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Elon Musk’s run-in with regulators and executive exits have made it all but certain that his electric-car company will have to pay $920m to bondholders on Friday after Tesla’s stock failed to rise above a critical price level.
Tesla is on the hook to settle the March 1 convertible bond maturity in cash, the largest debt payment to date in its almost 16-year history. To make some of the payout using stock, the shares would have had to reach a volume-weighted average price of $359.87 for the 20-day trading period that began January 29. The figure was about $306.91 as of Tuesday, the final day of that span.
Cash or stock – but cash likely
Holders must decide on Wednesday if they would rather convert to equity or receive cash, and it’s unlikely they’ll opt for stock.
Based on the trading of Tesla’s shares in the last 20 days, if a holder decided to convert their investment to stock, they’d receive a conversion value of $850 between cash and shares, instead of the $1 000 par value at maturity that Tesla would pay out fully in cash.
Tesla had about $3.7bn of cash and equivalents as of December 31, more than enough to make the principal payment plus another $1.15m in interest. A representative for Tesla referred to comments in the company’s fourth-quarter shareholder letter, which said it had "sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019."
Tesla’s shares haven’t closed above $359.87 since December 14. When reporting fourth-quarter earnings on January 30, the company missed analysts’ estimates and said its longtime chief financial officer was resigning. More recently, Tesla’s critical Model 3 sedan lost a coveted recommendation from Consumer Reports, and Musk is running into regulatory trouble again because of his tweeting. The stock is down more than 10% this year.
Should bondholders want to convert, Tesla said it would settle the conversion with a 50/50 split of cash and stock, Bloomberg reported in December.
