$500 Million Credit Line Includes Significant Handcuffs and Pledges. Equity Next?

$500 Million Credit Line Includes Significant Handcuffs and Pledges. Equity Next?

The new $500 million one of credit has very tight restrictions and covenants. Tesla has to ask permission for many actions, and must provide and meet financial ratios every month/quarter in order to do anything except maybe go to the bathroom. The terms basically pledge or require Tesla to keep unencumbered every asset that isn't already encumbered, and requires periodic appraisals of the company's inventory and equipment (annually). It is a short leash and is all-done in terms of what Tesla can do on the debt side from here forward. This is the first shoe drop in a series of steps that Tesla must undertake to raise funds to meet its capital investment requirements. Hopefully it will speed up Supercharger construction again. At the end of last quarter Tesla had about $1.5 billion of cash and disclosed about $1.5 billion of intended capital investment this year for things like the gigafactory and the new paint shop. The next step is likely to be a significant equity raise. The current news gets the company through year end and a bit beyond, but a further capital cushion is necessary. The participating lender lineup is a Wall Street Who's Who:

JPMORGAN CHASE BANK, N.A. $ 80,000,000
BANK OF AMERICA, N.A. $ 80,000,000

TOTAL $ 500,000,000

The entire 400+ page loan document is found here:

Heavy reading

NKYTA | 2015年6月12日

Well, you called that one right! Nod.

"This is the first shoe drop in a series of steps that Tesla must undertake to raise funds to meet its capital investment requirements. Hopefully it will speed up Supercharger construction again."

You, sir, are the ultimate "exactly half full glass of water" I have ever come across (in two sentences no less).

I'm not sure whether to give you kudos or weep. ;-)

oildeathspiral | 2015年6月12日


Why do think Tesla opted to issue convertible debt and also purchase dilution hedges for that debt on the last 2 raises rather than just issuing stock? If Tesla does do another raise, do you think they'll hold off as long as possible if the stock isn't near or above the previous high?

shop | 2015年6月12日

Aren't these conditions and covenants pretty standard for a company of Tesla's size? Loans always have encumbrances. Even established companies have covenants on their loans. What's new here, PD?

Pungoteague_Dave | 2015年6月12日

Waiting is a very dangerous thing because you leave your future, and maybe even ultimate survival, in the hands of external events - and not just black swans like occurred in 2007/08. I am on the boards of several companies that have to issue equity regularly. They are REITs, which are in a bear market this year, so the question of when and how to issue needed equity without taking too much dilution is constantly on my mind.

Trying to figure out where a stock price will be in six months or even next week is a tough game if you need the capital. Rules number one, two and three for any prudent capital allocator are: "Never run out of cash." This is why I knew that Tesla would do this raise, to much derision around here from people who said "But Elon said they don't have to - I mean didn't he say they will go cash positive in 4Q15?" When a CEO says what Elon did, he is being coached. It was an exact prelude to the stock offer in 2013 - he said almost the same words 8 days before doing that offer. I give the folks who called me an idiot a bit of a break because most can't read balance sheet or cash flow statement, and haven't tried with Tesla, and tend to take what Elon says at face value, instead of reading between the lines as you must with most dynamic CEOs who want to spin their share price. Just as there was no question that this debt offer would come, there will and must be some sort of significant equity transaction in the next few moths. Not guessing, fact.

Tesla remains in dire need of significantly more capital if the gigafactory and power-wall business plans are to come to fruition - Tesla needs way more capital than they have raised cumulatively in the company's entire history to-date. This is a long game and they are playing it right in terms of the market. Avoiding dilution is a worthy cause, but not at the expense of survival, or even potential risk of a broad downturn that drops all boats. I think their advisors (the same lineup in today's debt deal) will pull the strings and tell Tesla when to issue equity, not the other way around. They know that too much patience can be fatal when capital is needed and the market is fickle. Losing a long-time CFO at a time like this, however, is an unexpected twist. Not sure what to read into that, but CFO moves are often a harbinger.

So my answer, oildeathspiral, is that we don't know when it will happen, but sometime before Sept 30 is assured.

