Elon Musk's bankers mull Tesla margin loans to cut Twitter debt

Twitter took on a $13 billion debt as part of Musk's $44 billion acquisition

By Davide Scigliuzzo, Sonali Basak and Paula Seligson

Elon Musk’s bankers are considering providing the billionaire with new margin loans backed by Tesla Inc. stock to replace some of the high-interest debt he layered on Twitter Inc., according to people with knowledge of the matter.

The margin loans are one of several options the Morgan Stanley-led bank group and Musk’s advisers have discussed to soften the burden of the $13 billion of debt Twitter took on as part of Musk’s $44 billion acquisition, said the people, who asked not to be identified because the discussions are confidential.

Banks have been forced to fund the entire debt package with their own cash after a deterioration in credit markets and a tumultuous start to Musk’s reign at Twitter made the debt difficult to syndicate to institutional investors. The company is estimated to face annual interest costs of about $1.2 billion if the current debt structure remains in place, more than a measure of Twitter’s earnings for the whole of 2021.

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The discussions have so far focused on how to replace $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75 per cent, the maximum banks had guaranteed Musk when they agreed to finance the acquisition in April, the people said.

The talks are preliminary and no decisions have been made, the people said.

Representatives for Musk didn’t immediately respond to requests seeking comment. Twitter and Tesla, which no longer have communications departments, did not respond to requests for comment.

A representative for Morgan Stanley did not immediately provide comment, and neither did those for the other lenders — Bank of America Corp., Barclays Plc, BNP Paribas SA, Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Societe Generale SA.

While the $13 billion of debt Musk took to finance the deal sits at the Twitter corporate level, any margin loans against Tesla shares would be taken by the billionaire in a personal capacity. The swap, however, could still make sense considering that Musk has a significant amount of his own money tied up in Twitter equity and given the margin loans would carry a much lower interest rate than Twitter’s unsecured debt, the people said.

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The banks are not expected to attempt to offload any of the Twitter debt — which also includes $6.5 billion of term loans and $3 billion of 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.

The original Twitter financing package included $12.5 billion in margin loan commitments backed by Tesla stock. That was ultimately replaced by additional equity commitments, including investments from several partners.