Goldman loaned Elon the money to buy the shares in the private placement that is being underwritten by....Goldman. The loan is backed by existing shares owned by Elon, which he could be forced to sell if the stock depreciates significantly.
Goldman also has 700k+ 30 day options on the offering. You know what's coming next? Goldman will upgrade the stock citing reduced risk due to a successful secondary offering. Man they know how to work it!
From the SEC filing:
Mr. Musk has borrowed funds from an affiliate of our underwriter and pledged shares of our common stock to secure this borrowing. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business.
In addition, Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., has made a loan in the amount of $35 million to Elon Musk and the Elon Musk Revocable Trust dated July 22, 2003, or the Trust. Interest on the loan accrues at market rates. Goldman Sachs Bank USA received customary fees and expense reimbursements in connection with this loan. Goldman Sachs Bank USA has agreed to make additional extensions of credit in an aggregate amount of $50 million to Elon Musk and the Trust. Mr. Musk will use a portion of the proceeds of such loans to purchase shares in the concurrent private placement. Interest on the loans will accrue at market rates. Goldman Sachs Bank USA will receive customary fees and expense reimbursements in connection with these loans. As a regulated entity, Goldman Sachs Bank USA makes decisions regarding making and managing its loans independent of Goldman, Sachs & Co. Mr. Musk and Goldman have a long-standing relationship of almost a decade. We are not a party to these loans, which are full recourse against Mr. Musk and the Trust and are secured by a pledge of a portion of the Tesla common stock currently owned by Mr. Musk and the Trust and other shares of capital stock of unrelated entities owned by Mr. Musk and the Trust. The terms of these loans were negotiated directly between Mr. Musk and Goldman Sachs Bank USA.
If the price of our common stock declines, Mr. Musk may be forced by Goldman Sachs Bank USA to provide additional collateral for the loans or to sell shares of Tesla common stock in order to remain within the margin limitations imposed under the terms of his loans. The loans between Goldman Sachs Bank USA and Mr. Musk and the Trust prohibit the non-pledged shares currently owned by Mr. Musk and the Trust from being pledged to secure other loans. In addition, our DOE Loan Facility requires Mr. Musk and certain of his affiliates, until one year after we complete the project relating to the Model S Facility, to own at least 65% of the Tesla capital stock held by them as of the date of the DOE Loan Facility, and a failure to comply would be an event of default that could result in an acceleration of all obligations under the DOE Loan Facility documents and the exercise of other remedies by the DOE. These factors may limit Mr. Musk’s ability to either pledge additional shares of Tesla common stock or sell shares of Tesla common stock as a means to avoid or satisfy a margin call with respect to his pledged Tesla common stock in the event of a decline in our stock price that is large enough to trigger a margin call. Any sales of common stock following a margin call that is not satisfied may cause the price of our common stock to decline further.
Musk's Tesla stake is worth ~750M.
Musk wants to buy more stock, but doesn't have the money.
Musk wants to buy other things too, but doesn't have the money.
The underwriter of the secondary lends Musk the money.
This guy truly is a genius. Everyone thinks he is buying, but really - he is "selling" some outright and "selling" some for more leverage. If he is forced to sell, he can act like he would never sell the shares on his own accord.
I'm wondering if Daimler is merely protecting its interests under the side letter when it originally bought into Tesla???
Here's an excerpt (Newco is Blackstar):
"Newco’s rights and the Company’s obligations under Section 1 of this Agreement shall terminate upon the earliest to occur of: (a) December 31, 2011, (b) the consummation of (i) a merger or consolidation of the Company with or into another corporation for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock in which the holders of capital stock of the Company immediately prior to such merger or consolidation do not continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring corporation or (ii) a sale of all or substantially all of the Company’s assets in which such assets are sold solely for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock, (c) such time as Newco (together with Daimler AG (“Daimler”) or any Controlled Affiliate of Daimler (as defined in the Purchase Agreement)), no longer hold at least 9,950,000 shares of Common Stock of the Company (including any shares of Common Stock of the Company issuable or issued upon the conversion of the Series E Preferred Stock of the Company and AS EQUITABLY ADJUSTED FOR ANY STOCK DIVIDENDS, COMBINATIONS, SPLITS, RECAPITALIZATIONS, DILUTIVE ISSUANCES, DEEMED ISSUANCES AND THE LIKE)[Emphasis added], (d) none of the Strategic Agreements (as defined in the Purchase Agreement) are in full force and effect or (e) such time as (A) the representation set forth in Section 3.10 of the Purchase Agreement is no longer true and accurate in all material respects, (B) Daimler (or a Controlled Affiliate of Daimler) no longer holds 20% or more of the equity interests of Newco or (C) Newco is in breach in any material respect of Section 3.5 of the Fourth Amended and Restated Investors’ Rights Agreement dated May 11, 2009 (it being agreed that Newco shall be deemed to not be in such breach if (1) Newco notifies the Company of such breach within 10 business days of such breach and (2) Newco cures such breach within 20 business days after delivery of such notice).
Thanks for the info--I was pretty sure Elon didn't have any free cash. Sometimes I think he's a charlatan, but since he's in so deep, I have to conclude he's just deluded. I still don't get why Goldman would accept TSLA shares as collateral. If things go south (and they probably will), Goldman will never see their $35m again.
Doesn't it depend on the terms of the loan agreement between Musk and the GS bank? Is it possible the bank would hedge the downside risk by shorting? Let's hope whoever at the SEC is responsible for approving the registration, requires the loan agreement to be filed.