Pungoteague_Dave | 2015年6月12日

Covenants are standard and there is nothing particularly surprising about the details of this issue except the complete lockup of all assets that are not encumbered, and annual appraisal requirement. That one had to be a tough negotiation. If I read it right Tesla cannot move a piece of equipment out of the building without permission. The international nature of their business adds a lot of complexity to the documents, but I have never seen a debt filing that it is this long. The bigger point is that Tesla has now issued all the debt that it can - they have nothing left to pledge without permission, and have no further incremental access to either the bond or preferred markets. The next step has to be a lot of added equity or some sort of significant transaction with a partner.

brad | 2015年6月13日

This is the Model S forum.

lolachampcar | 2015年6月13日

and a perfect place for PD's post!
I remember asking (myself and the forum) back when Elon first mentioned doubling the world's supply of LioN production "where is the money going to come from?". At that time, my guess was $5B for the capacity which was reasonably close to Tesla's market cap. At lease now they are in a better position to fund their plans.

Nice call PD.

bonaire | 2015年6月13日

P_D, general question. You are a realistic person - why did you buy the car (or was it cars, with your recent upgrade) if you actually are saying here that this cash raise keeps the company going for say another year. Aren't you fearful of not having support for your investment in the vehicle? (that's a devil's advocate question)

If Tesla goes well cash-positive, then I suspect more people would purchase the vehicles. But some realists like yourself may hold back as they read the balance sheet today in a rationalistic position.

Most of those on this loan are those who have underwritten other instruments for Tesla. Nothing new there. Of course, they still need to see success with Model X, Model 3 betas coming out soon and so on. I think they wouldn't want to freely give away money without knowing that there is survival at hand.

In order to go cash growth positive, they need to do something about expenses. And with an unfinished GF - and the 2.2 Billion from last year said to be used for the GF, and as such the GF isn't near completion, I doubt that $500 million is enough to finish the job there. It will take some serious car selling to build up enough cash to finish the job all the way through solar array and wind turbine self supporting energy generation. The battery storage division needs to act fast now to get powerpacks sold to utilities. And really, I think that they priced those products too low. $25K for a 100kWh battery pack is actually well below competitor prices. It seems to be nearly "at cost" which is not good for cash flow.

lolachampcar | 2015年6月13日

If I were to guess, I'd say PD saw a good idea with quality execution. These types of endeavors consume cash. Try to double revenue some time through internal growth and you will get my point.

The question is not "is the company going to be ok needing cash?" so much as it is "can these guys manage the growth without pissing off the customer or running out of cash?". Me thinks PD likes what he saw. I know I did.

lolachampcar | 2015年6月13日

I'm just curious if the CFO's leaving was timed to avoid the dilution (which will not pay dividends short term).

bonaire | 2015年6月13日

@lola, our firm has done the double revenue on internal growth over the last couple years - however, it is somewhat painful as it causes some employee churn and yes, sometimes customers react negatively to quality slips. Seems better than quality slips and not keeping up (ie. Radio Shack, K-Mart, CompUSA, many more...) Tesla's turning point right now is good execution of the Model X and maybe a few surprises like early Model 3 release and various other catalysts. A huge "chess-board" with many pieces. Some bishops and rooks were making statements like 500,000 cars a year by 2020, "millions" by 2025 and other factors that try to pull mindshare forward into the future rather than trying to push it there one by one selling harder, daily.

brad | 2015年6月13日

@lolachampcar "and a perfect place for PD's post!"

I simply disagree. This thread should have significant interest levels from owners and potential owners of each model that TMC produces.

I have read and enjoyed and appreciated many of your posts so I know that you know what you are talking about when it comes to the Model S and cars. But, as you surely know, there is a "General" Discussion that includes: "General Discussion about Tesla Motors, EVs, clean tech and more" This thread is more appropriate to be found there. I can't see why this is more pertinent to Model S as apposed to the Rosdster, Model X or even Model 3.

The future of the company depends on the execution and delivery of outstanding Model X and then Model 3. The way they operate and deliver on the next generation of cars is surely more integral to this conversation than it is soley for the Model S.

J.T. | 2015年6月13日

@PD I give the folks who called me an idiot I read everything you write and the replies and I am not aware of anyone calling you an idiot or questioning your intelligence in any way whatsoever. Pompous, arrogant, condescending, insufferable, sanctimonious, egotistical and of course, smug have all been mentioned but idiot, nope, not once. :-)

AlMc | 2015年6月13日

Good call @PDave: I was in the camp that a capital raise of some sort was in order. If before the X release: Interest bearing, if after a successful X release (with stock going to a new ATH?) then it would be stock offering.

I have NO problem with this move by TM and was my central question for EM at the shareholder's meeting this past Tuesday IF I could have gotten to the mic. (Yes, I am still slightly bitter about not getting a chance to ask the question...but, as usual, I digress. :) )

My theory is a stock offering will be planned after successful X launch/ramp that will bring the price to ATH.

