Elon Musk’s bankers consider Tesla margin loans to cut risky Twitter debt
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Twitter, acquired by billionaire Elon Musk (above) for US$44 billion (S$60 billion), is estimated to face annual interest costs of about US$1.2 billion if its current debt structure remains in place.
PHOTO: REUTERS
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Los Angeles - Mr Elon Musk’s bankers are considering providing the billionaire with new margin loans backed by Tesla stock to replace some of the high-interest debt he layered on Twitter, according to sources with knowledge of the matter.
The margin loans are one of several options the Morgan Stanley-led bank group and Mr Musk’s advisers have discussed to soften the burden of the US$13 billion (S$17.6 billion) of debt Twitter took on as part of Mr Musk’s US$44 billion acquisition, said the sources.
Banks have been forced to fund the entire debt package with their own cash after a deterioration in credit markets and a tumultuous start to Mr Musk’s reign at Twitter
The company is estimated to face annual interest costs of about US$1.2 billion if the current debt structure remains in place, more than a measure of Twitter’s earnings for the whole of 2021.
The discussions have so far focused on how to replace US$3 billion of unsecured debt on which Twitter pays an interest rate of 11.75 per cent, the maximum banks had guaranteed Mr Musk when they agreed to finance the acquisition in April, the sources said.
The talks are preliminary and no decisions have been made, according to the sources.
A representative for Morgan Stanley did not immediately provide comment, and neither did those for the other lenders – Bank of America, Barclays, BNP Paribas, Mitsubishi UFJ Financial Group, Mizuho Financial Group and Societe Generale.
While the US$13 billion of debt Mr Musk took to finance the deal sits at the Twitter corporate level, any margin loans against Tesla shares would be taken by the billionaire in a personal capacity. The swap, however, could still make sense, considering that Mr Musk has a significant amount of his own money tied up in Twitter equity and given that the margin loans would carry a much lower interest rate than Twitter’s unsecured debt, the sources said.
The banks are not expected to attempt to offload any of the Twitter debt – which also includes US$6.5 billion of term loans and US$3 billion of secured bonds – to institutional investors until the new year, when the company could offer a clearer picture of how Mr Musk’s changes have affected its operations, the sources said.
The original Twitter financing package included US$12.5 billion in margin loan commitments backed by Tesla stock. That was ultimately replaced by additional equity commitments, including investments from several partners. BLOOMBERG
