Send Email To Dop To Show Support For Elio Motors Loan.

[tonyspumoni]

By the way, I totally blew the citation for Grampi a couple of days ago. The guy who said 'no bank would give EM $185' is the right guy, not the Grampi guy who said "how do you know?" My bad. Apologies to all. I must've been swillin' my wife's wine again.

Loan - borrowed cash, usually backed up with collateral. Fixed or floating rate, fixed or floating term. No reach-through (usually) to any profits and no stake in the company unless the loan has a convertible option. There are lots of variations. Loan gets repaid in cash. Lender gets paid back before owners in any case of liquidation if there is anything left. Collateral usually has to be unencumbered, e.g. the lender has first lien on collateral. The only thing Elio has now that I can tell is the plant equipment, since insofar as I understand it, Lichter owns the factor and is leasing it to EM. Lenders never get board seats, e.g. they have no control over the company.

Debt-equity swap - cash for a stake in the company. Doesn't have to be paid back. Board representation coheres with size of financial stake. We can assume, for example, that Stuart Lichter is in big. He's there only in part because of his handsome face and experience. He invested cold, hard cash for a stake in EM. Owners come last in line if the company gets wiped out.

Once you understand these two situations you can understand why the ATVM loan is so attractive. Any bank with $185 million to loan is going to look for the lowest risk way to make their target return on equity. Our ardor notwithstanding, EM will absolutely be viewed as a risky proposition, since car new car companies have probably failed at a rate that exceeds that of small business startups. So the cost of financing $185 via a bank loan, if it could even be done, would be atrocious. That's why debt-equity works - fixed investment for the potential for unlimited returns makes taking risk make sense.

Viewed in this context, the ATVM loan is crazy attractive. Go try and get a $185M mortgage for 4%. And that would be backed by the value of the real property, not a bunch of crap in Louisiana that might be useful for making cars.

 

[Rickb]

The ATVM Loan requires collateral for approval.

 

[tonyspumoni]

The ATVM Loan requires collateral for approval.
View attachment 3359

Very interesting find, Rickb. DOE may ask for collateral on existing assets, which insofar as we know is just the plant equipment while DOE will be first lien holder on any assets Elio Motors buys using the proceeds of the loan. What this does NOT say is that Elio Motors needs $185M worth of assets now to pledge against the $185M of the loan. Terrific find. Thanks

 

[Rickb]

The interesting and key point in that collateral requirement statement is...........they may also request a security interest in any 'other assests' of the applicant.

 

[tonyspumoni]

The interesting and key point in that collateral requirement statement is...........they may also request a security interest in any 'other assests' of the applicant.

Yeah, but assets in this context doesn't sound at all like an ownership stake, e.g. assets in the context of loans is usually physical stuff - inventory, equipment, land, buildings - or financial instruments, e.g. stocks, bonds, cash, etc.

Nowhere in the ATVM process, on the DOE site, or in Moniz comments in interviews has any mention been made of 'equity stake'. Not to say that this could NOT happen, but debt-equity swaps have characteristically involved the Treasury Department. After the Solyndra debacle and the recent election results, DOE is (1) going to tread very carefully on this application and (2) want precisely zero to do with risking taking an equity position in Elio Motors.

 

[ks6c]

Paul is taking a quiz:

1. Choose one of the following.
A. Get an ATVM loan and maintain control of your company. Pay it back when you can.
B. Take investor's money. Pay them a portion of profit... forever.
C. Give up. Take your ball and play somewhere else.

I'd choose A and only if I had too, B.

Let me make a few friendly amendments (because I think you have absolutely nailed the key points):
Paul and his founding investors are taking a quiz:
1. Choose one of the following:

A. Get an ATVM loan and -
1) Maintain control of their company - no ownership dilution.
2) Pay it back when EM can. Risk attaches to the company, not individuals.
3) Founding investors' reserve their uncommitted money for other contingencies and/or opportunities.
4) Founding investors invest their funds in other investment opportunities at >4% return (readily available to VCs/Angels/private equity investors), diversifying their investment portfolios and reducing personal risk.

B. Take more Founding Investors' money or additional secondary investors' money and -
1) Pay them a greater portion of profit....forever.
2) Founding investors suffer ownership dilution, reduced ROI on their original investments.
3) Founding investors increase their personal risk with investment concentration.
4) Secondary investors could demand greater concessions for late cash infusion, furthering dilution or ROI reduction.
5) Risk of additional investment attaches to individuals, not EM.
6) Sale of stock only way for investors to take money off the table > Capital gains taxes, share price risk, market flood
C. Give up.

I absolutely love the discussion and the speculation because it really is tremendously educational - especially for those who might not have experience in this arena. But the risk is that many can be left with an impression that the funding strategy is much more complicated than I think it really is.

Option A is the only option that makes sense at this time - for Paul as well as all of his founding investors. There really is no other play as long as the ATVM loan is still on the table.

 

[CompTrex]

Like everything else, there is a risk / reward balance.
We don't really know their financials. We don't know their expenses, both day to day operations as well as the cost of getting this vehicle to production.
So with the risk / reward balance, at what point do you allow yourself to run so low on money that the production date suffers? Moving the production date again could be very detrimental to public opinion; just ask Wayne, he'll tell us!
So there has to come a point where EM can no longer wait on the gov't to decide on the loan and to make a decision; do we go for more investment money (B) or do we continue to wait and allow our production date to suffer?
I wonder what and when that tipping point is.

 

[Rickb]

Like everything else, there is a risk / reward balance.
We don't really know their financials. We don't know their expenses, both day to day operations as well as the cost of getting this vehicle to production.
So with the risk / reward balance, at what point do you allow yourself to run so low on money that the production date suffers? Moving the production date again could be very detrimental to public opinion; just ask Wayne, he'll tell us!
So there has to come a point where EM can no longer wait on the gov't to decide on the loan and to make a decision; do we go for more investment money (B) or do we continue to wait and allow our production date to suffer?
I wonder what and when that tipping point is.

The only scenario that will cause another production delay is if the engine build and test takes longer than anticipated......keeing in mind the engine development timeline was an educated guess and testing may show the need for design changes before making it's way into the production prototype. Takes time so reservationists relax and enjoy the ride in the development of our future ride.

The Elio will go to production with or without the ATVM Loan........although better for EM to have the DOE funds available to set up Elio Stores and/or ramp up to increase production based on demand after delivery of the reservation Elios.

 

[CompTrex]

The only scenario that will cause another production delay is if the engine build and test takes longer than anticipated......keeing in mind the engine development timeline was an educated guess and testing may show the need for design changes before making it's way into the production prototype. Takes time so reservationists relax and enjoy the ride in the development of our future ride.

The Elio will go to production with or without the ATVM Loan........although better for EM to have the DOE funds available to set up Elio Stores and/or ramp up to increase production based on demand after delivery of the reservation Elios.

Warm fuzzy restored...

 

[JP]

I'd rather them take the loan because it would likely take several more years to secure the needed funding, which means myself, other customers, and investors would be weary of waiting and likely move on. Not to be political but since I study politics as a hobby and as my college major. IMO this program is the government's way of encouraging private sector business. It is a loan, not a handout so I'm all for it. I'd rather the govt spend money here then abroad.