@Brad: You are correct that this belongs in a general discussion area but almost everyone I know and many new threads come into the 'S forum' and is usually the only place I check for new info/debate.

Mathew98 | 2015年6月13日

Dang it @JT. How much coffee have you chucked down this morning?


shop | 2015年6月13日

@brad, face it, this forum is screwed up. No one reads the General forum. If you want nicely compartmentalized forums with all discussions in their proper place, go to TMC.

@PD, it seems the $500m debt offering caught you by surprise? I'm not surprised, they hadn't had much debt before, so it only made sense to put in a line that they can tap if and when needed. And, no, I don't think this is a harbinger of an equity offering before 4Q. Now if the stock price hits $300, then I think Telsa may be opportunistic and do a raise then, but I don't see it before then.

tes-s | 2015年6月13日

They need cash, and banks want some security.

I see no issue for Tesla...or the banks.

negarholger | 2015年6月13日

Also this is a "line of credit"... I see it more as an overdraft protection then outright raising capital.

carlk | 2015年6月13日

A line of credit would give Tesla a cushion to wait for or negotiate the best term when there is a real need. A very smart move that, like always, PD will never be able to understand.

oildeathspiral | 2015年6月13日

PD: I respect your expertise so appreciate your response and the key points. Thank you.

SCCRENDO | 2015年6月13日

P_D. We disagree on many things but I do appreciate your insights. You may not be correct on many things but who is. Most of us appreciate good intelligent debate.

Red Sage ca us | 2015年6月13日

Pungoteague_Dave: Thank you for your analysis. I must say though, that I rather agree with tes-s on this. I am also glad that, per your analysis, it seems that a position on the Tesla Motors board is not at stake here. This amounts to being a secured credit card, with a whole lot of of small print, using current equity property as collateral. I'm certain this particular credit card will be locked away under glass, with a sign marked:


rlwrw | 2015年6月13日

Somewhat related: Local news reports that Panasonic will be having some of their people start setting up the first phase of the Gigafactory in August.

brad | 2015年6月13日

@ AlMc and @ shop

I think you are both right. Although this thread should be in the General forum more people (for now) will look at it here. Someday when there are 10 fold more model 3s and investors or owners want to look back and read the history they won't likely find this discussion as it is here - not there.

I will not respond further about this issue - here and encourage the dialogue to carry on.

We Need (integrated) Waze Now!

(There is no need to tell me that the Waze Now comment doesn't belong here. I get that too!)

Pungoteague_Dave | 2015年6月13日

@bonaire "P_D, general question. You are a realistic person - why did you buy the car (or was it cars, with your recent upgrade) if you actually are saying here that this cash raise keeps the company going for say another year. Aren't you fearful of not having support for your investment in the vehicle? (that's a devil's advocate question)"

I actually do not believe that this buys anther year for Tesla. They will use this entire line and all the current cash by the end of 1Q16 at the latest. They must also pull the trigger on additional equity in the next two quarters - I predict in the range of $1 billion, or take on a strategic partner with very deep pockets. I said the same thing in early 2013, and it is interesting that in hindsight, the Musk book now discloses that Tesla almost failed then, and a deal was negotiated with google. Instead of being forced into google's arms, the good S performance, strong press, and solid sales pushed the share price, throwing a lifeline to Tesla, on which they and the bankers successfully executed, albeit with huge subsequent warrant and convert dilution.

Those who think this is an emergency-use line only haven't been watching the balance sheet or cash flow statement, or Elon's very specific disclosure of the upcoming capital spend. They are the same people who responded to me that this would not happen when I said it must. This money will be tapped, and if Tesla can meet the accordion requirements, the added $250M will be used too, also likely by the end of 1Q16, certainly by this time next year. What part of the forward cash requirements don't people get? There's the 3, X roll-out, Supercharge build, and Gigafactory ($5 billion estimated by management, probably optimistic if history is a guide). Panasonic has committed only a couple hundred million for their share of this effort. Much more is needed.

Answering your question about if I thought (and still think) that Tesla was/is on shaky financial ground, why would I buy their car (twice)? I explained this to Tesla fans who questioned me at the time, that cars like this are throw-aways - to be bought with excess money that can be lost if the sponsor fails. I did not predict that they would fail, but that it was possible. How many people in Spring of 2013 thought the awards and accolades meant that Tesla was out of the woods? How many at that time believed what I said, that behind the scene, it was pretty desperate? This is now verified, and was actually more dire than I said. I see all luxury cars as toys, to be written off upon leaving the delivery lot, and no-harm, no-foul if we cannot get warranty coverage later. I also explained at the time that in the event of failure, there will be a strong aftermarket support program. The more cars Tesla sells, the more comfortable we can all be that there will be an industry around the car if Tesla isn't here any more.

