Thread: Tesla Model 3
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Old 01-25-2019, 02:06 AM   #873 (permalink)
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Originally Posted by JSH View Post
From RedDevil's link:

The bonds have a conversion price of $359.88 per share. If Tesla’s share price is below that amount by the due date of March 1, 2019, the notes must be paid by the company in cash to the holders. If the stock price is above, notes are generally converted into equity shares.
Also from the link.

Tesla can convert the convertible bonds to equity at a price of $359.87 per share and 2.7788 shares per $1,000 principal amount of the 2019 notes. There are three conditions where it can happen.

The first is Tesla’s stock price is trading at 130% of $359.87 for 20 of the last 30 trading days. This may happen but the current price near $250 is not helping. The third way is in specified corporate events, such as mergers, acquisitions, and takeovers.

The second way is our primary interest. If the convertible notes are trading at less than $980 price for $1000 in bonds for five consecutive trading days, followed by another five business days, the convertible debt can be converted into shares. Currently, with a stock price of $258.78 on Oct 14, 2018, multiplying by 2.7788 gives us $719.09, well below the $1000 principal amount.

Pardon the legalese.

Prior to the close of business on the business day immediately preceding December 1, 2018, in the case of the 2019 Notes, and prior to the close of business on the business day immediately preceding December 1, 2020, in the case of the 2021 Notes, the 2019 Notes or 2021 Notes, as applicable, will be convertible only under the following circumstances:

(2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2019 Notes or 2021 Notes, as applicable, for each trading day of such period was less than 98% of the product of the last reported sale price of Common Stock and the applicable conversion rate on each such trading day;

I feel this is the best option. Tesla trades an average of 13.8 million shares a day. Multiplying by the price $258.78 is $3.571 billion traded every day. $1 billion in new shares is not too much for the market to absorb.

There is no guarantee owners of convertible debt will sell new shares right away. They may hold, sell, or hedge. This results in dilution of 2.3% to existing owners (Tesla’s market value is $44.1 billion).

There may be legal language to true up the value to make the bonds whole. That may result in more significant dilution.
From the supplement I linked earlier.

Upon conversion of a 2019 note, we will satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election (as described herein).

AFAIK that means that if the stock price is ~$360 or more, Tesla can settle the bonds with only stock. If it's less than $360, Tesla can settle it partially with stock and partially with cash depending on the stock prices when it's settled.
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