Elon Musk, CEO of Tesla and SpaceX, allegedly assured bankers that they wouldn't incur losses on a $13 billion loan for his Twitter acquisition, but reports suggest the banks, including Morgan Stanley, Bank of America, and Barclays, may face significant losses when selling the debt. Despite Musk's verbal guarantees, the value of the debt declined post-acquisition. The banks, hoping for improved performance after cost-cutting measures, currently hold the debt on their balance sheets. The debt comprises $6.5 billion in term loans, $6 billion in senior and junior bonds, and a $500 million revolver. There's uncertainty about the banks' ability to offload the debt by 2024, with expectations of less than 60 cents on the dollar. Musk's X platform has witnessed a decline in ad share, potentially generating $2.5 billion this year, missing a $3 billion target. Ad sales reportedly fell due to Musk's support for antisemitism, prompting major advertisers to leave the platform. With $1.2 billion in annual interest payments, X faces financial challenges, risking bankruptcy if unable to meet obligations.
Key points:
1. Elon Musk, CEO of Tesla and SpaceX, reportedly assured bankers that they would not lose any money on the $13 billion loan taken to fund his Twitter acquisition, now called X.
2. Seven banks, including Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho, and Societe Generale, are facing serious losses on the debt despite Musk's verbal guarantees.
3. Musk's assurances reportedly fell sharply after completing the acquisition, and the banks are holding the debt on their balance sheets, hoping for improved performance following cost-cutting measures.
4. The debt includes $6.5 billion of term loans, $6 billion of senior and junior bonds, and a $500 million revolver.
5. Banks are uncertain about offloading the debt even in 2024, and it's unlikely they will get even 60 cents on the dollar for the bonds and loans.
6. The X platform's ad share has declined under Musk, and the company may generate $2.5 billion this year, missing internal targets of $3 billion.
7. Ad sales on X are reportedly about half a billion lower than anticipated for 2023 as several top advertisers left the platform due to concerns about Musk's support for antisemitism.
8. X generated a little over $600 million in advertising revenue in each of the first three quarters of the year and is anticipating a similar performance in the current period.
9. Musk took out loans of about $13 billion for the Twitter acquisition, and the social media company has to pay approximately $1.2 billion in interest payments every year.
10. If X cannot pay the interest on its loans or employees, it could face the risk of bankruptcy.
(With Agency Inputs)