Tesla has already made eight times as many cars as Delorean ever produced, yet you can still get your old Delorean serviced 30 years later. In fact, I have my choice of service providers and parts suppliers for my 1952 MG TD - 53 years after they stopped production, and MG only made about 29k of the entire "T" run from the late '40's through 1954. I also own a Zero motorcycle, and there is almost no chance that they will survive independently for the long term. But the motorcycle will still be here, and I have never needed parts, can be pretty self-sufficient, and when they succumb, someone else will want the technology and they will live on in another capital envelope. I believe the same thing will happen if Tesla ultimately tanks. I don't predict that for Tesla, but they still have pretty big mountains to climb, with known and unknown hurdles that are pretty significant. I simply enjoy the car while closely watching the corporate drama play out, ready for whatever happens.

The other side of the calculus on buying a car like this is making an investment in the future and green tech. Despite having a "green" home and a large solar array, I am not a greenie by any means, conceptually oppose most of the subsidies from which I have benefitted, but this car is amazing. As lola speculates correctly above, this car was just too damn compelling to sit on the sidelines and watch. It has changed our family's life and is big part of the tapestry for the journey that we are on. It will be mentioned in any eulogy, unlike other vehicles we have owned. It has been great to be part of this community and to own these amazing cars. Unlike some, it isn't a religion for me, and we still own ICE vehicles that we must for towing and business purposes, just as Tesla has a huge fleet of Ford trucks - and we still buy iCE vehicles for pleasure and exploration - vehicles that can do things and go places no Tesla can go - but the best single thing we have owned in our entire lives is the P85D.

As an example of how we approach bleeding edge technology, I did try to convert one of our work boats last December to electric power. While recovering from heart valve replacement surgery i needed a project, so did the rigging myself with loaner test equipment and lithium-ion batteries from Torqeedo. The end result was that our employees threatened to quit due to reduced travel speed and limited range compared to the ICE outboards, limiting the test boat to only three daily roundtrips to our furthest underwater grounds. After forcing (begging, cajoling, appealing to their better instincts) them to use it for a month, I had to reverse the project after getting back froth P85D cross-country delivery trip, losing about two weeks of personal time, and much well-deserved derision from my managers and staff. I knew before starting the test project that there was no way the economics of this were justified, as the motor and batteries cost three times as much as the regular outboard motors we use on all of our other boats, and the electrical and maintenance savings are not enough to rationalize doing the conversion. However, like the Teslas we have owned, I was, and remain, willing to take capital risks and try new things, hoping they work out, but able to take the loss if they don't. So I pulled out the dirty old engine and gas tank, rigged up new steering, constructed a battery box and array, and made the effort. It didn't work, but is another element of life's tapestry, one for which I am correct teased by our friends in the aquaculture industry. It is fun to try things, sometimes even "irresponsible" experiments.

With that said, I do not actually think it is a responsible decision for most people to buy a Tesla if it is big financial commitment in their lives. I cringe when hearing folks around here taking on loans or leases, or otherwise stretching to buy a MS. My sense is that they really don't understand how much out on limb this company still remains - and many owners could not sustain the issues associated with being orphaned. Comments here objecting to my conclusions confirm this - people believe what they hope is true, not what actually is.

I post here in the S forum because no one reads the general forum. I take your point, thought about it, but don't roll that way. I don't read the other forums either and leave it to @brianh to let us know if anything important happens there. No apologies. Some pictures of my failed electric boat conversion follow:

The ICE boat on the right won this round over the EV boat on the left: | 2015年6月13日

@PD - Cool boat project. Now just add 4 more motors and a few more batteries and you should be good to go! Boats are a great way to burn money - now you can do it at 10x the rate!

oildeathspiral | 2015年6月13日


"and Gigafactory ($5 billion estimated by management, probably optimistic if history is a guide)."

While I agree that the estimate is probably optimistic, Tesla has also said that they expect their share of the fully completed GF will be $2 billion. This is several years down the road.

Tesla has cumulatively spend $1.7 billion on capex from 2006-2014 but expects to spend nearly the same amount on capex in 2015. Superchargers aren't terribly expensive and I thought 2015 GF expenditures were expected to be ~ $300 million which makes me wonder if there isn't something else going on that isn't being disclosed unless Gen 3 related investments are more substantial than it appears eg the 500k unit per year paint facility. Am I way off track?

negarholger | 2015年6月13日

@P_D - you nailed my sentiment on Tesla.

