[ad_1]
news
- Tesla credit default swaps, an insurance product designed to protect against a default, surged to their most-expensive level on record Friday.
- The scramble for insurance comes as the SEC filed a suit against CEO Elon Musk for his now-infamous go-private bid that ended in the company remaining public.
- Follow Tesla’s stock price in real-time here.
The Securities and Exchange Commission’s suit against Tesla CEO Elon Musk is wreaking havoc on more than just the company’s stock price, which fell 12% Friday.
On Friday, in the wake of the lawsuit, traders were paying a record amount morning to insure against any possibility of the company defaulting on its debt. That insurance, sold as credit default swaps, or CDS, was going for roughly $295,000 to protect $1 million worth of Tesla bonds, according to Reuters.
Tesla currently has $11.5 billion in outstanding debt, the biggest holder of which is the European insurance giant Allianz. At the end of February, $920 million of that debt is set to come due and has a convert price of $360. Tesla is currently trading 33% below that price, signaling it will likely come due as cash instead of equity for holders of those notes.
Most Wall Street analysts agree that Tesla will need another cash infusion before it reaches profitability — and new capital could be harder to come by after this lawsuit — especially if Musk is forced to step down from the helm, an option sought by the SEC in its suit.
“To be clear, near-term if Tesla is able to ramp the Model 3 over the coming quarters, we believe cash flow should improve,” Joseph Spak, an analyst at RBC Capital Markets said Friday. “Having Elon Musk as CEO has undoubtedly made that easier in the past. Securing attractive funding in the future could be more difficult.”
There is one wonky option, however, that would involve pledging Tesla’s intellectual property as collateral for new loans. There’s one big caveat to that plan as put forward by Covenant Review, and involves a foreign entity stepping up much like Musk claimed Saudi Arabia’s Public Investment Fund was prepared to do.
Tesla shares are down 15% this year.
Now read:
[ad_2]