Wanna bet this is done in Washington, DC, with full media fanfare? Would not surprise me if it's done at the White House. The $12 million in "profit" to taxpayers part should go over quite well.
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Wanna bet this is done in Washington, DC, with full media fanfare? Would not surprise me if it's done at the White House. The $12 million in "profit" to taxpayers part should go over quite well.
Vger
Active Member
I actually hope they do. Both Musk and Obama deserve the credit. It is about time the FUD gets blunted with some brave new truths.
deonb
Active Member
Should invite Bush as well. He's the one who created the program initially.
I think it would just be priceless for Elon to thank Bush for all of the government help that Tesla received, and how much foresight George Bush must have had in the EV future to approve it.
While he's there, he should also thank the shorts (and John Peterson) for having entirely been responsible for the ability to now pay off said loan
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Should invite Bush as well. He's the one who created the program initially.
I think it would just be priceless for Elon to thank Bush for all of the government help that Tesla received, and how much foresight George Bush must have had in the EV future to approve it.
While he's there, he should also thank the shorts (and John Peterson) for having entirely been responsible for the ability to now pay off said loan
Problem is his(Bush) party has come down on the opposite side of this program now for 5 years running; and hard. Hard against the program, hard against picking winners and losers, hard against green, hard against EV, hard against anything against oil. I doubt Bush could even be placed in the event without being run out of his own party-- I'm trying to be careful not to go purely political here- But this is a discussion about repayment of a government loan program, currently supported and expanded by one side of our representation and viscerally attacked by the other. Actually I can see both points of view and wish we could policy somewhere in the middle like we used to- with these programs playing a key role, but limited and targeted for our common good... ahh the good ol' days of yester-year
And I think this is a very good reason Elon has chosen to pay this sucker off early and completely - Tesla will be selling cars to the entire country
Gotta agree here that paying off the DOE loan improves Tesla's political image, especially to some conservatives. That can go a long way.
huntjo
Member
In this hypothetical press conference, I would definitely invite Bush. I think the potential to bring republican talking points in line with Tesla would be beneficial. Homegrown American start up, helping wean off foreign oil. Just because Fox News and republican pundits mistakenly thought that the loan program was vaporware like those high speed trains doesn't mean we can't still reach a lot of more educated republicans who will understand a successful and sound business plan when they see one.
jeff_adams
Member
Here's why I hope Tesla makes this a big deal:
Good for the stock. More publicity means more people checking out the stock performance.
Good for sales. Everyone is attracted to a winner.
Good for Space X. Elon scores major street cred with the government. He makes BOTH parties look good by paying this off.
Good for possible future funding of Hyperloop. Elon will need to work with state and federal officials if Hyperloop is ever to be realized. This payoff will give him a lot of credibility.
Good for the stock. More publicity means more people checking out the stock performance.
Good for sales. Everyone is attracted to a winner.
Good for Space X. Elon scores major street cred with the government. He makes BOTH parties look good by paying this off.
Good for possible future funding of Hyperloop. Elon will need to work with state and federal officials if Hyperloop is ever to be realized. This payoff will give him a lot of credibility.
ModelS8794
Member
Originally Posted by ModelS8794
Working from a rough estimate of what the embedded option is worth (~55-65 million on $600 million principal or 9-11%) the convert buyers are effectively taking on the senior debt credit risk at 3.5-4% YTM or a 270-320bp spread to 5-yr treasury.
from a textbook standpoint you are correct. however in an adverse scenario the conversion option will be worthless anyway. the simple yield would be the end result in that case. to loan money to a company that posted a (meager) profit just once in its 10 year history at 1.5% is just plain dumb imo.
Just to close the loop on this, today's 8-K notes the hedge transaction ended up costing 161 million (!) which means the embedded option on the convert was 26.83% of the principal, and the effective interest rate convert buyers are getting for taking on the senior unsecured credit risk is 8.26% for 5 years - this was actually very expensive debt given where Treasuries are!