Financially it depends all on the Model X ramp while Model S is holding and the storage business. Storage needs to pay for the GF and MS/MX for Fremont and the infrastructure. If there is a slowdown either internal or external induced it will get tight very fast.

1LuckyGuy | 2015年6月13日

Jesus Christ that was long. You care entirely too much about sharing your thoughts with the people in this forum!

Bighorn | 2015年6月13日

Lots of posters can't keep my attention through two paragraphs--Dave is not one of those people.

J.T. | 2015年6月13日

@Bighorn +1

renwo S alset | 2015年6月13日

BH. You are a patient man. JT. You are just flippin' weird.

JiveMiguel | 2015年6月13日

@1LuckyGuy +1

It appears that our good friend "@DoomDave" is still worried that Tesla will go the way of "WebVan" (realy, Dave - WebVan?), or that the stock will drop to $35/share ...

The bigsuckybanks (my phrase) would not extend the credit line if they didn't believe Tesla was a safe bet.

I just save DoomDave's posts for those nights when I have trouble falling asleep.

Red Sage ca us | 2015年6月14日

Pungoteague_Dave: A lot of what you write reminds me of The Smartest Man I Ever Met -- my Dad. As usual, it is informative and well reasoned. But just because you are probably right, doesn't mean I have to agree with you. The problem is that for all the realism, there is no room left for chance, creativity, or vision.

Believe it or not, there is a method to perceived madness or chaos that remains despite the risktaking and childishness that escapes you. Of course, it helps to be extremely hard headed as well. In the end, there is more than one way to The Way. Be water, my Friend.

Just because your boat project didn't work, doesn't mean it can't work. I know it took a lot for someone with your personality to try it. You must learn to take more from failure than the knowledge that you lost. As I've said here before, I have learned a lot more from the chess matches I lost than from the ones I won.

Yes, everything that Elon Musk takes on is really, truly, very hard. Yes, there is as high probability of failure. But one must have the vision to navigate through the difficulty, spot points of opportunity, and take advantage of them within the moment they are presented.

Sure, everybody has as plan -- until they get hit. But knowing you will get hit lessens the effect somewhat. You accept that the hits will come, tuck your chin, and wade into the fray with the determination to persevere.

With Tesla Motors, there are certain hits that Elon did not expect. But he had to roll with the punches and work with the openings they left him, rather than lamenting the closure of the paths he would have preferred. It isn't easy, certainly requires as much dumb luck as hard work, but that's why challenges and problems are best viewed as opportunities.

Still, I admit I agree with you a lot more than I let on. A lot of that attitude is due to my personal ignorance of the financial calculus. Most, though, is because I keep my eye on the path toward the goal. It is best to race the track, not the obstacles in your way.

When it's over, you may be asked how you did it. The most truthful answer would be 'I don't know'. All of life is a race, a fight, a puzzle, a game, a mathematical equation -- that is in constant motion -- in need of a solution. I may not be able to 'show my work' when done, but I can display the result with pride.

Though it may seem that I dismiss both, I prefer textbooks to self help books. | 2015年6月14日

Wow! I thought I was through with school. P_D is right. Mucho dineros needed to build a car company based on batteries with an intended " average " growth rate of 50% per year. If they deliver 55K cars this year at an average price of $90K and gross margin of 27% there's about $1.3B in the pot to help pay this year's expenses.

The long term problem I see for Tesla is building the Model ≡ with a low enough cost to be able to sell it below $45K with decent gross margin and still have a compelling product. Maybe the energy storage business is a hedge for this challenge. A visit to Fremont showed me that despite all the freaky robots, there is a LOT of labor involved in building the Model S. They have big parking lots and they are all overflowing. Interesting times ahead.

My feeling is that the CFO may be jumping the ship because of the deep waters ahead and the continued aggressive growth path of the company.

bonaire | 2015年6月14日

Thanks for the feedback, P_D. In a way, your reply on page 1 is a compendium of your general posting style over the last year or more. You do qualify the car purchase as 'something compelling that one must do if in the position to do so'.

I wrote more but the spam filter bonked me.

lolachampcar | 2015年6月14日

I appreciate PD but I am more RS than PD.

