The Debt Hurdles Facing Elon Musk

It’s no secret Elon Musk may have bitten off more than he can chew by proposing a merger of Tesla and SolarCity, two debt-laden and money-losing companies he partly owns. Just how much of a bite is now clearer.

Projections for both companies disclosed in a securities filing last week suggest the combined firm will have to raise around $5 billion through 2019 to cover operating losses and interest costs, and also to refinance existing debt that falls due.

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Evercore’s calculations also suggested that Tesla was getting a bargain (despite the fact, as the filing showed, 15 investors passed on acquiring SolarCity or buying shares before the Tesla deal was struck). One of its SolarCity valuations, known as a discounted cash flow analysis, resulted in a SolarCity share price that was nearly double the corresponding calculation by SolarCity’s adviser, despite the fact that both firms relied on the same set of financial projections.

Evercore declined to comment on its valuations.

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The two scenarios suggest SolarCity needs to raise between $1.1 billion and $1.9 billion in the next three years, mostly to refinance debt.