One might conclude the massive expense of the hedge transaction was a result of the huge volatility embedded in options pricing on Tesla as of last week... and so for the same reason the warrant that tesla sold as the third leg of the debt financing deal also had a ton of volatility and a high price attached - Tesla received $109.4 million selling the warrants with a $184.48 strike price (the converts have a $124.52 conversion price) which goes a long way to offsetting the huge cost of the convert hedge.
My takeaway - that DOE loan payoff better have some really valuable karma or non-capital cost strategy associated with it, because the debt swap was a ridiculously expensive move versus just sticking with the DOE loan for the remaining term.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I think it will provide very good press for Tesla. But wasn't the genius of this whole thing the way they tied the warrants/convertible debt together with the stock offering to attract institutional investors and by getting the offering sold out quickly at $92 they have in a way taken a valuation that was at one point perhaps ill-supported and the result of a squeeze and made it in to a respectable new "floor" for TSLA?
Holy cow. That was a bit unexpected.
One benefit of early repayment of the loan was apparently the elimination of some 3M warrants the gov't had at strikes $7 and $8.5 - not sure what the conditions were for exercising those. Ref: http://www.thestreet.com/story/1193...-stimulus-as-fourth-us-automaker-emerges.html
Do I understand it correctly that the hedge buys a deferral of dilution until the stock reaches a certain high price ($130?). (If yes, this should mean that call options should have a lower IV in a range that passes that price point?)
One benefit of early repayment of the loan was apparently the elimination of some 3M warrants the gov't had at strikes $7 and $8.5 - not sure what the conditions were for exercising those. Ref: http://www.thestreet.com/story/1193...-stimulus-as-fourth-us-automaker-emerges.html
Do I understand it correctly that the hedge buys a deferral of dilution until the stock reaches a certain high price ($130?). (If yes, this should mean that call options should have a lower IV in a range that passes that price point?)
that's the way I took it as well- but the IV is not conforming to that conclusion, so I assumed my usual ignorance on the matter (that assumption serves me well as normally proven correct). The effective interest rate of 8% sounds high relative to Treasuries (and the DOE loan it replaced), although lower rated/higher risk corporate bonds are getting that return generally. I think the eventual advantages will outweigh the negatives, but it is a close call. There's also conjecture that the new pseudo-lease program potentially violated DOE rules, providing another inducement to pay it off. I would estimate there were many such rules tagged to the DOE loan that made it extremely restrictive for an industry-disruptive company to constrain itself to.
- - - Updated - - -
probably no need for a whole new thread for this- so I'll link it here;
Official announcement of the DOE payoff- Tesla press announcement and Elon comment included
http://ir.teslamotors.com/releasedetail.cfm?ReleaseID=766747
from Elon:
"I would like to thank the Department of Energy and the members of Congress and their staffs that worked hard to create the ATVM program, and particularly the American taxpayer from whom these funds originate," said Elon Musk. "I hope we did you proud."
Ah, but they partially offset the cost of the hedge transaction with a warrant transaction that netted them $109.4 million, so their real cost was only $52 million.
Warrant Transactions
On May 16, 2013, in connection with the offering of the Notes and in order to partially offset the cost of the note hedge transactions, the Company entered into warrant confirmations, as amended on May 20, 2013, with the Hedge Counterparties in substantially the form filed as Exhibit 10.2 to this Current Report on Form 8-K and which is incorporated herein by reference, pursuant to which the Company issued certain warrants (the “ Warrants”). The Warrants allow the Hedge Counterparties to acquire, subject to anti-dilution adjustments, up to approximately 4.8 million shares of Common Stock at a strike price of $184.48 per share, also subject to adjustment. The Warrants would separately have a dilutive effect to the extent that the market value per share of the Common Stock exceeds the applicable strike price of the Warrants. The Warrants were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. The Warrants are separate transactions, entered into by the Company with the Hedge Counterparties, and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Warrants. On May 22, 2013, at the closing of the offering of the Notes, the Company received aggregate proceeds of approximately $109.4 million from the sale of the Warrants to the Hedge Counterparties.
Oh yes- that's right - the third leg; If that all lines up, then their effective rate would be more like 4%.
ModelS8794
Member
Looking at cost of debt and saying it's not "real" because you are buying/selling/embedding equity derivatives along with it kinda muddies the issue. DOE loan was senior unsecured debt costing various rates between 0.9 and 3.4%, maturing in ~5 years. The new debt is senior unsecured maturing in 5 years and costs 8.26% YTM.
