The Wall Street Journal claims that Tesla CEO and Twitter owner Elon Musk is in discussions to raise up to $3 billion to partially pay off debt related to his purchase of Twitter.
The Wall Street Journal reports that according to sources, Elon Musk, the CEO of Tesla and SpaceX, is in discussions with investors to raise up to $3 billion to pay off some of the $13 billion in debt he incurred as part of his purchase of Twitter. Sources with knowledge of the situation claim that Musk’s representatives talked about selling up to $3 billion in brand-new Twitter shares last month. If funds were raised, they would be applied to the highest-interest-rate, unsecured portion of the $13 billion Twitter loan package.
Paying off the debt would bring a much-needed financial boost to Twitter, which has struggled to keep advertisers on its platform. Musk claimed that Twitter had suffered from “a massive drop in revenue” and was losing more than $4 million per day in November. That month, he also mentioned that the company might file for bankruptcy. After cutting about 6,000 jobs, Musk later provided an upbeat outlook for the business, predicting that Twitter will reach break even in 2023.
Musk’s team reportedly contacted potential investors about raising fresh equity funding at the original Twitter takeover price in the middle of December. However, some potential backers claimed they objected to the terms due to uncertainties surrounding Twitter’s financial health.
According to public filings, Fidelity, one of the co-investors who supported Musk’s acquisition of Twitter, wrote down its stake in the company by 56 percent in November, suggesting Musk would have difficulty finding outside investors willing to put up money at the original valuation. According to sources, no formal notice of any repayments has yet been given to the banks holding the $13 billion in debt that supported his takeover of the company.
The most expensive portion of the $13 billion debt package Musk incurred as part of his $44 billion acquisition of Twitter is the $3 billion in unsecured bridge loans. They are subject to a 10 percent interest rate in addition to the benchmark secured overnight financing rate, which is currently 4.3 percent after skyrocketing in recent months.
According to regulatory filings, the interest rate increases by 0.50 percentage points each quarter that goes by without Twitter refinancing the debt. According to the filings, Musk’s first quarterly interest payment is due at the end of the month. Since he announced the takeover agreement in April of last year, the annual interest expense for Twitter has gone up by over $100 million due to an increase in the overnight rate.
After paying back the unsecured bridge loans, Twitter would have debt with much lower interest rates. According to publicly available documents, the annual interest on Musk’s $6.5 billion in term loans and $3 billion in secured bridge loans is 4.75 percent and 6.75 percent, respectively, plus the overnight rate.
A potential agreement would also offer relief to the banks supporting Musk’s acquisition of the social media company. They had planned to sell the debt to outside investors but had changed their plans after Wall Street lost interest in exposure to risky bonds and loans due to deteriorating market conditions.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan