Thursday, December 29, 2022

Barron's UPDATE: Elon Musk DID NOT Have A Margin Call (TSLA)

I'm pretty sure the commenters are confusing a margin call with Tesla's internal limits on how much stock can be pledged and confusing both with initial reports on the Twitter buy-out funding. I have a call in to the lady attorneys but they're on a boat somwhere and seemingly can't be bothered.

I'd say I'm getting too old for this sh** but if the reason the lady attorneys can't be bothered is a 25-year old named Paolo I would just be confirming their priors.

From Barron's via MarketWatch:

Last Updated: Dec. 29, 2022 at 6:07 p.m. ET  

How Elon Musk Dodged a Potential Margin Call Bullet by Following His Own Advice

Tesla CEO Elon Musk might regret his purchase of Twitter—but at least he doesn’t have to regret the way he was going to finance it.

If Musk executed the initial agreement he had signed with bankers to help fund his Twitter purchase, he would have experienced his first margin call, an obligation to cough up cash or provide more collateral. As It turned out, he followed his own advice.

It was a close call. Musk’s decision to buy Twitter has gone sideways, but it could have been even worse if he had gone ahead with an original agreement that would have used a nearly $12.5 billion margin lending facility in the purchase of Twitter.

Borrowing against stock isn’t unusual or even prohibited. Tesla executives are allowed to borrow up to 25% of the value of their Tesla stock, using their shares as collateral for the loan. In the original loan agreement from April, the initial loan-to-value ratio for the $12.5 billion facility that was part of Musk’s Twitter financing, however, had an initial loan-to-value ratio of 20%. That means the $12.5 billion in loans needed to be backed by $62.5 billion of stock collateral.

The initial margin call in that agreement would have happened when the loan-to-value ratio fell below 35%. Assuming the facility was fully drawn when the Twitter acquisition closed, Tesla stock would have had to drop about 43% for the loan-to-value ratio to hit 35%. Tesla stock was off 44% from the time of the Twitter purchase when it closed at $125.35 on Dec. 22, Musk would have faced his first call this past week.

Hitting the call level requires Musk to reset the loan-to-value ratio to 25%.

There are three options for someone facing a margin call: pay back some of the loan, offer more collateral, or a combination of both. For the original loan, that would have meant paying back about $3.7 billion of the margin facility, put up another $15 billion of Tesla stock to back the loan, or some of both.

Thankfully, for Musk, he doesn’t have to make that choice. Musk cut the margin portion of the financing in May and then abandoned the margin loan altogether, agreeing to kick in more cash to fund the purchase, likely to satisfy Twitter and Tesla investors worried about the impact of margin debt....


This was fake news: "Update On Musk And Margin: Barron's Says He Got A Call (TSLA)" with my personal heartfelt outro:

Now I'm familiar, actually way too familiar, with margin clerks but the numbers presented by Barron's are confusing me. 

Additionally this does not sound like a margin call as defined under the Federal Reserve Board's Regulation T. (12 CFR §220).

I shall make inquiries directly 

And earlier this morning our introduction to: 

UPDATED—"The Great Tesla Stock Repricing: It’s healthy for the car maker, but can Elon Musk’s finances handle it?" (TSLA)

Does Mr. Musk have a lot of stock on margin? I thought he had cleaned up many of the loans he had taken out to pay for fuel for his airplane (I kid, he borrowed to maintain his entire lifestyle, not just the plane) and he didn't do much beyond giving himself a bridge loan for the Twitter acquisition, that's been paid off for a couple months, which is why the lenders on the Twitter deal feel they can ask for either more collateral (TSLA shares) or a buy-down by Musk of some of the bank debt. 

Musk was well aware that getting a margin call was one of the ways those folks who really dislike what he is doing could actually do him some harm, in addition to calling him a poopyhead. The other way is to have the Obiden-Harris administration come after Tesla or Spacc-X; The Boring Co. and Neuralink not offering much leverage in the "Musk must be destroyed" festivities. 

The third angle of attack on Musk is what I think of as the "Smear, slander, calumny and character assassination" approach. I can't really get into that very much beyond noting that there appears to be a coordinated echo chamber of the old journolist crowd and their mockingbird hangers-on and wannabes....

I am vindicated in my recollection and interpretation. And alone. 'effin Paolo.

Say, have I ever told you about the time a buddy of mine got a margin call?

In "Ace Greenberg: 'never make fun of a millionaire, never hit a cripple, and never have sex with an idiot.'" I retold the story of a friend who cleared through Bear Stearns and who was just tickled pink when, in the middle of one of our Friday-after-the-close schmoozefests, who should call but Alan Greenberg.

My friend was so happy that I was there to hear him chat with "Ace" that he put the call on speakerphone.
Whereupon Mr. G. cuts directly to the chase and shouts, "Where's my fucking $10 million dollars?"
My friend took the call off speaker and asked if I would excuse myself for a few minutes....

—the introduction to "Bear Stearns CEO Ace Greenberg Has Died"