Source: Tesla Motors
quote: He explained in his Seeking Alpha article that the Leverage Ratio terms prohibited Tesla’s consolidated debt from exceeding 6.5 times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the 4th quarter of 2012, and 4.5 times EBITDA for each quarter in 2013. Because the company could not meet those standards, DOE lend-o-crats awarded a waiver in Feb. 2012 that delayed the effective dates of those ratios, but also required Tesla to set aside its loan payments ahead of time in a segregated account. A second waiver that delayed the Leverage Ratio requirement was granted on March 1, 2013, but the requirements to accelerate repayment of its loan became even more onerous as a result. “Both waivers were presented to the market as triumphs of financial engineering,” Petersen wrote, “but they were basically an up-market equivalent of a credit card issuer increasing minimum payments for a troubled cardholder.” Because, according to Petersen’s analysis, Tesla had no chance of raising 2013 earnings (EBITDA) high enough (an estimated $220 million, which Tesla would fall far short of) to cover the Leverage Ratio requirements for the year, the company would need to either renegotiate or repay the loan by the end of the year. Those facts were not disclosed in its SEC filings, nor was Musk forthcoming about the situation on a May 7 1st quarter conference call, after he was asked by a participant about the need to raise more capital. “We don’t have any plans right now to raise funding,” Musk responded. “Potentially we expect to be – we were positive cash flow in Q1 and we expect to be there relatively sort of neutral on cash flow in Q2. But if it was possible, we could be optimistic about raising a round, but we have spent no time on that at all.” But only eight days later Tesla announced a $1 billion public offering backed by heavy hitters Goldman Sachs, JP Morgan and Morgan Stanley, which enabled the payback of the $465 million DOE loan and “shore(d) up a dismally feeble balance sheet that had $124.7 million of equity and a $14.2 million working capital deficit on December 31, 2012,” Petersen wrote.