Tesla’s big stock rally after a tweet from CEO Elon Musk that said he is considering taking the company private put an important convertible bond above its conversion price, potentially easing financial pressure on the carmaker.
according to a securities filing.
On or after December 1, 2018 to the debt’s maturity date, the holders can decide to convert the debt into Tesla shares. If Tesla’s stock is above the $359.87 stock price, the holders will likely convert the debt into equity, relieving the company from using $920 million in cash required when the debt comes due in March.
In March Moody’s specifically cited the March 2019 $920 million convertible and the company’s cash burn rate as reasons for its downgrade of Tesla’s credit rating.
Tesla’s skeptics have called into question the state of the company’s financial position. It lost nearly $2 billion last year and so far this year it burned through about $1.8 billion in cash after capital investments through two quarters. The company had $2.2 billion in cash at the end of the June quarter.
Last week Tesla said in its second-quarter update it will generate positive profits and cash flow going forward absent a severe economic downturn. The company expects its cash balance to grow in both the third quarter and fourth quarter. Telsa also guided to GAAP profitability in both quarters.
Several members of Tesla’s board said in a statement Wednesday the board has met “several times” over the last week to discuss Musk’s plan to take the company private.