Tesla Bond Coming Due

As we discussed in the textbook, there are many different types of bonds. Tesla has a bond coming due that is a convertible bond, but can be settled in cash and stock only if certain conditions are met.  At maturity, the cash component of the Tesla bond repayment is calculated by calculating a weighted average price for the 20 trading days prior to February 26, multiplied by a conversion ratio of 2.7788. The maximum cash payment is $500 per $1,000 bond, with the remainder paid in Tesla stock. However, for the stock component to become part of the settlement, Tesla stock needs to rise to about $360, a 21 percent increase in stock price. Unless the stock price hits this level, Tesla will be forced to settle the entire $920 million bond issue in cash.