The banks could sell the leveraged loans, but only at a big loss. Some have already written them down by hundreds of millions of dollars.
By Wolf Richter for WOLF STREET.
When Elon Musk bought Twitter in a leveraged buyout for $44 billion in October 2022 – after he’d walked away from the deal, after which Twitter had sued him to force him to stick to the deal – he and other investors put in about $30 billion, and the acquiring holding company borrowed another $13 billion in junk-rated variable-rate high-risk loans from seven banks. Those banks had intended to sell those leveraged loans right away because they’re too risky to carry on their balance sheet.
But that was 22 months ago, and the banks are still stuck with those loans and haven’t been able to sell them without taking massive losses on them.
The seven banks are Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group (MUFG), BNP Paribas, Mizuho, and Société Générale. Obviously, doing business with the richest man in the world and getting a foot into the door with his six companies, and perhaps an IPO or two, such as SpaceX or Starlink, and the fee bonanza that would come with them, were huge incentives to engage in this risky deal.
This loan package has now turned into the biggest hung deal by dollar amounts of all times, Steven Kaplan, a finance professor at the University of Chicago who has tracked such deals since the 1980s, told the WSJ.
According to data from PitchBook LCD, which has data going back through the Financial Crisis, the X loans have been hung longer than every similar unsold deal since the Financial Crisis. Only one hung deal from the Financial Crisis was bigger, at $20 billion, but it was hung for only 12 months before the company filed for bankruptcy, according the WSJ.
The biggest portion of the $13 billion in loans is a $6.5 billion secured seven-year term loan that carries the highest priority for repayment. The floating-rate loan’s interest rate is based on the Secured Overnight Financing Rate (SOFR) plus 4.75%.
There is also a revolving line of credit of up to $500 million, priced at SOFR plus 4.5%.
Then there are also two bridge loans – short-term loans that are supposed to be repaid a few months after the leverage buyout closed, but that haven’t been repaid. The first is a secured $3 billion bridge loan, initially with a fixed rate of 6.75%. The second is an unsecured $3 billion bridge loan, the riskiest portion of the package, that comes with a rate of SOFR plus 10%. Both bridge loans trigger an additional 0.5% interest for each quarter that they’re not repaid.
Back in April 2022, when the original lending agreements were worked out, and the Fed had just hiked for the first time in this cycle, SOFR was 0.33%, and no one expected for the Fed to hike to 5.25-5.50%. But by October 2022, when the deal closed, SOFR was 3.03%. Since the last rate hike in July 2023, SOFR has been about 5.33%.
And X’s debt has become massively expensive: Since the last rate hike in July 2023, the interest rate on the $6.5 billion term loan has been over 10% (4.75% plus 5.33% SOFR). The unsecured bridge loan’s interest rate has been over 15%.
So Musk’s statement that X faces $1.5 billion in annual interest charges just about hit the mark.
Meanwhile, back at the ranch, Musk managed to eviscerate X’s cash flow by verbally whipping advertisers and chasing them out the exits, and then by suing them, alleging that they conspired to boycott his personal toy.
So obviously, the banks, sitting on this $13 billion in leverage loans are nervous. The $30 billion that the investors put into the deal serves as a security blanket – but still.
The value of X isn’t $44 billion, which is part of the problem for banks. Musk himself said he overpaid. In October 2023, X Corp. told employees that stock grants would be priced at $45 a share, which translated into a valuation of the company of about $19 billion, according to the WSJ at the time. Earlier that year, Musk had told employees they would receive stock grants based on a valuation of about $20 billion.
So it has been 22 months that these seven banks have sat on those $13 billion in leveraged loans. They could sell them at a big loss and get rid of the risks. Or they can hold of to them and collect the big-fat interest and deal with the consequences of having this much risk on their balance sheet – and that’s what they’ve been doing, sitting on them, collecting interest, hoping for better days, dealing with regulatory scrutiny, and praying, “Oh Elon, please don’t default, and please repay the loans when they mature.”
Some of the banks have written down the loans by hundreds of millions of dollars, according to the WSJ. They could recoup the write-downs if the loans pan out.
According to sources cited by the WSJ, earlier this year, banks discussed restructuring the loans, where Musk would put in more money and pay down the loans, and in return the banks would lower the interest rates. But X didn’t follow through on the plan, the sources said.
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Makes you wonder why Morgan Stanley analyst continues to hype up Tesla stock as a buy no matter…talk about conflict of interest so obvious a truck can drive right through it. Afterall they can’t afford Tesla to sink in value and further remove any chance Musk will pay back or the interest..
Shouldn’t we count on the SEC to look into banks on the hook for this loan and their never ending stock pumping of Tesla? /s
Good point, everyone in this deal seems like a scam artist so if the whole thing goes down in flames it would be a good thing. Was always suspicious when musk overpaid by such a large amount given there were no other bids.
