6 ms·

Actually there are a lot of bonds outstanding Per http://ir.tesla.com/static-files/6db4f56e-1532-4cd6-b8dc-3ffbffe35e26 http://ir.tesla.com/static-files/6db4f5

by btilly 8y ago

Actually there are a lot of bonds outstanding Per http://ir.tesla.com/static-files/6db4f56e-1532-4cd6-b8dc-3ffbffe35e26 http://ir.tesla.com/static-files/6db4f56e-1532-4cd6-b8dc-3ff... they have $230 million due in Nov 2018, $920 million due in March 2019, $560 million due in Nov 2019, $113 million due in Dec 2020, $1,380 million due March 2021, and $977.5 million due in March 2022. Plus coupons on all of these payable regularly between now and then. By my count this totals $4.1805 billion. They claim to currently have $3 billion in cash and cash equivalents on hand. But there are various outstanding liabilities. Given a GAAP profit in the $300 million+ range this quarter, and a projected European market twice the size of the American one, this may all be doable. But it is still a balancing act.

dragontamer 8y ago
A lot of companies have a lot of bonds out. Its not necessarily unhealthy to keep some debt around, especially through the 2013 through 2017 timeframe when interest rates were abnormally low. Elon will have to roll over the debt somehow: either into stock offerings or maybe into new bonds. The meager profits reported this quarter aren't anywhere near the amount they need to pay off those debts... even if the profits grow 2x or 3x larger in Q4 and Q1-2019. But, paying off some of those debts will put the company into a stronger position.
- btilly 8y ago
  According to financial theory, how you structure a company has no correlation with its success. Therefore the kind of debt financing that Elon is using is just fine. Financial theory and reality tend to agree except in a crisis. Unfortunately crises do tend to come along periodically. How TSLA weathers the next one will be interesting to see.
  - spectrum1234 8y ago
    What this isn't true. The theory says some debt is optimal due to taxes. However I am rusty on these courses.
  - soVeryTired 8y ago
    The Modigliani-Miller 'theorem' is dangerous nonsense. It proves a fact about a model rather than a fact about the real world. From Wikipedia "The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed". See anything wrong with this picture?
    - sah2ed 8y ago
      I agree with you that the grandparent misinterpreted the theorem as the Wikipedia article includes something similar to your reply: "These results might seem irrelevant (after all, none of the conditions are met in the real world), but the theorem is still taught and studied because it tells something very important. That is, capital structure matters precisely because one or more of these assumptions is violated." [0] https://en.wikipedia.org/wiki/Modigliani–Miller_theorem https://en.wikipedia.org/wiki/Modigliani–Miller_theorem
      - soVeryTired 8y ago
        But it's already painfully obvious that one or more of the assumptions is violated. That should only be surprising if you've spent years being indoctrinated by academic finance or economics.
- user9995 8y ago
  >Its not necessarily unhealthy to keep some debt around, especially through the 2013 through 2017 timeframe when interest rates were abnormally low. The Tesla bonds in question have a coupon of 5.3% and were sold into one of the lowest interest rate environments in history. They currently have an 8.5% yield. Rolling debt over on those terms is not fun.
koreyb 8y ago
All but the Nov loans will most likely convert based on share price. Nov ‘18 will be paid per the conference call.
- btilly 8y ago
  Your claim seems optimistic given that at the current after hours share price, only the December 2020 issue would convert. And just a few hours ago it would not have. Yes, it is possible that in March Tesla could be trading around over 20% above what it was most of today, but it would be unwise to depend on it.
  - dragontamer 8y ago
    I'm not actually keen on the details of the March 2019 bond. A lot of people seem to think its a mandatory conversion (ie: it ALWAYS turns into stock). If its a mandatory convertible, then Tesla pays it off in shares proportional to the value assuming Tesla was $360ish in price. So you "can't lose", you'll get 33% more stocks if TSLA was only $270 to ensure the bond-holder doesn't lose money. I haven't been able to verify the status of the March 2019 convertible however. But just note that mandatory convertible vs non-mandatory is a big detail.
    - btilly 8y ago
      I believe that they are not mandatory. First because articles like http://www.latimes.com/business/la-fi-musk-convertible-bonds-20180808-story.html http://www.latimes.com/business/la-fi-musk-convertible-bonds... indicate that they are not. And also because the potential dilution indicated in the Tesla statement that I linked to shows zero dilution if the stock prices is not sufficient for them to convert. But realizing the huge financial consequences for the company of having the stock price high does shed light on why Elon is so eager to push his stock price up. He would much rather pay in stock than cash. Incidentally the LA Times article indicates that there is a lot more debt than just the issues I listed. That's a list of all of Tesla's convertible debt. But not all of it is convertible...
jjeaff 8y ago
Your comment got me interested and I was looking at this March 2021 bond issuance. Does anyone know how in the world Tesla was able to borrow over $1.3B at 1.25%? There must be some special case here. Who would loan money to Tesla below the rate they could get in risk free t-bills? This is the bond in question. https://markets.businessinsider.com/bonds/tesla_inc-bond-2021-us88160rac51 https://markets.businessinsider.com/bonds/tesla_inc-bond-202...
- dragontamer 8y ago
  Its a convertible. It turns into shares instead of dollars at the end of its lifetime. Furthermore, it was sold below par value. There's 1.25% coupon, but the overall yield is closer to 5% IIRC.

