NEW YORK – Twitter made its first interest payment on the US$12.5 billion (S$16.4 billion) in debt that billionaire Elon Musk used to take the social media giant private last year.
The company paid a group of seven banks, led by Morgan Stanley, which became stuck with the debt after they were unable to sell it to outside investors.
Representatives for Morgan Stanley and Mr Musk did not immediately respond to requests for comment.
The first coupon was expected to cost Twitter roughly US$300 million, according to Bloomberg calculations and market participants not involved in the Twitter deal. The payment was due around Jan 27, about three months after the transaction closed.
A lot is riding on these interest payments. Questions remain about Mr Musk’s ability to turn around the social media giant, although the fact that he has made good on the first chunk of interest expense stands to bolster confidence in his ability to avert a bankruptcy in the near term.
Since his purchase, Twitter has failed to pay millions of dollars in rent for its San Francisco headquarters and London offices, has been sued by multiple contractors over unpaid services and has auctioned off everything from bird statues to espresso machines to raise money. Mr Musk has also openly floated the idea of bankruptcy, cited a “massive drop” in revenue as some advertisers fled from the platform, and slashed headcount since closing his US$44 billion leveraged buyout at the end of last October.
Yet Mr Musk has also said that Twitter’s finances are improving. He said in a late December Twitter Spaces conversation that the company had about US$1 billion in cash on its balance sheet and was now on track to “roughly” hit cash flow break-even following all the cuts.
He is now in the process of overhauling the company. He previously teased about turning Twitter into something called “X, the everything app”. He has also taken an active role in suspending accounts.
Big debt bill
While Twitter has made its first interest payment, its debt load is still a heavy burden. Annual interest is expected to exceed US$1.2 billion, some of which carries floating rates that could continue to increase as the Federal Reserve hikes interest rates.
Twitter paid less than US$100 million of annual interest expense before Mr Musk bought the company by loading it up with debt.
The pile includes a US$6.5 billion loan that banks originally hoped to sell to institutional investors and US$6 billion of bridge loans, split equally between a secured and unsecured tranche, that banks had planned to sell in the form of junk bonds.
Representatives for Bank of America, Barclays, BNP Paribas, Mitsubishi UFJ Financial Group and Mizuho Financial Group declined to comment. A representative for Societe Generale did not respond to a request for comment. The six banks joined Morgan Stanley in providing the buyout financing.
Banks also provided Twitter with a US$500 million revolving credit facility, which allows the company to borrow, pay it back and borrow again over the life of the loan. If Twitter draws on it, its interest expense would increase. BLOOMBERG