The cyber truck never made sense either unless it was to prototype for military use; SpaceX has become what NASA used to be and his satellites definitely have military applications. He seems to be a quasi government figure doing it’s bidding and this may be just another act in the play unfolding before us.
Absolutely true. Systemic fraud at it’s best.
I’ve said from day one when former twitter employees stuck elon with losses and drove advertisers away
that he’d stop paying former bills, layoff lots and promise moon
and eventually file bankruptcy to give everyone haircuts
—
of course OPM is elon’s saviour in all of this
it was free from day one and now look at what he has amassed
Musk needs to be thrown in jail. He’s a con artist.
Come on. Musk is so transparent. Bankers were just foolish.
Why do people get upset with successful entrepreneurs. Did Musk break any laws? Did he hold a gun to the head of these bankers?
But hey, we are all fortunate to still live in a country where freedom of speech is still a right, at least for now. And Musk has protected that freedom with X. It’s not one sided anymore.
Mush routinely deletes posts he doesn’t like and throttles commenters he doesn’t like, while promoting his own AI-enhanced fantasies. Far from protecting “free speech,” which is a silly concept when dealing with a private company, he has turned Twitter into ZeroHedge-light, a place where morons can spew racist venom and rightwing nonsense with impunity. Advertisers fled, naturally, not wanting to be associated with a fancy version of 4Chan and Mush said “f you” and we don’t need you. The whole episode is insane, and reaffirms that Mush may be the most insecure billionaire of all time.
Musk accomplished much. We must expect on that path, some things go sideways, yes. These bankers took their chances (with our public insurance systems backstopping them, thus Musk, to some degree, don’t forget). But it is not a binary. pure wonderful guy story. The risks are metastasizing and increasing to other institutions. I could spend all day reciting the laws Musk broke with regard to his (formerly tweets) affecting securities prices (and his own gains in that regard). His conduct with the acquisition of former-twitter was so incompetent and ridiculous it boggles the mind (may I suggest, read things as they happen, sometime, apart from your preferred fairytales of pure praise; I don’t have the time here). He has floated into that untouchable realm, with certain other oligarchs, that pose big tangles of risks. It is partly the fault too of government in its silos not appreciating the mutating overall systemic risk, and doing something. But Americans won’t try that, they wait for something big to break, and make some awkward messy law in its wake.
Freedom of Speech is allowed on X as long as you do not criticize Elmo, if you do, your account is banned. He is very thin skinned.
Freedom of speech as long as your voice echoes along with the chamber. That’s why monthly active users have plummeted consistently since peaking around when he bought it (despite the efforts to encourage AI and bots to reinforce his numbers and like his tweets). Digital town square, my ass.
https://www.statista.com/statistics/303681/twitter-users-worldwide/
bob?
so ‘mush’ does exactly the same thing as meta, google, and all the other tech giants do (deleting/deplatforming/throttling).. just in ‘reverse’, seems to me. so what? the fairness doctrine was abolished in 1987, so now the country is ‘stuck’ with levels of bias from media organizations unknown since the late 1940s.
i do not consider myself as ‘left’ or ‘right’. but i can tell you that as an independent observer, there is waaaaaay more ‘leftwing’ nonsense out there being ‘spewed’ with impunity.. thats because nearly every mainstream media organization is nothing more than a mouthpiece for the left.
thats absolutely the reality of it. all one has to do is look at the treatment of trump by the media since he got elected in 2016, and the ridiculous fawning over kamala harris presently.
while i cannot stand either of them, it is/was abundantly clear whose ‘side’ 99% of the media has been on, looking at it from a political lense. the former twitter deplatformed a sitting president for crying out loud.
gabriel’s point is partially correct.. its not (QUITE SO) one sided anymore…
N0b0dy,
You are just showing your biases to say there is more left wing nonsense.
Trying using objective criteria when forming you opinions. They will change.
“The seven banks are Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group (MUFG), BNP Paribas, Mizuho, and Société Générale. Obviously, doing business with the richest man in the world and getting a foot into the door with his six companies, and perhaps an IPO or two, such as SpaceX or Starlink, and the fee bonanza that would come with them, were huge incentives to engage in this risky deal”
Can’t say I am not enjoying seeing these banks go through the real life of F around and find out moment. Let so much greed rule over any little bit of common sense that might have prevented them to be in this situation. Even a 5 year old can probably tell you twitter was way overvalued and to do business with a man that’s unpredictable to put it nicely..well enjoy your reward now..
But at the very end, the bank (bosses) will not be left with the bill.
Excellent point, just look at Masayoshi Son
Just look at GFC of 2008, with every big bank on the planet. Masayoshi Son agruably runs a risk venture. But every big bank (as merged circa 1999 investment banks with commercial banks, with insurance and bailouts) has US as insurance.
