SolarCity is apparently in need of quite a bit of cash, which will be a heavy weight unloaded onto Tesla Motors if the merger of the two companies actually comes to pass. A regulatory filing on Wednesday revealed some other problems as well, not only with the combination of the two cash burning firms but also with SolarCity itself.

Solarcity Corp SCTY
Photo Credit: Slim Dandy, Flickr

Shares of SolarCity tanked by more than 10%, falling as low as $18.31 during regular trading hours on Thursday, while Tesla stock slipped by nearly 5% to as low as $200.51 per share.

Tesla to pay millions to bondholders

Tesla said in the filing that it will have to shell out $422 million to bondholders during the third quarter and that it will have to raise more capital before the end of the year. The capital raise will be to support the merger with SolarCity and other purposes, reports The Wall Street Journal.

Tesla received the green light from antitrust regulators for its $2.6 billion bid to acquire SolarCity, but whether they will receive approval from shareholders is another question. Tesla CEO and SolarCity Chairman Elon Musk expressed confidence that they would get the deal done as he, his cousins, and other parties with conflicts of interest recused themselves from voting on it. Indeed, conflicts of interest abound in the merger.

SolarCity couldn’t attract other bidders

Another big concern relating to the merger is that Tesla is apparently the only taker when it comes to acquiring SolarCity. This week’s filing indicated that over the last several weeks, 15 institutional investors, including a private-equity firm and a number of financial firms that were interested in teaming up with the firm, passed on both buying SolarCity and sinking some equity into it.

Even Tesla wasn’t interested in buying the company at first, as apparently it had held a special board meeting at the end of February. At that time, board members passed on the idea because they were concerned that it would create just another merger for the EV maker’s management. Musk made the suggestion again three months later, meeting with success the second time.

SolarCity desperate for cash

The solar firm is also having trouble squeezing more cash from the public markets as the merger sits in a pending state, and its liquidity is being squeezed as a result. SolarCity’s cash plunged to $146 million from $421 million in the year-ago quarter.

According to Fortune, the filing indicated that in early July – not long after Tesla revealed its bid for SolarCity – the solar company started to notice that some of its lenders seemed to be “delaying funding” for some of its projects and other financing needs. SolarCity also mentioned the financing delays earlier this month, linking them to the announcement about the EV maker’s bid. It said the negative publicity surrounding the bid had a negative impact on its ability to tap the markets for cash, which resulted in its liquidity drying up.

All the cash problems resulted in Tesla cutting its bid even though SolarCity was trying to squeeze even more out of it. As a result, the solar company’s committee considered returning to “Party B,” one of the unnamed parties that it was in talks with before, to reenter discussions because they thought the party might be better able to compete with the reduced bid. The committee didn’t end up doing it, however, as they didn’t think they would be able to get a better offer.

Lazard undervalued SolarCity

Interestingly enough, Lazard, the investment bank hired to value SolarCity for the offer from Tesla, actually made a mistake to the tune of $400 million in its valuation. Tesla didn’t even notice the mistake right away. The bankers counted $400 million of the solar company’s debt twice, thus overstating its debt by almost 12%. As a result, they estimated the company’s value at $15 to $34 per share, but using the correct debt numbers, the company is actually worth $19 to $38 per share.

Tesla’s bid values SolarCity at $25 per share, which is still within the new range, and it said the different value wouldn’t have changed its bid.