Patrick’s Books:
If you haven’t yet seen the news, jpmorgan failed to make a required payment that was that he was taking the company private back in 2018. bank to make adjustments after musk said on when tesla later announced that it was abandoning once again changed and jpmorgan was again obliged to adjust its position. convertible bonds – if you don’t know into shares of common stock
In the issuing they typically have a low coupon (or lower additional value through the option to convert the bond into stock. between a warrant and a call option is that exercised, the company issues new equity to deliver to the warrant holder. money you made comes from the trader who sold you that option. derivative is based on, the more you make, they have to deliver to
You has its price so warrants are worth a bit less than call options for this reason. derivatives like this, check out my book – derivatives ok, so now that we know what convertible bonds tesla sold $1.38 billion of 7-year convertible price of $359.87 back in 2014 – these prices has since happened, so to adjust to todays the stock was trading at around $250 at the now,
Usually the reason that companies issue bonds (or borrow money) but they don’t like be, so they make the bond convertible to get a lower interest rate. with that is that the higher you move the worth, and thus the higher the interest rate you will have to pay. are just not interested in the bond at all if the conversion price is too high. from the banks that mirrors
The embedded option of course, at this point you might as well so they then sold the banks a separate warrant at a higher strike price. they want, with a low enough strike price, a structure that gives them the exposure of now the bank who facilitated this transaction hands, they are short the low strike call are long a higher strike warrant, which they bought from tesla.
Price of 359.87 and long a seven year warrant of 560.64. (once again, all of these prices to pay the banks for this spread, and the the banks will of course then hedge this risk which then leaves them exposed to the volatility the more volatile a stock is, the more expensive options and warrants are. more the stock price moves around, the more their biggest risk is that
Tesla becomes less then their hedging would not make them back the cost of the warrant. but an obvious risk from a banks perspective one thing that can make a volatile stock a as once a deal is announced that a stock will moves close to that price, and then slowly if instead there was a stock for stock deal, to buy a big car company like tesla, exchanging the warrants in
Question were over-the-counter is standardized documentation in the world of over-the-counter derivatives. it is standard to have an adjustment provision the provision tends to give the bank broad the bank can “make such adjustment to the terms” of the warrant as it “determines on the warrant of the announcement of a merger in volatility, expected dividends, stock
Loan rate or liquidity. the company ceo announces the next day that is allowed to lower the strike price of the ok, so back to tesla, as that is what we are already down in the comments saying, but patrick, tesla was never acquired. elon musk announced on his twitter feed that personal twitter account as a source of material on top of that, tesla’s cfo, its head of
An email detailing the plan to go-private feed and tesla’s blog (which tesla had also additionally, elon told stock analysts on in total the ceo and chairman of tesla – elon pretending that he was taking tesla private at $420 per share. in this law suit, derivatives traders and lawyers do not find any numbers funny. who laughs when they hear the number 420 – that
When elon announced his deal back in 2018, down from $560.64 to $424.66 using a warrant a few weeks later, tesla announced that musk according to their lawsuit “jpmorgan concluded by 5.74 points, or 14.3%, as a result of the increasing the strike price to $484.35 was same pre-announcement fair value for the 2021 warrants”. jp morgan notified tesla of each adjustment
And they provided documentation explaining the calculations. swift and represented an opportunistic attempt (in truth that is basically the job description interviewing for a job like this, you should possibly include on your cv that you are unreasonably did not dispute that announcement events had specific calculations or supporting materials and did not offer any support
For its assertion anyhow, the warrants expired in june and july no matter what strike price you use, but jp than tesla has paid them, based on the strike jpmorgan was one of four banks that acted transactions for this convertible bond deal of course, the other banks had much smaller have written off the adjustments, in order to keep a big customer happy. from jp morgan’s
Perspective, it may make million dollars as they would likely never i’m not a legal expert, so i’ll let you it would appear that the case hinges on whether tesla do not appear to be disputing the calculation. some of this might be down to the fact that transactions at prices he finds funny, makes a more serious technoking tweeting about corporate actions.
Transcribed from video
JP Morgan sues Tesla for $162 Million over warrants! By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-11-17T220010+0000endTimestamp2021-11-17T221557+0000}