Elon Musk considers raising up to  billion to pay off Twitter debt

Elon Musk considers raising up to $3 billion to pay off Twitter debt

Elon Musk’s team has used what it can of a potential $3 billion in new fundraising to repay part of the $13 billion in debt pinned on Twitter Inc. for its acquisition of the company, they said people familiar with the matter.

In December, Mr Musk’s representatives discussed the sale of up to $3 billion in new Twitter stock, people familiar with the matter said.

Musk’s team have told people familiar with the company’s finances that if successful, a capital raise could be used to pay down an unsecured portion of the debt, which carries the highest interest rate within Twitter’s $13 loan package Billions of dollars, people familiar with the matter said.

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Paying off the debt would provide welcome financial relief to Twitter, which has been struggling to keep advertisers on the platform. In November, Mr. Musk said Twitter had suffered “a massive drop in revenue” and was losing over 4 million dollars a day. He also said this month that bankruptcy was a possibility for the company, although Mr Musk later shared more optimistic prospects for the company and said he expected Twitter to be roughly break even by 2023 as it cut about 6,000 jobs.

The status of the donation talks could not be found out. In mid-December, Mr. Musk’s team reached out to new and existing backers to raise fresh equity at the original Twitter acquisition price.

According to an email sent to potential investors at the time, Mr Musk’s advisers had hoped to reach an agreement by the end of 2022 to raise cash at the original takeover price. However, some potential backers said they had opposed the terms amid concerns over Twitter’s financial performance. The Musk team did not specify a funding amount or purpose for the fundraiser in the email.

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

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

Twitter’s unsecured bridging loans, which total $3 billion, are the most expensive part of the $13 billion debt package Mr. Musk took out as part of his $44 billion acquisition of the social media company has been received. They have an interest rate of 10% plus the secured overnight funding rate, a reference rate that has skyrocketed in recent months and currently stands at 4.3%.

For every quarter that passes without Twitter refinancing the debt, the interest rate increases by another 0.50 percentage point, according to official documents. Twitter’s first quarterly interest payment is due at the end of the month, filings show.

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

Elon Musk considers raising up to 3 billion to pay

Elon Musk has said Twitter is losing over $4 million a day.

Photo: Marlena Sloss/Bloomberg News

According to a December analysis by Jeffrey Davies, a former credit analyst and founder of data provider Enersection LLC, Twitter’s total interest expenses were estimated at about $1.25 billion per year. By this estimate, Twitter incurs approximately $3.4 million in interest payment obligations every day.

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

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

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A possible deal would also bring some relief to the banks, which backed Mr Musk’s takeover of the social media company and which intended to sell the debt to third-party investors but changed course after deteriorating market conditions dampened the appetites of the Wall Street reduced exposure to risky bonds and credit.

Twitter’s $13 billion in bank balance sheet debt, one of the biggest “hung deals” of all time, has helped reduce the number of mergers and acquisitions as banks’ firepower to support deals is tied up .

Morgan Stanley, the leading bank in Twitter’s debt deal, has approximately $807 million in unsecured bridge debt on its balance sheet, while Bank of America Corp., Barclays PLC and MUFG Bank Ltd. each have approximately $623 million in commitments according to public documents and calculations by The Wall Street Journal.

Each of the four banks has more than $2 billion in other Twitter debt obligations on their balance sheets that are 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 [email protected] and to Alexander Saeedy at [email protected]

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