Tesla Is ‘a Long Way From Dell,’ Says GSO Capital's Dwight Scott

(Bloomberg) -- Dwight Scott’s firm knows a thing or two about leveraged buyouts. Whatever Tesla Inc. is working on wouldn’t be that, he says.

The president of Blackstone Group LP’s credit arm said investors should take Elon Musk’s tweet about taking Tesla private seriously. But any eventual deal isn’t likely to involve large amounts of debt, the traditional mechanism for funding buyouts, he said in an interview Wednesday on Bloomberg TV.

“It is very hard to put leverage on this company,” he said. If funding is lined up, “it’s likely to be lined up in the form of equity, and it’s going to probably be some sort of strategic or sovereign wealth-type investor," Scott said, noting that his firm wasn’t involved in Tesla’s deal discussions. “It’s not a bunch of people like me on the debt side providing capital to pay off the equity.”

The Tesla chief executive officer’s announcement Tuesday, in which he said he had funding secured, stunned investors and sent the electric-car maker’s stock price soaring. But it also left many scratching their heads as to how Musk, who owns almost 20 percent of the company, could raise the money. And indeed the shares fell Wednesday as skepticism grew over Musk’s funding claim.

At his proposed $420 a share price, the company would have an enterprise value of $82 billion including debt. If structured as a leveraged deal, it would be the largest in history, surpassing Texas electric utility TXU’s in 2007.

Off the Charts

But in terms of debt relative to the company’s cash flow, the leverage would be off the charts.

“It’s very hard to lend much more money to a company that -- not only is it negative cash flow -- but there are still operational issues that the company is working through,” Scott said.

Some comparisons have been drawn to Dell Technologies. The computer company’s founder, Michael Dell, took it private in 2013 for more than $24 billion with the help of private equity firm Silver Lake Partners and $15 billion from debt markets. Musk himself drew comparisons to Dell’s move in responses to a Twitter user Tuesday.

But Scott said Tesla’s finances are “a long way from Dell” and will need to iron out its operational issues before it can start making money. Tesla’s current debt load is more than $10 billion and the company has one of the lowest junk credit ratings.

--With assistance from Alix Steel, David Westin and Craig Trudell.

To contact the reporters on this story: Claire Boston in New York at cboston6@bloomberg.net;Molly Smith in New York at msmith604@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Shannon D. Harrington

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