Sure it is dumb luck to get it right but it took me three tries to get dumb lucky. I'll chalk the luck up to RS and the three tries up to PD :)

In the end, it is the tasks you choose in life that define you. Elon simply likes to play at the very deep end of the risk pool and is doing a good job at getting away with it. Is it skill, dumb luck, Devine intervention,,, I do not know but I can attribute the choice to take on those tasks to Elon's free will. I can also cheer him on.

Bhzmarkz | 2015年6月14日

Is something supposed to be alarming or even out of the ordinary in this financing? It seems like a pretty standard asset-based loan to me but I didn't read the credit agreement in detail or compare it to another credit agt.

What specific section of the credit agreement seems troublesome or even newsworthy?

A summary of the financing is in the 8-K

On June 10, 2015 (the “ Closing Date ”), Tesla Motors, Inc. (the “ Company ”) and its subsidiary Tesla Motors Netherlands B.V. (“ Tesla B.V. ” and together with the Company, collectively, the “ Borrowers ”), entered into an ABL Credit Agreement (the “ Credit Agreement ”) with Deutsche Bank, Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo and Credit Suisse. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $500.0 million (the “ Credit Facility ”), which the Borrowers may draw upon from time to time. The Company may increase the total commitments under the Credit Facility by up to an additional $250.0 million, subject to certain conditions, potentially increasing the Credit Facility to up to $750.0 million. In addition, the Credit Agreement provides for a $100.0 million letter of credit subfacility and a $40.0 million swingline loan subfacility. The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes. The Credit Facility terminates, and all outstanding loans become due and payable, on June 10, 2020. There were no amounts outstanding under the Credit Facility as of the Closing Date.

Availability under the Credit Facility will be based upon periodic borrowing base certifications valuing certain of the Borrowers’ inventory, accounts receivable and equipment, as reduced by certain reserves. Outstanding borrowings accrue interest at floating rates plus an applicable margin of 1.0% for LIBOR rate loans, and 0.0% for base rate loans. The commitment fee payable on the unused portion of the Credit Facility equals 0.25% per annum based on utilization of the Credit Facility.

On the Closing Date, the Borrowers provided an unconditional guaranty of all amounts owing under the Credit Agreement and related credit documents. Certain material subsidiaries of the Borrowers are required to become parties to these guaranties. The Borrowers have also granted security interests in their respective accounts, inventory, certain equipment, certain related assets, specified deposit accounts for the collection of accounts receivable, and certain other accounts to secure all obligations of the Borrowers under the Credit Agreement and the related credit documents. Future subsidiary guarantors are also required to become a party to the applicable security agreements.
The Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. The Credit Agreement also contains customary covenants that limit the ability of the Company and its subsidiaries to, among other things, pay dividends, incur debt, create liens and encumbrances, or redeem or repurchase stock. Under certain circumstances, the Company is required to maintain a minimum fixed charge coverage ratio.
The Credit Agreement contains customary events of default, such as the failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, material breach of representations and warranties, and the failure to meet certain liquidity conditions with respect to the Company’s convertible senior notes. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.

Al1 | 2015年6月14日

Sure, "average" growth rate of 50% per year requires a lot of money. But then the growth rate at least at this point is chosen by Elon and Tesla.

Tesla might as well choose to slow down and grow just 15% instead, or even choose not to grow at all for next few years.

The real question is whether or not Tesla is still able to find funds to fulfill its mission. The answer to that question was "maybe not" in 2010, but in 2013 amidst discussions with Google it was "Yes".

It was the year Tesla paid back 451 million to US government 9 years ahead of time. Companies don't typically choose to do that. Cash strapped companies can't do that even if they choose to. They may have done it to keep government out of negotiations table or improve their negotiating positions or both, but again Tesla was able to do that.

I don't see glass being half empty today.

This could well be the longest credit line document people have ever seen, but how often do people see on what terms banks are willing to open .5 billion credit line to a start up with the credit rating called "junk" just a year ago (unsolicited assessment of 2014 from S&P if I am not mistaken)

They want to reassess every year? Could that be because every so often we read about some breakthrough innovation turning Gigafactory obsolete or a new "Tesla killer"?

Or they can't move piece of equipment without consent? Could that be because unlike REIT-s Tesla equipment that is piece of art on its own and has some real value, like supercharger network, or their newest paint shop or assembly lines etc.?

Banks just want to make sure they have priority in case of business liquidation, that nobody can walk away with anything of true value without paying his debt obligations first. That's all loans are about.

I have a lot of respect for your knowledge and have no doubt S&P typically know what they are talking about. But I disagree with their assessment of Tesla. Looks like so do the banks offering the new credit line.

