Elon Musk’s bankers are considering providing new margin loans backed by Tesla stock to the billionaire to reduce Twitter’s risky debt, according to people familiar with the matter.
Bankers are reportedly considering new margin loans to replace the high-interest debt Elon took on as part of the Twitter deal. The group of banks, led by financial services firm Morgan Stanley, has been exploring options that would allow the Twitter CEO to ease his debt. As a result of those deliberations, margin loans emerged as one of several options to address the $13 billion shortfall resulting from Elon Musk’s $44 billion takeover of Twitter.
Banks in talks to provide margin loans to reduce Twitter’s debt
The banks had to finance the entire debt package with their own cash due to a decline in the credit markets. In addition, the rocky start at the beginning of the buyout forced the financial institutions to finance the entire debt package themselves. Meanwhile, Twitter could face $1.2 billion in annual interest charges if the debt remains. That figure is significantly higher than the social networking company’s full-year profits for 2021.
The sources revealed that the discussion is about how to replace $3 billion in unsecured debt. Notably, the CEO is paying a 22.75% interest rate on the unsecured debt. For now, discussions are ongoing and there are no specific decisions. The question is whether margin loans against Tesla stock would help Elon sort out the debt. Given the situation, that could happen well since the billionaire has money invested in Twitter stock.
The people also added that the margin loans mean Elon Musk would not have to pay higher interest rates than the unsecured debt. About $6.5 billion in term loans and $3 billion in secured bonds are also part of Twitter’s debt. The unnamed sources added that the banking group will not get rid of any of this debt until next year. By then, Twitter will be able to paint a clearer picture of its situation since the acquisition and the many changes made by the new CEO.
In other Twitter news, the social networking services company recently banned Ye for inciting violence. The American rapper posted an image of a swastika inside a Star of David shortly after being cut from his initial suspension from the app.