Per reporter: Zhang Lingxiao Per editor: Lan Suying
On January 17, the Financial Times, citing three people familiar with the matter, reported that the first interest on the $13 billion debt Elon Musk financed to acquire Twitter could mature as early as the end of January. Musk must pay off about $1.5 billion in interest on the debt each year.
How to pay this upcoming interest is a key test of Musk's leadership in Twitter. If it can't pay the first interest, Twitter will become a member of a notorious club of companies dubbed "NCAA" (NCAA) (no coupon at all) by debt traders, along with U.S. car rental company Hertz and German payments group Wirecard.
Today, there are two main options in front of Musk: one is to let Twitter file for bankruptcy proceedings, and the other is to sell Tesla (TSLA, stock price $122.4, market value $383.537 billion) stock again. But either option is difficult, and Twitter's new boss is bound to go through a thorny road to governance.
Twitter filing for bankruptcy? Less likely
In October, a consortium of banks led by Morgan Stanley, Bank of America, Barclays and Mitsubishi provided debt financing for Musk's $44 billion acquisition. The debt totaled $13 billion, which was borne by Twitter, and Musk did not provide personal guarantees.
According to the Financial Times, three sources said the initial interest on the debt could be due as early as the end of January.
Some analysts believe that Musk can pay debt interest through Twitter's cash reserves. According to the Financial Times, Twitter's current cash position is around $1 billion. But Musk has warned that without additional cost-saving measures, the company's net cash outflow could reach about $6 billion next year.
Is it possible that Musk filed for bankruptcy proceedings for Twitter in order to raise money? Bankers and analysts alike are negative because if Twitter files for bankruptcy, Musk will lose control of the company.
A person familiar with the matter pointed out that lenders want to maintain a good relationship with Musk, and "threatening to file for bankruptcy may help Musk get concessions from creditors, but if he does file for bankruptcy, it will not actually help Musk much." ”
In order to pay off debt and interest, Musk has undertaken a series of reforms at Twitter in an effort to increase its revenue. However, for now, Twitter's future to revive its business is still unclear.
In terms of cutting expenses, he has cut employees, cut other costs and stopped paying suppliers. At the same time, Musk is also trying to find new revenue growth points, and he tried to launch a paid verification feature at a time when Twitter advertising revenue fell sharply.
Separately, last week, media reported that according to two people familiar with the matter, Twitter intends to sell usernames to increase revenue. Twitter employees have been discussing whether they can earn money by selling some usernames since at least December 2022, people familiar with the matter said. The engineers proposed an online auction where people could bid on usernames of interest. A Twitter's username is the word, number, or character after the @ symbol that identifies the account by the platform.
Again using Tesla stock?
Selling Tesla's stake is another way Musk can solve the interest problem.
Musk injected about $26 billion into the Twitter deal, including his 9.6 percent stake in Twitter, worth about $4 billion. Since the end of 2021, he has sold nearly $40 billion of Tesla shares, with part of the proceeds going to acquire Twitter.
But it's worth noting that Tesla's stock price has tumbled since Musk announced the acquisition of Twitter, and the company's share price fell about 65% last year. The fall in Tesla's stock price and Musk's previous massive sell-off have also significantly reduced the value of his Tesla shares, from $170 billion in April last year to about $50 billion. That has greatly reduced the space Musk hopes to raise cash by pledging Tesla shares.
Image source: Google Finance
In fact, Musk had hoped for more money from investors to run Twitter.
Last month, Musk's wealth manager and former Morgan Stanley banker Jared Birchall told Twitter's existing equity investors that they could increase their holdings of the company's shares at the same price they paid in November.
However, Twitter's value has continued to decline after its acquisition, and Dan Ives, a technology analyst at Wedbush Securities, said Twitter is currently worth just $15 billion compared to the $44 billion Musk paid at the time of the acquisition.
"That's why no one is lining up to take on this debt." Ives concluded.
Twitter is reportedly undergoing some financial restructuring. Two people familiar with the matter revealed to the media that bankers are discussing with Musk to use Musk's Tesla shares as collateral for margin loans in exchange for about $3 billion in unsecured debt.
Daily economic news