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Honestly, I'm starting to think this is less about avoiding the public markets and more about getting out of the crushing debt (8.65 in liabilities comming due

Honestly, I'm starting to think this is less about avoiding the public markets and more about getting out of the crushing debt (8.65 in liabilities comming due before the end of March 2019)that they have coming due in March of 2019. The billion of debt coming due is convertible above a price of $360 and if he can keep the price propped up will almost certainly force all bond holders to convert into equity holders. https://seekingalpha.com/article/4191711-tesla-stealth-capital-raise?ifp=0 https://seekingalpha.com/article/4191711-tesla-stealth-capit... I mean, think about this rationally, if it wasn't for the public markets Tesla would already be bankrupt. Going private means giving up this access to capital as well as having to come up with 9 Billion to fund debt commind due. With stock you have something to bargain with when selling debt. Without it you've lost a huge weapon. Same for paying your employee's. No more tesla stock that appreciates each quarter that you can sell as soon as it comes to you. Also just did some digging on Tesla bonds and CDS... At current levels, they imply a about a 30% chance of a Tesla default in the next five years. It costs around $1.3 million to insure $10 million of bonds against default. And if Tesla went private and he funded it with debt he's looking at a rate somewhere around the low teens from what Bloomberg is reporting which means borrowing $58 Billion to finance this would cost aroudn $7.1 Billion a year in interest payments at 12.5%. And keep in mind he's paying that to cut off public markets access for raising money, one of his best sources of cheap capital in the past 5 years.

wbl 8y ago
Convert optionality is on the buyer side usually.
- chollida1 8y ago
  Yes....usually > Readers should also note that, unlike the 2018 and the 2021 convertibles, where the principal is always repayable in cash, the 2019 convertibles may be redeemed wholly in shares (at Tesla's option and if the requisite conversion ratio has been met). So yes the bond holder can choose to convert after Dec 1st 2018 and Tesla can force them to convert when the bonds come due in March 2019
_ph_ 8y ago
One would think that if he has people willing to invest $50 billion into taking Tesla private that securing a credit of 8 billion looks like a lesser matter in comparison.
zaroth 8y ago
> 8.65 in liabilities comming due before the end of March 2019 Forbes says [1] it’s $920 million due in March 2019 convertible at $360/share, and a total of $1.8 billion coming due through November 2019. You can also check Note 10 on Page 24 of their latest 10Q filing (Quarterly Financials through June 30, 2018) [2] [1] - https://www.forbes.com/sites/jimcollins/2018/04/02/forget-the-autopilot-crash-and-recall-teslas-daunting-debt-repayment-schedule-is-the-real-issue/ https://www.forbes.com/sites/jimcollins/2018/04/02/forget-th... [2] - http://ir.tesla.com/node/18946/html#Notes_to_Condensed_Consolidated_Financi http://ir.tesla.com/node/18946/html#Notes_to_Condensed_Conso...
- chollida1 8y ago
  I think we agree. I started talking about the 8.65 in liabilities due and then started talking about the 1 billion in convertible debt coming due.
deleted 8y ago
[deleted]
radicalbyte 8y ago
All of that is moot if it's the Saudi government buying in. Tesla are by far the most advanced of all "green" car manufacturers; over the next 7-12 years there will be countries banning petrol/diesel cars. If Tesla can scale their battery and car production by that time then you could be looking at a market share of Apple proportions.
- chollida1 8y ago
  If its the Saudi government buying in then CFIUS will have something to say about this. They normally weigh in on takeovers but this is in their jurisdiction as it would be a foreign entity taking on ownership of a US company. If CFIUS allows this or not is definitively up for debate and probably a 50=50 call at this point. At best you can say it would require some negotiation with Saudi Arabia at a time when things are great between the two countries.
  - maehwasu 8y ago
    Relations between the US and Saudi Arabia are good enough right now that this actually might make the deal more likely, rather than less.
  - xkjkls 8y ago
    (First, I don't see any really legitimate possibility that Saudi investment funds are going to pony up $40 billion to take Tesla private, that being said...) I don't see any possible reason why CFIUS would reject this deal. CFIUS deals with national security implications, of which Tesla is not relevant to.
- paganel 8y ago
  > over the next 7-12 years there will be countries banning petrol/diesel cars. Even today you cannot go to downtown Lisbon with a car built in the early 2000s, and last week the city of Turin announced that they'll basically forbid vehicles with Euro3 engines or less from the city's streets (Turin being the birthplace of FIAT and also hosting a most wonderful car museum). The writing is on the wall.
- 8y ago
cs702 8y ago
Makes sense. But note also that if Musk pulls this off, he might be able to do it without external financing, because virtually all Tesla creditors and shareholders today (i.e., people who are in one way or another net-long the company) are true long-term believers in Musk's vision who are unconcerned with the company's short-term financial issues. (People concerned with Tesla's financial issues are either avoiding exposure to the company or betting against it.) True-believer shareholders (including converted creditors) will want to hang on to their shares as the company goes private and shares start trading "by appointment" on less liquid, secondary private equity markets, potentially at more unicorny prices due to the absence of short selling. If I'm right, short sellers are in for a world of pain. They will likely have to scramble to cover their short positions in the face of a limited supply of shares before delisting.
- kgwgk 8y ago
  Most of the equity investors are institutionals that cannot keep the investment in a non-traded stock even if they wanted to. And bond-holders care about the coupon, not about Musk's vision.
- nlowell 8y ago
  Source on virtually all shareholders being long-term true believers? How is that quantified?
  - xkjkls 8y ago
    Long term believers also expect to be paid one day too.
- xkjkls 8y ago
  Define "short term financial issues". I don't know about you, but if I'm someone owed a loan or payment for supplies at a specific date, I expect to be paid in full, regardless of whether I believe in their long term vision. Many of the investors who you call "converted creditors" are not people interested in investing in a highly illiquid stock.
paulpauper 8y ago
You may be right, but history has shown otherwise. Tesla seems to always find a way to defy what seems obvious but is not. Musk would not have made this tweet wit ha specific target unless he was pretty sure he could get it all financed and finalized.
deleted 8y ago
[deleted]
ricardobeat 8y ago
According to internal memos, at SpaceX they have liquidity events roughly every six months, by bringing new investors on board and allowing stock-holding employeees to be part of the transaction. The same could be done at Tesla - new investment rounds would be extremely easy with everyone dying to get onboard the privately held company.
- baxtr 8y ago
  Take out the fancy company names and their famous owner, isn’t what you’re describing then a classical Ponzi scheme?
  - elago 8y ago
    No, because the shares actually represent ownership in a company that's engineering and building rockets. I believe a Ponzi scheme is when you pay "interest" to early investors, via investments from new members. There is never any income generating activity other than recruiting new members. I don't think Ponzi applies to Spacex.
    - confiscate 8y ago
      people LOVE the term "Ponzi scheme", without actually knowing what that term means often, people just use it as a drop-in replacement for the term "organized fraud" example: "isn't JetBlue air-miles just a classical Ponzi scheme?"
    - Hydraulix989 8y ago
      That's a pyramid scheme. I think that SpaceX is also not a pyramid scheme.
      - jcranmer 8y ago
        No, that's a Ponzi scheme. Ponzi schemes and pyramid schemes are very similar. Essentially, a Ponzi scheme is where you pay people based on the enrollment of new people. A pyramid scheme is where the payout is based entirely on the new recruit's ability to recruit more people.
samfisher83 8y ago
If someone is willing to put up 60+ billion dollars. He should have no issue with financing his debt. Tweeting info like this is probably not good for the SEC. I hope he doesn't turn out like Preston Tucker. Tucker: The Man and His Dream is a good movie.

