Tesla Motors (NASDAQ:TSLA) on Friday announced that it has obtained a $500 million credit facility. The credit facility will suffice for working capital and general corporate purposes. The news that Tesla Motors is borrowing even more money flies in the face of the overly bullish theses on the firm. Optimism is high on Tesla because of its impressive growth in sales and revenue.
News of Tesla Motors borrowing didn’t surprise all that much, as it is evident that the company needs cash to run. At the end of the first quarter, Tesla reported that it has $1.5B in cash. However, the company expects to spend about $1.5B this year.
Terms of Tesla Loan Facility
The credit facility was provided by 5 banks including Bank of America and Deutsche Bank. The terms of the loan also allows Tesla to increase its total commitment by $250 million to make a total of $750 million. In addition, Tesla has access to a $100 million Letter of Credit. Tesla can also access a $40 million swingline loan. Tesla also got fair repayment terms with floating interest rates on a 5-year repayment plan.
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Standard & Poors rated the debt issues from Tesla Motors at B- today. The rating does not affect the company’s credit line, which is a private agreement. Instead it refers to the $920 million in outstanding convertible bonds that Tesla Motors currently has on the market.
Standard & Poor’s credit analyst Nishit Madlani said that cash flow for Tesla in 2015 was going to be “decidedly negative.” The outlook for the firm is stable for the time being as the analyst believes that Mr. Musk “could still tap additional sources of liquidity over the next 12 months to fund…ongoing growth investments.”
However, the circumstances surrounding this loan facility raises some serious concerns in my mind. For one, Tesla had its annual shareholder meeting last week. In the meeting, CEO Elon Musk talked about the Model X, Gigafactory, and Battery Swap among others. However, he didn’t deem it fit to hint investors that the company will be taking half a billion dollars in loan.
I find it very hard to believe that Musk just woke up on Friday morning and he decided to apply to $500 million credit facility. The fact that Musk conveniently forgot to mention the loan raises questions about transparency and accountability at Tesla.
Secondly, the exit of Tesla’s CFO, Deepak Ahuja was announced just two days before the announcement of the loan. The CFO is leaving Tesla for early retirement and not for personal reasons. CFO’s don’t just retire (early retirement at that); they don’t leave companies such as Tesla for early retirement. Certainly, they don’t leave after they have spent months working on securing a $500M loan. Hence, the CFO’s sudden exit raises questions about the optimism of top management.
Does the Ahuja know something we don’t know? Is that why he left the accounts before doomsday? These are mere conjectures, but a smart investor might want to dig deeper. You’ll remember that Elon Musk had honestly admitted that Tesla is overvalued. The company trades at 9X it sales value, 39X its book value, and at 70X its earnings per share.
Update 12:54 EST: Added paragraphs about new debt rating from Standard & Poor’s