Let's say, for example, you were a builder of electric vehicles and you knew you were toast. You've got 3 billion in cash but outstanding bills piling up.
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During bankruptcy the decision between chapter 11 and 7 comes down to the following: are the existing assets worth more when liquidated or as parts of an ongoing entity?
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Things that liquidate at or near par: -cash -liquid securities in unrelated ventures -contracted payment streams (leases) -some real estate
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Things that liquidate at pennies on the dollar -assembly lines -robots -finished inventory for vehicles only you have the capability to repair
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$TSLA is apparently building cars at an increased rate but not selling them as quicklypic.twitter.com/iStB4fVtJ8
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They're also flying purpose built robots across the globe on chartered airplanes and installing additional production capacity despite not even meeting current capabilities. And they're stockpiling parts for finished products
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Converting cash into stuff that trades for pennies on the dollar is exactly what one would do if you were trying to gain leverage to reorganize instead of going down Chapter 7. Just sayin'
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Also Q2 earnings = not a whisper Q3+Q4 profits would be much easier without all that pesky debt
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If you really believe chapter 7 is a possibility, you should reevaluate your thesis. Full disclosure - I own puts.
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If there's serious fraud, why not? Although I tend to agree, recap is likely
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The fraud is most likely just Elon talking, so securities rather than cooking the books. The near-term short thesis is really highly dilutive recaps with the expectation of additional capital raises to fund these ridiculous growth plans. Basically a series of VC down rounds.
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what makes this time different vs previous cap raises?
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yeah 6 months with no raise plus no insider sales indicates this may be quite a large enforcement event
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what is special about 6 months? pattern has been they raise capital once a year. and last insider sale was in april?
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no last insider open market sale outside of a comp plan was in December. They're probably at >3 bln negative working capital today
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so you are forbidden to sell unless it was part of award vesting? also is there a problem with a negative wc? every automaker has neg wc, very cash inefficient to not take advantage of that
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Fascinating. And due to Elon's unique importance to reorganized Tesla (as chief something, but not CEO) he will get a huge promote, maybe 10 to 15%. If that's what he's thinking, your theory is very credible. Will pledge new stock to support old margin loans. It works. Legality?
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Would be the one of the greatest heists ever
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Just a theory btw. Totally speculation
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The prob is that he then will need a pretty hefty cut of the equity. Loans are already big
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Agreed but it may be the least bad option
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The loans will be repaid automatically when the lenders sell the stock at whatever the 'trigger' price is on the way down. Unless BK happens overnight from $250+ share price, there's no risk of Musk not being able to pay back the margin loans.
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That assumes there will be enough liquidity to sell at that price. Not disputing this though
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