9/8/13

Musk-Backed SolarCity Scraps Happy Meal Deal - Wall Street Journal - WSJ.com

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Musk-Backed SolarCity Scraps Happy Meal Deal

Financing Technique Has Concerned Some Investors A solar-energy firm backed by entrepreneur Elon Musk ditched a type of "Happy Meal" share-lending deal that has given some investors indigestion. Latest Headlines is home to all the latest, up to the minute news headlines from The Wall Street Journal in a streaming continuous headline experience.
By Michael Siconolfi, Michael Rothfeld

A solar-energy firm backed by entrepreneur Elon Musk ditched a type of Happy Meal share-lending deal that has given some investors indigestion. SolarCity Corp., a San Mateo, Calif., energy-services provider where Mr. Musk is chairman, made the disclosure recently in an amended securities filing. At issue is a financing technique for cash-starved companies named after the McDonalds Corp. meal-and-toy combo. Companies strapped for cash serve up everything investors need to profit: bonds that are convertible into stock if the borrower does well and tools for betting against the firm if its prospects sour. Happy Meal deals were the subject of an Aug. 20 page-one article in The Wall Street Journal examining the shadow lending system, where investors have replaced traditional banks as lenders to struggling companies. SolarCity disclosed on Aug. 28 that it was eliminating the Happy Meal structure it had previously registered in connection with a securities offering. It didnt specify a reason. A SolarCity spokesman said the company declined to comment, citing a regulatory mandated quiet period related to the securities offering. Neither Mr. Musk, one of the companys largest shareholders, nor Mr. Musks cousin, SolarCity Chief Executive Officer Lyndon Rive, will be able to comment, the SolarCity spokesman said. Representatives for underwriters Goldman Sachs Group Inc., Credit Suisse Group AG and Bank of America Merrill Lynch declined to comment. In the deals previous form, Mr. Musk had been eligible to buy SolarCity shares lent through the deals lead underwriter, Goldman, to be sold short for hedge funds and other investors buying the bonds. In a short sale, an investor sells borrowed securities hoping to replace them later at a lower price and pocket the difference. Under the new deal, stock will be sold to raise capital rather than the Happy Meal share-lending arrangement, and Mr. Musk and Mr. Rive plan to buy a total of as many as 560,000 SolarCity shares from the underwriters, according to the filing. SolarCitys stock traded at $29.61 each Friday, down 2.5% in Nasdaq trading and down 44% from its 52-week high of $52.77.

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9/8/13

Musk-Backed SolarCity Scraps Happy Meal Deal - Wall Street Journal - WSJ.com
Critics of Happy Meal deals contend that some bond buyers get involved only because the issuing companies facilitate their short selling and that the big negative wagers can exacerbate problems for companies by driving down their share prices. At least two dozen companies have done bond deals using share-lending agreements since 2004, raising nearly $7 billion. A Wall Street Journal analysis showed that share prices of 19 of the 24 companies had fallen 200 trading days after deals, by an average of 53%. Mr. Musk, 42 years old, is best known as a co-founder of PayPal Inc. (now part of eBay Inc.) and CEO of electric-car maker Tesla Motors Inc., whose shares have soared this year. Amid the stock run-up, Tesla also has been one of the most heavily shorted stocks in the market. Goldman and Mr. Musk have ties that extend beyond the planned Happy Meal arrangement in the SolarCity deal. The New York securities firm also has made loans to Mr. Musk that were secured by shares of SolarCity, company filings show. Mr. Musk and Goldman have a long-standing relationship of almost a decade, SolarCity said in a December prospectus for its initial public offering of stock. Write to Michael Siconolfi at michael.siconolfi@wsj.com and Michael Rothfeld at michael.rothfeld@wsj.com
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Musk-Backed SolarCity Scraps Happy Meal Deal - Wall Street Journal - WSJ.com
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