Elon Musk is about to make the first interest payment on the $13 billion loan he took out to buy Twitter and the company’s dire financial condition means it faces risks including bankruptcy.
Elon Musk financed his $44 billion Twitter acquisition with $13 billion in borrowings. According to the Financial Times, the first interest payment on the loan could be as early as this month.
The report states that Twitter’s weak financial condition has raised questions over its ability to service debt and a default could lead to bankruptcy. Elon Musk may face the first interest payment on the loan he took to buy Twitter earlier this month, according to a report in the Financial Times, citing three people familiar with the matter.
The paper said that given Twitter’s high level of indebtedness, the world’s second-richest person may have to weigh options including selling more Tesla shares to finance the repayments – or even take over the struggling social media giant.
Elon Musk bought Twitter in October for $44 billion, borrowing $13 billion from banks including Morgan Stanley and Bank of America to finance the deal. According to the Financial Times, the debt is taken by Twitter rather than Musk personally. And the company has to make about $1.5 billion in interest payments annually.
If Twitter failed to make that payment, its management could file for bankruptcy to begin the debt restructuring process. As an alternative to bankruptcy, Musk could sell more of his Tesla shares, already worth $40 billion, to help complete the acquisition deal, or use Twitter’s limited cash to pay down debt.
Twitter lost $221 million in 2021, its last year of full reporting. Musk has struggled to cut costs and increase revenue since buying the company, laying off about 50% of its staff and launching a new subscription service called Twitter Blue.
He has repeatedly warned about Twitter’s finances and offered the possibility of a bankruptcy filing to restructure its debt. We have an emergency fire drill on our hands, Elon Musk told a Twitter space forum in December. This company is like you are in a plane that is speeding towards the ground with the engine on fire and the controls not working.
That said, it does make my actions feel gimmicky at times. It is rare that companies fail to repay their first loan, Hertz was one of the last high-profile companies to default on lease payments on its fleet in April 2020, as the COVID-19 pandemic hit its profits.