Tesla Prepays Solar Bonds, But Not to Musk or Rives

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  • Musk, Rive brothers were major holders of SolarCity bonds
  • Company terminated three series of solar bonds early

Tesla Inc. paid off some solar bonds early, except to three key investors -- its chairman and the co-founders of SolarCity, according to a person familiar with the matter.

While Tesla repaid $19.7 million, plus $1.2 million in full interest, from three series of bonds to almost 1,500 other investors, Elon Musk, Lyndon Rive and Peter Rive saw their approximately $100 million of bonds converted to private SolarCity debt, according to the person, who wasn’t authorized to speak publicly.

Musk, his cousins the Rive brothers and other Musk-controlled entities were the primary investors in the SolarCity bonds, which were tied to the growth of its rooftop power-system business and offered to retail investors. They were a novel way to raise cash for the solar company that Palo Alto, California-based Tesla acquired in November.

“Musk’s policy has been to not take money out of the business, and a conversion instead of liquidation would be viewed as more shareholder friendly from a governance perspective,” Michael Morosi, a renewable energy consultant and former analyst at Avondale Partners LLC, said in an email.

About $113.3 million in other SolarCity solar bonds are still outstanding, including $75 million held by Musk’s Space Exploration Technologies Corp., the person said. The rest of the outstanding bonds are owned by about 800 investors including Peter Rive, the person said.

Terminating the three bonds early was part of the “financial restructuring necessary to combine the two companies” following Tesla’s acquisition of SolarCity, according to an emailed statement Wednesday from a company spokesperson. The Rives co-founded SolarCity and are Musk’s cousins.

“Tesla’s superior access to capital was a key component of the value proposition it brought to the SolarCity transaction, so it shouldn’t be too surprising that management would look to take these out,” Morosi said. The company gained 0.1 percent to $305.95 at 10:35 a.m. in New York.

The solar bonds are publicly registered, senior unsecured corporate debt. Tesla initiated the early discharge of the three series of bonds April 10, the person said, and announced it in a filing three days later. The news site Electrek on April 14 posted a portion of a SolarCity letter to bondholders about the transaction.

Some investors found the redemption “perplexing,” said Duncan Meaney, president of The Social Equity Group Inc., a San Francisco-based socially responsible investor, who bought some of the solar bonds on behalf of clients. None of the bonds he manages were redeemed and he’s curious whether Tesla plans to prepay more of them.

While it’s normal “to clean up the balance sheet” after a merger, Jeffrey Osborne, an analyst at Cowen & Co., said in an interview Wednesday, the timing may have seemed “strange” to Tesla shareholders.

“They’d prefer a use of cash to accelerate the Model 3,” the company’s highly anticipated electric car, he said. “The outlay of cash is a precious resource that Musk has.”

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— With assistance by Emily Chasan, and Dana Hull

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