Tesla's (TSLA) New Credit Agreement Alleviates Near-Term Cash Concerns - Dougherty

June 15, 2015 9:50 AM EDT
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Dougherty maintained a Buy rating on Tesla Motors (NASDAQ: TSLA) with a price target of $355. After the market close on Friday, Tesla announced a $500 revolving credit agreement. The Company may increase the total commitments under the Credit Facility by up to an additional $250 million, subject to certain conditions, potentially increasing the Credit Facility to up to $750.0 million. In addition, the Credit Agreement provides for a $100.0 million letter of credit subfacility and a $40.0 million swingline loan subfacility.

Commenting on developments, analyst Andrea James noted the credit facility alleviates near-term cash concerns

"We see this as a positive development given some street concerns about Tesla’s use of cash this year as it invests in factory expansions in California and the Gigafactory battery pack and cell manufacturing plant in Nevada. Tesla’s use of proceeds for the credit will be 'working capital and general corporate purchases, including acquisitions,' noted James.

The analyst continued, "Freeing up working capital will also allow Tesla more leeway to streamline unit deliveries by geography. Tesla is smoothing its delivery process to prevent a buildup of finished goods inventory at the factory at the end of each quarter. Vehicles in transit tie up cash until the final payment is made. Tesla had not drawn on the loan as of the closing date."

James added, "We believe that Tesla is likely to start drawing down on the new facility within 60 days, based on our read of how the commitment fee is tiered and grows over the first 30 days and 60 days from the closing date. (Tesla must pay a commitment fee of 0.25% annually on the unused portion of the credit facility.)"

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $250.69 yesterday.

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