Thursday, December 29, 2022

Update II On Musk And Margin: Barron's Says He Got A Call (TSLA)

Original post:

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

From Baron's, Updated Dec. 29, 2022 1:46 pm ET / Original Dec. 29, 2022 10:43 am ET

Tesla CEO Elon Musk Could Have Had His First Margin Call for Twitter Loan

Tesla CEO Elon Musk might regret his purchase of Twitter—or at least the way he financed it. Based on the agreement Musk 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. Musk, on Wednesday, apparently sent an email to Tesla (ticker: TSLA) employees, admonishing them to ignore gyrations in the company’s stock and focus on shipping as many cars as possible as the end of the quarter, and year, approaches.

Tesla didn’t immediately respond to a request for comment about the email.

It may be sound advice to employees given the shares’ recent performance. Coming into Thursday trading, Tesla stock is down about 68% year to date and off about 58% over the past three months.

The email isn’t the first piece of investing advice Musk has offered this month. On Dec. 8, Musk suggested investors avoid margin loans when the economic outlook is uncertain.

Musk has learned lessons about volatility and margin, having almost used a $12.5 billion margin lending facility to purchase Twitter. Tesla didn’t immediately respond to a request for comment about Musk’s borrowings and collateral pledges.

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, 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 happens when the loan-to-value ratio falls below 35%. Assuming the facility was fully drawn when the Twitter acquisition closed, Musk faced his first call this past week....


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