would have to perform Tesla's obligations under the lease (all expense with no benefits) and all the major "players" are already ABL creditors.
I am absolutely 100% sure Tesla won't do that. They will, of course, return to the capital markets. All the indications are that Tesla is gunning to issue bonds, not stock. As soon as they can get into the ordinary bond market, I believe that's where they'll go. And bluntly, Musk said this; he said that if they had to raise money later in the year, he intended to do it in the form of loans, not dilution.
The investment banks would happily have agreed to let Musk sell far, far more shares right now. They would agree to let him sell more shares in 35 days. He doesn't *want* to. He wants to sell bonds. Did you notice that this capital raise, if fully oversubscribed, was roughly *4/5* convertibles and 1/5 stock? And even though the conversion price on the convertibles is lower than the last set, Tesla's hedges, warrants, and the terms were designed to make the conversion even less dilutive than the last set?
When the investment banks indicate that Tesla can sell bonds, that's when he goes to the capital markets. Apparently that wasn't this quarter, and they probably told him he couldn't do it next quarter either.
In some ways, this decision exposes Tesla to even more risk, particularly interest rate risk and refinancing risk. But it does reduce the risk of dilution. So take it for what it is.
The ABL creditors have Tesla by the short and curlies. Are you even aware that Section 10.04 prohibits Tesla from incurring new third party indebtedness, subject to certain standard exceptions to allow it to conduct an on-going business AND ADDITIONAL CONVERTIBLE NOTES? Even if that prohibition did not exist, Tesla has no practical access to traditional debt markets until its Balance Sheet strengthens appreciably. S&P's credit rating for Tesla's debt is B-, four levels into the junk category. A financially sound company's convertible notes traditionally trade right at par until the conversion ratio is reached. Tesla's 2019 and 2021 notes are trading at 190 and 550 basis points below par respectively.
Bonds - Search Results. In the intermediate term, Tesla's only access to new capital will be by issuing new shares. Yes, "The investment banks would happily have agreed to let Musk sell far, far more shares right now." as long as Musk did not mind a huge drop in the share price--the underwriters are not about to get stuck with shares they have to eat. As with most things, price matters.
Foregoing is my opinion; I will leave you with your certainties
