(Bloomberg) – Elon Musk’s bankers are considering providing the billionaire with new margin loans backed by shares of Tesla Inc. to replace some of the high-interest debt he took on Twitter Inc. , according to people familiar with the matter.
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Margin lending is one of several options the Morgan Stanley-led banking group and Musk’s advisers have discussed to ease the burden of the $13 billion debt that Twitter took on as part of the $44 billion acquisition by Musk, said the people, who asked not to be identified because the discussions are confidential.
Banks were forced to fund all debt with their own cash after deteriorating credit markets and a tumultuous start to Musk’s Twitter reign made debt difficult for institutional investors to syndicate. The company is estimated to face annual interest costs of around $1.2 billion if the current debt structure remains in place, more than a measure of Twitter’s earnings for all of 2021. .
Discussions have so far focused on how to replace $3 billion in unsecured debt on which Twitter is paying an interest rate of 11.75%, the maximum the banks guaranteed Musk when they agreed to finance the acquisition in April, the sources said.
The talks are preliminary and no decision has been made, the people said.
Representatives for Musk did not immediately respond to requests for comment. Twitter and Tesla, which no longer have communications services, did not respond to requests for comment.
A Morgan Stanley representative did not immediately provide comment, nor did those of the other lenders – Bank of America Corp., Barclays Plc, BNP Paribas SA, Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Societe Generale. HER.
While the $13 billion in debt Musk took on to fund the deal is at the corporate level of Twitter, any margin loans against Tesla stock would be taken on by the billionaire in a personal capacity. The swap, however, could still make sense given that Musk has a significant chunk of his own money tied up in Twitter equity and given that margin loans would carry a much lower interest rate than debt. unsecured from Twitter, the people said.
Banks are unlikely to attempt to offload Twitter’s debt — which also includes $6.5 billion in term loans and $3 billion in secured bonds — to institutional investors until the new year, when the company could offer a clearer picture of how Musk’s changes have affected its operations, the people said.
Twitter’s initial financial package included $12.5 billion in margin loan commitments secured by Tesla stock. This was eventually replaced with additional capital commitments, including investments from multiple partners.
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