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1/ In a blog post today, @RuerdHeeg suggests $TSLA might allow SolarCity to default on the $182MM term loan that came due in Dec, was extended to Jan, & extended again to April. Link to his blog post at the end of this short thread.
2/ When $TSLA acquired SolarCity in the infamous bailout transaction, it did NOT assume any SolarCity debt. Indeed, while the ABL Agreement (Tesla's crucial secured lending line) allowed money to be down-streamed to SCTY, it prohibited the assumption of SCTY debts.
3/ So, shedding SolarCity debts by allowing it or its subsidiaries to go bankrupt was at that time a theoretical option for $TSLA. Obviously, though, that would undermine the fraudulent Musk story about no-brainer synergies.
4/ The theoretical possibility of an SCTY bankruptcy became problematic last August when SolarCity was required to guarantee the $1.8 billion of $TSLA 5.3% bonds. Now, it would seem, a SolarCity bankruptcy would trigger a default on those bonds. (Correct me if I have that wrong.)
5/ That said, the $182MM due under that SolarCity term loan is a non-recourse, secured obligation. The creditors have no right to pursue a judgment against SolarCity; they are limited to pursuing the collateral. (Again, correct me if I have that wrong.)
6/ So, would a SolarCity default on its term loan, where the creditors can't obtain any judgment, trigger a default under the $TSLA 5.3% bonds? One would need to read the bond documents to have an informed opinion, but it's a key question. (Ruerd, a homework assignment for you?)
7/ But it's likely a moot point. A default under that SolarCity term loan would set off alarm bells. That's why, according to whispers on the street, $TSLA has been running from pillar to post to try to find a new lender. And paying dearly to extend the loan in the meantime.
8/ One thing seems clear: $TSLA's $3.7 billion of cash on hand at the end of Q4 isn't real. It was a manipulated number, created by the usual accounting tricks. Were that not the case, $TSLA could easily pay the $182 million instead of going hat in hand to lenders.
9/ This is yet another signal that cash is much tighter at $TSLA than Musk and his 34-year-old CFO (who reportedly testified yesterday that Tesla is a tech company similar to Apple, and is manifestly unsuited for the job) would have the investing public believe.
10/ And, of course, with the $920MM in converts coming due on March 1, it all becomes far more interesting. I have no doubt $TSLA can pay the converts on March 1. But $TSLA evidently is worried about how it will pay the $182MM in April.
11/ The original sin, of course, was $TSLA's 2016 bailout of SolarCity. Musk pretended it was to capitalize on undoubted synergies and insulted anyone who suggested it was a bailout. But a selfish bailout it manifestly was. Tesla is now paying the wages of sin.
