Elon Musk reassured some bankers who backed his big purchase of Twitter last year, using a $13 billion loan, that they won’t face financial losses, according to information from five sources familiar with the matter as reported by The Financial Times.
This is a strong commitment, especially since banks are currently expected to lose around $2 billion if they sell off the debt immediately, as reported by The Wall Street Journal in October.
Elon Musk Takes a Big Risk, Financing and Fallout
To finance the acquisition of Twitter for $44 billion last year, Musk explored different loan options, securing $13 billion from seven banks: Bank of America, Barclays, BNP Paribas, Mizuho, Morgan Stanley, and Société Générale.
The acquisition was a risky move. Twitter was not generating positive cash flow, and when Musk finalized the deal in October, the lenders were already anticipating losses in their investment. They were aware of the associated risks.
“The true worth lies in the connection with Elon Musk,” stated Angelo Zino, a senior industry analyst at CFRA, last year.
However, nine months after the acquisition, Musk revealed that Twitter, now known as X, is “still experiencing negative cash flow,” partly because of a significant approximately 50% decline in advertising revenue.
Major advertisers on the platform, such as IBM, Walmart, Apple and Disney, withdrew their support following a recent antisemitic remark made by Musk. The billionaire later admitted in an interview at the New York Times’ DealBook summit that it was “literally the worst and dumbest post that I’ve ever done.” This came after Musk told departing advertisers to “go fuck yourself.”
The timeline for Musk’s assurances to bankers, ensuring they wouldn’t incur losses on the deal, remains unclear, as reported by the Financial Times. According to the report, someone involved in the Twitter acquisition mentioned that the banks might face difficulty selling off their debt in 2024, forcing them to keep the debt on their balance sheets at a significant discount.
Conclusion
Elon Musk’s reassurance to bankers amid the $44 billion Twitter acquisition, particularly when facing potential $2 billion losses, reflects a significant commitment. The subsequent negative cash flow of Twitter (now X) and the departure of major advertisers underscore the challenges, raising uncertainties about Musk’s assurances and the banks’ debt sell-off prospects.
