The invoice for Elon Musk’s buy of Twitter is coming due, with the billionaire dealing with unpalatable choices on the corporate’s huge debt pile, starting from chapter proceedings to a different expensive sale of Tesla shares.
Three individuals near the entrepreneur’s buyout of Twitter stated the primary installment of curiosity funds associated to $13 billion of debt he used to fund the takeover might be due as quickly as the tip of January. That debt means the corporate should pay about $1.5 billion in annual curiosity funds.
The Tesla and SpaceX chief financed his $44 billion deal to take Twitter non-public in October by securing the massive debt from a syndicate of banks led by Morgan Stanley, Financial institution of America, Barclays, and Mitsubishi. The $13 billion debt is held by Twitter at a company stage, with no private assure by Musk.
For the reason that takeover, Musk has raced to chop prices, equivalent to firing half the corporate’s employees, whereas in search of new income streams, equivalent to launching its Twitter Blue subscription service.
The corporate’s dire funds—it made a lack of $221 million in 2021 earlier than the acquisition and Musk has stated revenues have declined since—have led the brand new proprietor to frequently elevate the prospect that the corporate may crash into chapter 11.
How Musk offers with the looming curiosity cost is an important take a look at of his management of Twitter, which has thus far been marked by chaotic administration that has alienated its company advertisers.
“This firm is such as you’re in a airplane that’s headed in the direction of the bottom at excessive velocity with the engines on fireplace and the controls don’t work,” Musk stated final month.
If Twitter didn’t make its first curiosity cost, it will be a part of a small however infamous membership of corporations dubbed “NCAA” by debt merchants—brief for “no coupon in any respect”—that features US automobile rental firm Hertz and German funds group Wirecard.
Such a default on its debt would in all probability lead to Twitter’s administration submitting for chapter, at which level the US courts would start an costly and bureaucratic debt restructuring course of.
Musk may keep away from this destiny by settling the curiosity from Twitter’s dwindling money reserves or promoting extra fairness within the firm to fund the funds—each painful choices. The enterprise has a money place of about $1 billion, Musk has stated. He has additionally warned that its web money outflow might be about $6 billion subsequent yr with out extra cost-saving measures.
Rising rates of interest imply the debt will turn into increasingly costly, similtaneously Twitter’s enterprise worth has been broken.