Nearly two years after Elon Musk’s acquisition, X’s business is still struggling to climb out of the deep hole it fell into under his ownership.
The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis.
The seven banks involved in the deal, including Morgan Stanley and Bank of America, lent the money to the billionaire’s holding company to take the social-media platform, now named X, private in October 2022. Banks that provide loans for takeovers generally sell the debt quickly to other investors to get it off their balance sheets, making money on fees.
Isn’t the difference here that Musk has a tremendous amount of assets in the form of Tesla stock that can be used to repay the debt? It’s not like he can declare bankruptcy and stiff them on the bill.
The thing is, selling off the amount of Tesla stock that he’d need to to pay off the debt would cause Tesla stock to plummet, leaving him significantly less wealthy and putting Tesla in danger. So even though he technically has the money to pay them, he functionally doesn’t.
He both technically and functionally does have the ability to repay them, which he will find out soon if he doesn’t restructure the debt, and implying this is in anyway similar to the financial crisis is absurd clickbait.
It could possibly tank Tesla and make Elon less rich if he had to pay his debt. Oh no. As if Tesla being valued at more than 9 major other automakers combined isn’t outlandish in the first place.
But won’t someone please think of the oligarch and his shareholders! 🙄
and implying this is in anyway similar to the financial crisis is absurd clickbait.
I think it’s similar in the fact that banks once again gave credit where the securities are massively overvalued; and I’m not sure there are enough investors around to pay that much money for shares. What are bag holders gonna do when the price goes down because a lot of shares are selling?
Anyhow, this assumes a sane market, which hasn’t been the case for Tesla for 5 years.
No debt holder is obliged to consider the reprecussions of collecting their debt, just look at house foreclosure. The wellbeing of a thrid party company has no bearing on the ability to pay back a debt, and there are stock sell off plans that facilitate large liquidation over a period of time to ameliorate the stock price drop and prevent it from a full crash. Anyone who tells you otherwise is simply licking billionaire boots.
The person you’re responding to is literally arguing that Elon can’t “functionally” pay the debt because it would make him less rich and lower Tesla’s share price.
Their breath smells like Italian leather.
You don’t really understand the point I think, whether it’s correct or not I don’t know. His theoretical wealth is derived from the price of the last share sold. He probably can’t just sell ($13bn/current share price) shares and get $13bn out of that, there aren’t enough buy orders at that price, and you risk a panic sell by other holders. These other holders possible also include the banks were talking about, or at least related businesses and their clients.
Long story short, if banks had him liquidate shares worth $13bn, his net worth would fall (not the banks direct problem, bit probably wouldn’t make future client acquisition easier); but it might be that they lose more money indirectly. All this calculation with a stock’s market cap is a bit like a house of cards; it’s really high, but don’t shake it too much. At least that’s an issue with overvalued stocks; sound businesses where the stock price reflects the company’s actual value, maybe even pays dividend, don’t have that problem.
Does he seem for even a split second like someone who can handle being temporarily inconvenienced?
Oh, so he gets to be treated like the rest of us now…right?
If I stopped paying my mortgage, regardless of how bad off I may be, the bank is taking my house.
Guess he should’ve been more responsible, not eaten avocado toast, and saved more or whatever the fuck conservatives say to struggling millennials and younger folks.
Does the stock necessarily get liquidated for these sorts of transactions though?
Obviously if I owe the bank $100, they will want that in cash, not in $SPY or whatever. But for the Twitter levels of debt could stock just be transferred without being sold first? (Not a rhetorical question, I don’t know how this works.)
My understanding is the money he used to pay for Twitter was from loans by banks, where they got mostly Tesla stock as collateral. Musk can pay back the loan to get the stock back, or the banks can sell it. This is done because loans aren’t taxed, but selling the stock would be. Now the banks are stuck with stocks that are worth less than the loans they gave out, so they are at a loss.
AFAIK that was the original plan, but wasn’t the final outcome.
Elon doesn’t have anything tying up his stock on the purchase anymore. It’s one of the reasons for why he sold so much when he did the purchase.
He may still have to sell stock to keep it alive, but it’s not collateral.
edit: Here’s when the change happened
https://www.theverge.com/2022/5/25/23141940/elon-musk-tesla-twitter-margin-loan-buyout-deal
After a brutal month for Tesla stock, Elon Musk will no longer fund his Twitter buyout by borrowing against his Tesla ownership stake.
In a filing with the US Securities and Exchange Commission, Musk announced the expiration of a series of margin loans against Tesla stock, which had been included as part of his original financing plan to acquire Twitter. As part of the announcement, Musk committed to providing an additional $6.25 billion in equity financing, bringing his total commitment to $33.5 billion.
Just to reiterate what I said above though, he still has loans, they just aren’t collateralized by Tesla. He could lose twitter if he doesn’t pay the loans, and the only way he can pay them is either twitter making money, selling or collateralizing tesla/spacex shares, or finding additional funding.
If Musk doesn’t pay the loans the banks can take Twitter off him, but then they’re stuck with Twitter.
It’s always lost money, but now Musk has driven off the advertisers and many of the high prestige users; got stuck in a bunch of pointless lawsuits he’s going to lose; and run up a lot of debt by refusing to pay people.
And Musk knows this. The banks are fucked.
I’m guessing here, I don’t think Musk, the person, took out the loans, I think xitter did. So if xitter defaults, Musk’s assets aren’t on the line.
Edit for clarity: ‘leveraged buyout with debt reassignment post acquisition’
Xitter may have taken in more loans after Elon’s take over. But a company can’t borrow money to buy itself. So yea his assets are very much on the line. I wonder what deal he struck with the Saudi lenders.
That doesn’t make sense. That sounds like twitter borrowed money to buy itself to space karen