by btilly 8y ago

dragontamer 8y ago

A lot of companies have a lot of bonds out. Its not necessarily unhealthy to keep some debt around, especially through the 2013 through 2017 timeframe when interest rates were abnormally low. Elon will have to roll over the debt somehow: either into stock offerings or maybe into new bonds. The meager profits reported this quarter aren't anywhere near the amount they need to pay off those debts... even if the profits grow 2x or 3x larger in Q4 and Q1-2019. But, paying off some of those debts will put the company into a stronger position.

btilly 8y ago
According to financial theory, how you structure a company has no correlation with its success. Therefore the kind of debt financing that Elon is using is just fine. Financial theory and reality tend to agree except in a crisis. Unfortunately crises do tend to come along periodically. How TSLA weathers the next one will be interesting to see.
- spectrum1234 8y ago
  What this isn't true. The theory says some debt is optimal due to taxes. However I am rusty on these courses.
- soVeryTired 8y ago
  The Modigliani-Miller 'theorem' is dangerous nonsense. It proves a fact about a model rather than a fact about the real world. From Wikipedia "The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed". See anything wrong with this picture?
  - sah2ed 8y ago
    I agree with you that the grandparent misinterpreted the theorem as the Wikipedia article includes something similar to your reply: "These results might seem irrelevant (after all, none of the conditions are met in the real world), but the theorem is still taught and studied because it tells something very important. That is, capital structure matters precisely because one or more of these assumptions is violated." [0] https://en.wikipedia.org/wiki/Modigliani–Miller_theorem https://en.wikipedia.org/wiki/Modigliani–Miller_theorem
    - soVeryTired 8y ago
      But it's already painfully obvious that one or more of the assumptions is violated. That should only be surprising if you've spent years being indoctrinated by academic finance or economics.
user9995 8y ago
>Its not necessarily unhealthy to keep some debt around, especially through the 2013 through 2017 timeframe when interest rates were abnormally low. The Tesla bonds in question have a coupon of 5.3% and were sold into one of the lowest interest rate environments in history. They currently have an 8.5% yield. Rolling debt over on those terms is not fun.

koreyb 8y ago

All but the Nov loans will most likely convert based on share price. Nov ‘18 will be paid per the conference call.

btilly 8y ago
Your claim seems optimistic given that at the current after hours share price, only the December 2020 issue would convert. And just a few hours ago it would not have. Yes, it is possible that in March Tesla could be trading around over 20% above what it was most of today, but it would be unwise to depend on it.
- dragontamer 8y ago
  I'm not actually keen on the details of the March 2019 bond. A lot of people seem to think its a mandatory conversion (ie: it ALWAYS turns into stock). If its a mandatory convertible, then Tesla pays it off in shares proportional to the value assuming Tesla was $360ish in price. So you "can't lose", you'll get 33% more stocks if TSLA was only $270 to ensure the bond-holder doesn't lose money. I haven't been able to verify the status of the March 2019 convertible however. But just note that mandatory convertible vs non-mandatory is a big detail.
  - btilly 8y ago
    I believe that they are not mandatory. First because articles like http://www.latimes.com/business/la-fi-musk-convertible-bonds-20180808-story.html http://www.latimes.com/business/la-fi-musk-convertible-bonds... indicate that they are not. And also because the potential dilution indicated in the Tesla statement that I linked to shows zero dilution if the stock prices is not sufficient for them to convert. But realizing the huge financial consequences for the company of having the stock price high does shed light on why Elon is so eager to push his stock price up. He would much rather pay in stock than cash. Incidentally the LA Times article indicates that there is a lot more debt than just the issues I listed. That's a list of all of Tesla's convertible debt. But not all of it is convertible...

jjeaff 8y ago

Your comment got me interested and I was looking at this March 2021 bond issuance. Does anyone know how in the world Tesla was able to borrow over $1.3B at 1.25%? There must be some special case here. Who would loan money to Tesla below the rate they could get in risk free t-bills? This is the bond in question. https://markets.businessinsider.com/bonds/tesla_inc-bond-2021-us88160rac51 https://markets.businessinsider.com/bonds/tesla_inc-bond-202...

dragontamer 8y ago
Its a convertible. It turns into shares instead of dollars at the end of its lifetime. Furthermore, it was sold below par value. There's 1.25% coupon, but the overall yield is closer to 5% IIRC.