Thread by @drinkthecoffee2

This is a thread on $TSLAs shiny new amended and restated ABL. whats new, what does it mean, and why is it important? Warning: high risk of boneheadedness ahead. side effects may include inane youtube nonsense. In case somehow not clear, these ramblings are not advice. 1/

Quick background: $TSLA amended and restated its ABL on 3/6/19 after 10 previous amendments. The ABL lets $TSLA borrow against eligible assets pledged to the lenders as collateral. 2/

By the 20th of each month $TSLA sends DB (who acts as the representative for the lenders) a certificate listing those assets *as of the last day of the prior month*. So, the april cert lists assets as of march 31. The value of those assets is used to calc the borrowing base. 3/

$TSLA can borrow against the borrowing base (BB) up to a maximum of $2.425B (up from $1.925B). As you can see, the BB only limits $TSLA if there arent enough assets. The ABL is mainly for current assets, like new inventory and AR. Used cars *cannot* be pledged. 4/

So whats new? Actually not too much. The max size of the ABL was increased by $500m. The limit on letters of credit was increased from $200m to $400m. Other than that, the amount of *other* debt $TSLA is allowed to take on was increased and a new BB cert feature was added. 5/

The ABL limits how much other debt $TSLA can take on. The biggest change here was the amt of unsecured debt and “non-credit party” debt (china) is allowed when the total leverage ratio is < 6:1. Before? $2b unsecured + $1b of either unsecured or non-credit party debt. 6/

Now? $3b unsecured + $3b of unsecured/non-credit party (but max of $2b unsec). Basically, the new ABL lets $TSLA issue more unsec and non-credit party debt. Keep in mind $TSLA has grown a lot since the limits were first put in place (2015) so it is natural to revisit them. 7/

The new BB feature may actually be more of a tell here. $TSLA now has the right to deliver a 2nd BB cert during the month to update the BB, up to 4x a year. If they do, they must deliver 2x the next month as well. Here, in (z): 8/

Many people think that $TSLA has plenty of collateral to pledge. Just look at the balance sheet! But if $TSLA really was not constrained by the size of the BB, there would be no need to add this right. /9

This could just be lawyers lawyering but it also could mean the value of the assets $TSLA has available to pledge is much lower than people think. Requiring $TSLA to deliver 2x BB certs in the next month could also suggest that lenders were concerned w/ giving this right. /10

Lenders might worry that when $TSLA uses this right, its because assets are swinging wildly and wont be around long. So, they want a second look next month too. 11/

These are just inferences. But together with other signs of stress like pledging the fremont factory, it suggests all may not be well with the ABL. But hey, whats another $500 mil between friends? 12/