wbl 8y ago

Convert optionality is on the buyer side usually.

chollida1 8y ago
Yes....usually > Readers should also note that, unlike the 2018 and the 2021 convertibles, where the principal is always repayable in cash, the 2019 convertibles may be redeemed wholly in shares (at Tesla's option and if the requisite conversion ratio has been met). So yes the bond holder can choose to convert after Dec 1st 2018 and Tesla can force them to convert when the bonds come due in March 2019

_ph_ 8y ago

One would think that if he has people willing to invest $50 billion into taking Tesla private that securing a credit of 8 billion looks like a lesser matter in comparison.

zaroth 8y ago

> 8.65 in liabilities comming due before the end of March 2019 Forbes says [1] it’s $920 million due in March 2019 convertible at $360/share, and a total of $1.8 billion coming due through November 2019. You can also check Note 10 on Page 24 of their latest 10Q filing (Quarterly Financials through June 30, 2018) [2] [1] - https://www.forbes.com/sites/jimcollins/2018/04/02/forget-the-autopilot-crash-and-recall-teslas-daunting-debt-repayment-schedule-is-the-real-issue/ https://www.forbes.com/sites/jimcollins/2018/04/02/forget-th... [2] - http://ir.tesla.com/node/18946/html#Notes_to_Condensed_Consolidated_Financi http://ir.tesla.com/node/18946/html#Notes_to_Condensed_Conso...

chollida1 8y ago
I think we agree. I started talking about the 8.65 in liabilities due and then started talking about the 1 billion in convertible debt coming due.