And if the documents include something you don't typically see, so bee it. Financial innovation doesn't always have to be just credit default swaps.

Even dummy investors understand superchargers, paint shop, assembly lines do have true value and can be businesses on their own even if Tesla is gone. Bank shareholders may actually prefer these to "guarantees" they've seen before.

shop | 2015年6月14日

@lolachampcar, most people who have successful companies would agree that good luck played a part in their success. In Elon's case, you would have to argue the opposite is true. The 2008 financial meltdown was epic in size, and he managed to persevere even with two struggling early stage start up companies. Thats a huge amount of bad luck, and very, very few people have the skill to pull that off.

Pungoteague_Dave | 2015年6月14日

@teslamre "Is something supposed to be alarming or even out of the ordinary in this financing?"

No, the language that you pasted is mostly standard description for secured corporate lines. There are devils in the 400 pages of details that are more interesting. What is different about this financing is that, with all of Tesla's former capital events except the Federal loan, since repaid, they did not have to agree to ask permission for anything, and did not have a limit on how they capitalize the company in other ways.

This document establishes a rigid path forward, and Tesla is now done with any additional debt of any kind unless the banks approve an exception. Tesla also must meet rigid ratio tests. That's new, hence my use of the word "handcuff" in the title. They did not have handcuffs before. They had some rules, such as the requirement to sell a model of the car below $50k in order to maintain the Federal loan - which was why it had to be repaid when the S40 was curtailed.

When you agree to pay for and provide annual appraisals of all of your property, equipment and inventory, and provide individual security interest filings on the unencumbered assets (which typically allow a lender to seize the assets without court action in the case of default), it is a game changer. A logical step for Tesla at this stage, but it does show the box they are in. In some key respects, the ship now has new masters - the banks listed in the OP. High-quality, profitable companies (investment-grade) do not have to do what Tesla did here. Most big public companies have investment grade ratings and can access the unsecured debt market for their lines of credit. Unsecured lines also typically come with some reporting and ratio handcuffs, but nothing like what Tesla was just forced to agree to.

I agree with the comment that the lenders are affirming faith in the business plan in some respects. However, in other respects they are also agnostic about how Tesla does - like a mortgage, they have collateral that is worth far more than the loan, so they will get paid either way. This is not like Tesla's former bond deals, or any form of equity. The banks have leapfrogged up the capital stack here and are the first to get paid if bad things happen. They don't even have to wait for bankruptcy filings, and Tesla cannot forestall - if an event of default occurs, the banks immediately take physical control of the assets (think auto repossession). That is new.

I wonder if the renewed rumors about Elon leaving as soon as the Gen 3 is released might have something to do with the frustration that any CEO would feel from having to answer to Wall Street requirements like are in the new line. Some executives suck it up and move forward, but true entrepreneurs often hate life when they have to constantly ask permission and apply for covenant waivers at every step along the way.

shop | 2015年6月14日

Renewed rumors of Elon leaving after gen 3?? Why characterize it that way? He has ALWAYS, CONSISTENTLY said that he would stay until the gen 3 was released. He never made any commitments after that. Personally, I don't think it wouldn't necessarily be a bad thing for him to move on after that anyways. Tesla is already 3x the size of SpaceX in terms of headcount. gen 3 will mean a 10x increase in size over headcount today. Next comes a pickup truck, Roadster v2 and who knows what else. You need a different kind of person to run a truly big company like that - it just isn't what Elon is interested in doing, and thus he wouldn't be as good at it as someone who relishes commanding a large sprawling company (and has experience doing so).

oildeathspiral | 2015年6月14日


So if "Tesla is now done with any additional debt of any kind unless the banks approve an exception", "true entrepreneurs often hate life when they have to constantly ask permission and apply for covenant waivers at every step along the way" and since you expect an equity offering "sometime before Sept 30 is assured" would you venture a guess as to size? What about selling the convertible note hedges instead?

Bhzmarkz | 2015年6月14日

I asked: "What specific section of the credit agreement seems troublesome or even newsworthy?"

I got the question begging reply: "There are devils in the 400 pages of details that are more interesting."

Which specific devils are you concerned about? Cite the section of agreement. And quote it. It is all right there.

"What is different about this financing is that, with all of Tesla's former capital events except the Federal loan, since repaid, they did not have to agree to ask permission for anything, and did not have a limit on how they capitalize the company in other ways."

The covenants in this credit agt seem roughly the same covenants that every single other secured debt financing, esp for an asset heavy company like a mfr.

