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-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.
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-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.