deleted 8y ago

[deleted]

radicalbyte 8y ago

All of that is moot if it's the Saudi government buying in. Tesla are by far the most advanced of all "green" car manufacturers; over the next 7-12 years there will be countries banning petrol/diesel cars. If Tesla can scale their battery and car production by that time then you could be looking at a market share of Apple proportions.

chollida1 8y ago
If its the Saudi government buying in then CFIUS will have something to say about this. They normally weigh in on takeovers but this is in their jurisdiction as it would be a foreign entity taking on ownership of a US company. If CFIUS allows this or not is definitively up for debate and probably a 50=50 call at this point. At best you can say it would require some negotiation with Saudi Arabia at a time when things are great between the two countries.
- maehwasu 8y ago
  Relations between the US and Saudi Arabia are good enough right now that this actually might make the deal more likely, rather than less.
- xkjkls 8y ago
  (First, I don't see any really legitimate possibility that Saudi investment funds are going to pony up $40 billion to take Tesla private, that being said...) I don't see any possible reason why CFIUS would reject this deal. CFIUS deals with national security implications, of which Tesla is not relevant to.
paganel 8y ago
> over the next 7-12 years there will be countries banning petrol/diesel cars. Even today you cannot go to downtown Lisbon with a car built in the early 2000s, and last week the city of Turin announced that they'll basically forbid vehicles with Euro3 engines or less from the city's streets (Turin being the birthplace of FIAT and also hosting a most wonderful car museum). The writing is on the wall.
8y ago

cs702 8y ago

Makes sense. But note also that if Musk pulls this off, he might be able to do it without external financing, because virtually all Tesla creditors and shareholders today (i.e., people who are in one way or another net-long the company) are true long-term believers in Musk's vision who are unconcerned with the company's short-term financial issues. (People concerned with Tesla's financial issues are either avoiding exposure to the company or betting against it.) True-believer shareholders (including converted creditors) will want to hang on to their shares as the company goes private and shares start trading "by appointment" on less liquid, secondary private equity markets, potentially at more unicorny prices due to the absence of short selling. If I'm right, short sellers are in for a world of pain. They will likely have to scramble to cover their short positions in the face of a limited supply of shares before delisting.

kgwgk 8y ago
Most of the equity investors are institutionals that cannot keep the investment in a non-traded stock even if they wanted to. And bond-holders care about the coupon, not about Musk's vision.
nlowell 8y ago
Source on virtually all shareholders being long-term true believers? How is that quantified?
- xkjkls 8y ago
  Long term believers also expect to be paid one day too.
xkjkls 8y ago
Define "short term financial issues". I don't know about you, but if I'm someone owed a loan or payment for supplies at a specific date, I expect to be paid in full, regardless of whether I believe in their long term vision. Many of the investors who you call "converted creditors" are not people interested in investing in a highly illiquid stock.

paulpauper 8y ago

You may be right, but history has shown otherwise. Tesla seems to always find a way to defy what seems obvious but is not. Musk would not have made this tweet wit ha specific target unless he was pretty sure he could get it all financed and finalized.

deleted 8y ago

[deleted]

ricardobeat 8y ago

According to internal memos, at SpaceX they have liquidity events roughly every six months, by bringing new investors on board and allowing stock-holding employeees to be part of the transaction. The same could be done at Tesla - new investment rounds would be extremely easy with everyone dying to get onboard the privately held company.

baxtr 8y ago
Take out the fancy company names and their famous owner, isn’t what you’re describing then a classical Ponzi scheme?
- elago 8y ago
  No, because the shares actually represent ownership in a company that's engineering and building rockets. I believe a Ponzi scheme is when you pay "interest" to early investors, via investments from new members. There is never any income generating activity other than recruiting new members. I don't think Ponzi applies to Spacex.
  - confiscate 8y ago
    people LOVE the term "Ponzi scheme", without actually knowing what that term means often, people just use it as a drop-in replacement for the term "organized fraud" example: "isn't JetBlue air-miles just a classical Ponzi scheme?"
  - Hydraulix989 8y ago
    That's a pyramid scheme. I think that SpaceX is also not a pyramid scheme.
    - jcranmer 8y ago
      No, that's a Ponzi scheme. Ponzi schemes and pyramid schemes are very similar. Essentially, a Ponzi scheme is where you pay people based on the enrollment of new people. A pyramid scheme is where the payout is based entirely on the new recruit's ability to recruit more people.

samfisher83 8y ago

If someone is willing to put up 60+ billion dollars. He should have no issue with financing his debt. Tweeting info like this is probably not good for the SEC. I hope he doesn't turn out like Preston Tucker. Tucker: The Man and His Dream is a good movie.