If they think the stock price will go up with a successful Model X launch, this buys them time to do another equity raise on better terms. Makes perfect sense.

And note that this isn't a loan -- it is a line of credit. They only draw from it if they need it.

If they truly needed the money, they could just do a bond offering. This is just prudent insurance in case they do need the money before doing another debt or equity offering.

Red Sage ca us | 2015年6月14日

"...a senior secured asset-based revolving credit facility... The Credit Facility terminates, and all outstanding loans become due and payable, on June 10, 2020."

Like I said... A secured credit card with an expiration date. Credit worthiness reviewed annually, more likely to find out if the credit limit can be raised in the interim.

I'd use it 'IN CASE OF EMERGENCY ONLY' but few think of credit the way I do. If someone were [STUPID] enough to give me a $500,000,000 loan, I'd do my best to have turned that into enough of a gain that paying it back would be no issue at the end of term. It is the strings that are attached that make me most wary. Please note that this is only a little more than what was guaranteed in the government loan that allowed Model S development. It should work fine to complete Model ≡, if that is the intent.

JiveMiguel | 2015年6月14日

@teslamre +1, and thank you.

Your post is like walking outside of and fiiling your lungs with fresh air after being trapped in a room full of paranoids suffering from halitosis.

Pungoteague_Dave | 2015年6月14日

"If they think the stock price will go up with a successful Model X launch, this buys them time to do another equity raise on better terms. Makes perfect sense. And note that this isn't a loan -- it is a line of credit. They only draw from it if they need it."

It is irresponsible for any board to make any capital decision based on the possible direction of the company's share price. There are too many externalities that can affect the price - beyond management's control. If Tesla's board were predisposed to act in the irresponsible fashion that you suggest, they would not have issued their last equity at half the price it traded for a few months later. They would have waited. They also would not have issued the converts so dilutively. A responsible management team and board does not bet its future on the market - they bet it on things that they can control, and try to hedge the others. A wise CEO once told me "You take equity when you can get it."

I provided several specifics for things that go beyond standard language in secured credit agreements. That the agreement exists at all is news.

Saying this isn't a loan is absurd. Of course it is a loan. You would't pledge your soul, pay standby fees, or agree to these limits on corporate actions unless you needed it and intended to use it. Look, lines are the cheapest capital available to corporations. This one bears interest at 1% over libor or less, depending on how tapped. Tesla has no source of capital that is cheaper than this. None. It pumps earnings by reducing interest expense - that's a good thing.

"If they truly needed the money, they could just do a bond offering. " Um, no, the existing bonds have covenants too, and you cannot just issue bonds willy-nilly. What part of their cash burn and running out don't people understand? This company is HUGELY capital-intensive and needs far more than it currently has to get where it has already disclosed it intends to go in the next two years. That they need capital isn't guessing, and we now see the price in terms of flexibility and control. Bonds are also WAY more expensive in real cash and dilution terms than floating-rate line debt, at least the way that Tesla has issued its (junk) bonds previously.

We must remember that this is not an investment grade company, or anywhere close. Therefore capital is expensive and dilutive for the foreseeable future. Companies must capitalize on a balanced basis - when adding debt, they must ultimately add equity ratably, or run afoul of the covenants, and lose access to further needed capital. These things are a ratchet. That's why the last time Tesla issued bonds, they also issued new common equity. Stay tuned, that's coming. I predict at least $.5 billion of new common equity before year end, probably more.

JiveMiguel | 2015年6月14日

" ... walking outside and filling your lungs ...". Sorry - sticky keyboard.

.... and +1 to you too, @RedSage.

oildeathspiral | 2015年6月14日

"That's why the last time Tesla issued bonds, they also issued new common equity."

You're mistaken:

"The increase in cash provided from financing in 2014 and compared to 2013 was primarily due to $2.1 billion net proceeds from the issuance of our 2019 and 2021 Notes, including the associated hedge and warrant transactions, representing a $1.5 billion increase in debt financing as compared to 2013. Cash flows from financing in 2013 that did not recur in 2014 included proceeds of $415.0 million from the issuance of common stock in public and private offerings..."

Pungoteague_Dave | 2015年6月14日

@oildethspiral - "You're mistaken:"

I don't see where I said anything incorrect there - your cut-and-paste of the Tesla cash description confirms what I said - the bonds and equity transactions were linked and simultaneous events. Your very clip cites the common stock transaction that was a required part of the bond issuance. No stock, no bonds. The bankers saw to that. What's your issue?