4 ms·

Cheap debt with enough financial engineering to minimize EPS dilution. TSLA is an ideal stock for convert debt because it's highly volatile (compared to some o

by dpcheng2003 13y ago

Cheap debt with enough financial engineering to minimize EPS dilution. TSLA is an ideal stock for convert debt because it's highly volatile (compared to some other companies) which makes the pricing more attractive and opens it up for a certain class of buyers. Source - I used to price these for a living.

foobarqux 13y ago
Namely convertible arbitrage.
billyarzt 13y ago
These also allow for deductions at Tesla's applicable plain vanilla debt rate, which would be much higher than the cash interest rate on the notes (by using a call spread on top of the embedded option). So there's a tax arbitrage as well. Source: I used to structure and sell these for a living "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 approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. 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."
- dpcheng2003 13y ago
  Billy... it's David Cheng (Hans' buddy). BofA tech ECM desk, FTW.
  - billyarzt 13y ago
    Ha, amazing. FTW for sure! Hope you're well.
    - samelawrence 13y ago
      I always wish stuff like this happened to me on the internet.
      - dpcheng2003 13y ago
        Lawrence! You're exactly the same as I remember. Get it?
        samelawrence 13y ago
        Oh, I get it. I get it a lot.

foobarqux 13y ago

Namely convertible arbitrage.

billyarzt 13y ago

These also allow for deductions at Tesla's applicable plain vanilla debt rate, which would be much higher than the cash interest rate on the notes (by using a call spread on top of the embedded option). So there's a tax arbitrage as well. Source: I used to structure and sell these for a living "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 approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. 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."

dpcheng2003 13y ago
Billy... it's David Cheng (Hans' buddy). BofA tech ECM desk, FTW.
- billyarzt 13y ago
  Ha, amazing. FTW for sure! Hope you're well.
  - samelawrence 13y ago
    I always wish stuff like this happened to me on the internet.
    - dpcheng2003 13y ago
      Lawrence! You're exactly the same as I remember. Get it?
      - samelawrence 13y ago
        Oh, I get it. I get it a lot.