Tesla did right by shareholders net selling stock/embedded options/warrants at what appears today to be an excellent price. But the debt... oh, that debt is pricey.
I don't pretend to understand all the intricacies, but that's not a real cost to Tesla either, it's just lost potential gain of shares. They could have just issued new shares and had no real cost, just dilution. I don't see how you can count the cost of the anti-dilution measures with counting all the facets of the transaction. It definitely doesn't "cost" Tesla 8.26% in any real sense (i.e. money they have to spend).
ModelS8794
Member
Take a look at the interest expense line next quarter and tell me if you still believe that to be the case. Of course, that interest expense will be waved away as "partially non-cash" amortization of bond discount by those inclined to do so, plus hey, it's a "fake" expense that gives you a tax benefit. There is such thing as a free lunch after all! (not)
For some more details on this sort of deal, I'd recommend Encore Capital's presentation on their convert bond issuance - obviously their numbers are different but it's the same concept.
Page 4 might be particularly helpful in understanding cost of debt separate from cost/proceeds of derivative transactions.
So I take you believe the DOE loan should have been retained instead of paying the higher interest. Since it so obvious, why do you think they made the choice the made?
ModelS8794
Member
I do not believe that, nor do i think the situation obvious in any way (as this thread has demonstrated all around). i think its an interesting question you ask though, and one not raised until one realizes just how expensive a swap it was. As I said, My takeaway - that DOE loan payoff better have some really valuable karma or non-capital cost strategy associated with it, because the debt swap was a ridiculously expensive move versus just sticking with the DOE loan for the remaining term.
Maybe the answer is a simple one of political expediency. I have never spent much time thinking about politics in my investments, but of course it is a friction we live with every day. Perhaps the negative sentiment aroused by politicians looking to score points at Tesla's expense really is that expensive in terms of forgone demand or roadblocks to strategic progress. Or perhaps there is more to the decision than that. This forum has some serious brainpower; it might help all to lend some cycles to this question?
Audio interview with Elon Musk
At around 5 minutes from the end, he talks about what to spend the money on. Bring forward Model X. Gen 3 req $1bn but expects to fund with cash flow.
Not in discussion with Apple except iPhone integration
Not looking to be taken over - wants mass market affordable car before he would allow that to happen
There are a lot of little bits of information such as cash flow positive etc. Off to work now so someone else can dissect and report in more detail.
Watch this video at http://bloomberg.com/share/video/a2QNfmtwQe64z$oyEXpVEA
Tesla's Musk on Loan Payoff, Financing, Mission
May 22 (Bloomberg) -- Elon Musk, founder and chief executive officer of Tesla Motors Inc., talks about the company's repayment of a $451.8 million taxpayer-supported loan, funding raised in a stock and debt offering, and Tesla's independence and mission.
Musk speaks with Bloomberg's Alan Ohnsman from Washington. (Source: Bloomberg)
At around 5 minutes from the end, he talks about what to spend the money on. Bring forward Model X. Gen 3 req $1bn but expects to fund with cash flow.
Not in discussion with Apple except iPhone integration
Not looking to be taken over - wants mass market affordable car before he would allow that to happen
There are a lot of little bits of information such as cash flow positive etc. Off to work now so someone else can dissect and report in more detail.
Watch this video at http://bloomberg.com/share/video/a2QNfmtwQe64z$oyEXpVEA
Tesla's Musk on Loan Payoff, Financing, Mission
May 22 (Bloomberg) -- Elon Musk, founder and chief executive officer of Tesla Motors Inc., talks about the company's repayment of a $451.8 million taxpayer-supported loan, funding raised in a stock and debt offering, and Tesla's independence and mission.
Musk speaks with Bloomberg's Alan Ohnsman from Washington. (Source: Bloomberg)
For some reason that link didn't work for me but this one may work.
Tesla's Musk on Loan Payoff, Financing, Mission: Video - Bloomberg
Tesla's Musk on Loan Payoff, Financing, Mission: Video - Bloomberg
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