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Tesla May Need To Raise Nearly $4 Billion In Debt

Tesla May Need To Raise Nearly $4 Billion In Debt

Shares of Tesla Motors Inc (NASDAQ: TSLA) are over $8 higher in Wednesday's trading session. The stock is trading at its highest level since the company announced it submitted an offer to buy SolarCity Corp (NASDAQ: SCTY).

Oppenheimer's Colin Rusche weighed in on the issue in a note out Tuesday.

Right off the bat, Rusche notes the "substantial volume of financing needed" in lieu of the newly introduced uncertainty into the investing public's global outlook following Britain's decision to leave the Union.

Rusche's team believes Tesla would require about $3.6 billion in asset-backed debt through 2018 just to maintain working capital & capex.

Related Link: Tesla + SolarCity = The 'Apple Store' For Electricity?

SolarCity would require about $7.8 billion through channels of system refinancing, tax equity, system sales, and new debt.

The monkey wrench for this already financially stressed proposal would be the timing. Rusche says:

"We expect an expedited diligence and offer process, but would not expect a shareholder vote until after Labor Day. We believe this delay could complicate SCTY's ability to refinance assets which could impact its current deployment schedule. TSLA has said it could provide liquidity support in this process which may not be well received by TSLA shareholders."

Axiom Capital's Gordon Johnson said on June 22 Tesla would require roughly $2.1 billion in additional equity given Tesla's known cash position of $1.4 billion. Johnson wrote:

"TSLA will need another ~$2.1bn of equity to acquire SCTY [= $27.5 (midpoint premium) x 76.2mn (98.3mn shares net of Elon’s 22.2mn shares already owned)] – this would again dilute existing TSLA shareholders by another 6% [= $2.1bn ÷ $32,3bn (mkt cap)]."

Although Rusche is only trying to provide a reasonable scenario for what a combined entity could look like, the financing of such a deal combined with the lack of a clear expectation of the potential value to be produced for shareholders appears to be the largest hurdle that would need to be passed. Even if Tesla offers aid on the financing, the likelihood of increased scrutiny from shareholders and the investing public remains elevated.

Shares of Tesla traded up over $8 or 4 percent at $209.84. SolarCity shares were up $0.90 or roughly 3.75 percent.

Latest Ratings for SCTY

Nov 2016DowngradesHoldSell
Oct 2016UpgradesSellHold
Aug 2016DowngradesStrong BuyMarket Perform

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Posted-In: Colin Rusche OppenheimerAnalyst Color M&A News Analyst Ratings Movers Best of Benzinga


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