Elon Musk, who took over Twitter in late October, could get a reprieve as the social media platform navigates through a tough assimilation phase under its new owner.
What Happened: Musk’s bankers are toying with the idea of extending margin loans backed by Tesla Inc. TSLA shares to replace some of Twitter’s high-interest debt, Bloomberg reported, citing people familiar with the matter. Banks led by Morgan Stanley lent about $13 billion to facilitate the buyout of Twitter by Musk for $44 billion.
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The banks are considering margin loans as one of the several options to ease the financial burden for Musk, the report said. The $3 billion of unsecured debt taken on by Twitter, carrying an interest rate of 11.75%, is primarily being considered for replacement.
Risky Proposition For Musk? The burden of the $13 billion debt on Twitter’s balance sheet will be borne by the company but the margin loans against Tesla shares would have to be borne by Musk in a personal capacity, the report said.
Notwithstanding this, it could still be a positive, as a significant amount of Musk’s money is tied up in Twitter equity. Also, margin loans carry a much lower interest rate than Twitter’s unsecured debt, the report said.
If the current debt structure is retained, Twitter may have to cough up $1.2 billion in annual interest costs, it added.
The bankers had to fund the whole of the debt portion out of their pockets as they were forced to shelve plans to resell the portfolio to institutional investors due to the inclement credit market and teething troubles at Twitter following its sale to Musk.
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