Elon Musk is exploring raising up to  billion to help pay off Twitter debt

Elon Musk is exploring raising up to $3 billion to help pay off Twitter debt

Elon Musk’s team is exploring using as much as $3 billion in potential new fundraising to pay back some of the $13 billion in debt owed to Twitter Inc. have been taped for his buyout of the company, people familiar with the matter said.

In December, Mr. Musk’s representatives discussed selling $3 billion worth of new Twitter stock, people familiar with the matter said.

Mr Musk’s team has told people familiar with the company’s finances that a capital raise, if successful, could be used to pay off an unsecured portion of debt that has the highest interest rate within the Twitter loan package of $13 billion. familiar with the case.

Paying off the debt would be welcome financial relief for Twitter, which has struggled to keep advertisers on the platform. In November, Mr Musk said Twitter had suffered “a massive drop in revenue” and was losing out more than $4 million a day. He also said that month that bankruptcy was a possibility for the company, although Mr. Musk later shared a more optimistic outlook for the company, saying he expects Twitter to break even about cash flow by 2023 as he has about 6,000 jobs have been cut.

The status of the fundraising talks could not be heard. In mid-December, the team of Mr. Musk is reaching out to new and existing backers about raising new equity at Twitter’s original acquisition price.

Mr. Musk’s advisers had hoped to reach a deal to raise cash at the initial acquisition price by the end of 2022, according to an email sent to potential investors at the time. However, some potential lenders said they objected to the terms, citing concerns about Twitter’s financial performance. The Musk team did not specify a funding amount or goal for the fundraiser in the email.

Fidelity, one of the co-investors backing Mr Musk’s acquisition of Twitter, wrote down its stake in Twitter by 56% in November, public documents show, suggesting Mr Musk would face an uphill battle to raise funds at the original valuation from outside investors. The banks holding the $13 billion in debt that supported his takeover of the company have not yet received formal notice of any repayments, people familiar with the matter said.

Layoffs across the tech industry

Representatives for Mr Musk did not respond to requests for comment.

Twitter’s unsecured bridge loans, which total $3 billion, are the most expensive part of the $13 billion debt package Mr. Musk incurred as part of his $44 billion takeover of the social media company. They have an interest rate of 10% plus the guaranteed overnight financing rate, a benchmark rate that has skyrocketed in recent months and currently stands at 4.3%.

With each quarter that passes without Twitter refinancing its debt, interest rates rise another 0.50 percentage point, according to regulatory records. Twitter’s first quarterly interest payment is due at the end of the month, the filings show.

Twitter’s annual interest expense has increased by more than $100 million since it announced the acquisition deal last April as overnight interest rates have risen. At the time of the announcement, the overnight interest rate was 0.3%.

Elon Musk has said Twitter loses more than $4 million a day.


Photo:

Marlena Sloss/Bloomberg News

Twitter’s total interest expense is estimated to be about $1.25 billion a year, according to a December analysis by Jeffrey Davies, a former credit analyst and founder of data provider Enersection LLC. According to that estimate, Twitter takes on about $3.4 million in interest payments every day.

On Dec. 13, Musk tweeted, “Beware of debt in turbulent macroeconomic conditions, especially as the Fed continues to hike rates.”

Paying back the unsecured bridge loans would leave Twitter with debt that has much more manageable interest rates. Twitter’s $6.5 billion in term loans and $3 billion in secured bridge loans carry annual interest charges of 4.75% and 6.75%, respectively, plus overnight interest, according to public filings.

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A potential deal would also provide some relief to the banks that backed Mr Musk’s takeover of the social media firm, which had planned to sell the debt to outside investors but reversed course after deteriorating market conditions quelled Wall Street’s appetite for exposure. decrease. to risky bonds and loans.

Twitter’s $13 billion debt on bank balances, one of the largest ‘hanged deals’ of all time, has helped drive down M&A numbers as banks’ firepower to back deals is tied up.

Morgan Stanley,

the lead bank on Twitter’s debt deal, has about $807 million in unsecured bridge debt on its balance sheet, while Bank of America Corp.

Barclays PLC and MUFG Bank Ltd. each have about $623 million in exposure, according to public filings and calculations from The Wall Street Journal.

Each of the four banks has more than $2 billion in other Twitter debt obligations on their balance sheets separate from the unsecured bridge facility, including term loans and other secured debt, the documents show.

Representatives of those banks declined to comment.

Write to Berber Jin at berber.jin@wsj.com and Alexander Saeedy at alexander.saeedy@wsj.com

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