5 of those 7 banks are located outside the US.
Wolf-
How big an issue is the broader (beyond just twitter) “leveraged loan” category of debt to the banking/finance system? I’m wondering about magnitude, concentration, and percentages relative to total balance sheets. And how has this exposure evolved over last couple decades.
In short, how much (if any) systemic risk to finance system does leveraged loan category pose?
Thanks for any color you care to add.
Leveraged loans are generally sold by banks to institutional investors (CLOs, loan funds, life insurers, pension funds, etc.). There is a market for them, and they’re traded. And they’re a big category, similar in size to junk bonds. And that’s what they are, a loan-version of junk bonds. In terms of banks, they only feel it if they get stuck with the loans, such as here. During the Financial Crisis, lots of banks got stuck with leveraged loans issued just before the Financial Crisis.
Leveraged loans are generally secured, and so if the company files for bankruptcy, there is at least some recovery, maybe in the 50% range – unlike many unsecured junk bonds that often turn into a near-total loss in bankruptcy.
assume that loans are recourse only to the shares in x?
There is one $3 billion portion that is “unsecured” — that’s the riskiest portion. The others are secured by some collateral, maybe stock, maybe something else.
All this money is owed by X. Musk personally doesn’t owe any of it and is not on the hook for it. But he has billions of dollars of his own money in the equity portion of the deal. So he would lose his equity if X fails.
It’s only three thousand million that’s unsecured. That’s pocket change these days.
WOLF wrote: “All this money is owed by X. Musk personally doesn’t owe any of it and is not on the hook for it.”
Wow. Sounds like a textbook example of vulture capitalism. Buy a company with borrowed money, and make the company responsible for the loan. Pay yourself a nice fee, strip the company of all assets, and then walk away.
Soooooo…….the question is; is X profitable. Can it afford to pay back the loan ? ?
Classic LBO = Leveraged BuyOut where the acquired company bears the debt taken out to acquire it. Hence “leveraged” buyout.
I read at the time that his Tesla shares pledged against X loan
Truth be told, sometimes “business” and “finance” adventures don’t seem that much different to me from my “fun” trips to the Casino.. aside from the fact that I never put my house on the line, or someone else’s for that matter. What do I know, I’m just a degenerate and these people are “upper class”
There is nothing upper class about these people. They may have money but that gives them no class of any kind. Scumbags, all of them.
Don’t think Elon put his house or any of his other businesses on the line. Certainly it’s entirely an independent business enterprise not a personal one.
‘In Musk’s case, his collateral is his unencumbered ownership of Tesla stock. Should Tesla stock collapse, Musk would be obligated to add collateral (more cash in this case), which is known as a margin call.’
No bank or group of banks would dream of lending anywhere near this amount to Twitter alone. Musk grossly overpaid and the banks knew this. After a few days so did Musk and then he tried feeble attempts to renege.
Longer explain from Al Jazzera:
At first Musk hoped to borrow against Tesla
shares. Ultimately, Musk abandoned the loan idea and put up more funding in cash. The 51-year-old ended up selling around $15.5bn worth of Tesla shares in two waves, in April and in August.
In the end, the South African-born billionaire will personally cough up a little more than $27bn in cash in the transaction.
And importantly, Musk, who Forbes magazine says is worth around $220bn, already owns 9.6 percent of Twitter in market shares.
Investment funds
The total sum of the deal also includes $5.2bn from investment groups and other large funds, including from Larry Ellison, the co-founder of software company Oracle, who wrote a $1bn cheque as part of the arrangement.
Qatar Holding, which is controlled by Qatar’s sovereign wealth fund, the Qatar Investment Authority, has also tossed capital into the pot.
Prince Alwaleed bin Talal of Saudi Arabia transferred to Musk the nearly 35 million shares he already owned.
In exchange for their investments, the contributors will become Twitter shareholders.
Loans
The rest of the money – about $13bn worth – is backed by bank loans, including from Morgan Stanley, Bank of America, Japanese banks Mitsubishi UFJ Financial Group and Mizuho, Barclays and the French banks Societe Generale and BNP Paribas.
According to documents filed with the US Securities and Exchange Commission, Morgan Stanley’s contribution alone is about $3.5bn.
These loans are guaranteed by Twitter, and it is the company, not Musk himself, which will assume the financial responsibility to pay them back.
Nick Kelly,
Seems, two things are getting mixed up here:
1. The total deal was close to $44 billion. It came in two portions:
– $13 billion in leveraged loans (the subject of this article);
– nearly $30 billion in equity, including the Twitter shares Musk already owned, and that was NOT subject of this article.
2. The $13 billion in leveraged loans here: X is on the hook for them, not Musk. Lenders have no recourse against Musk; they only have recourse against X. These loans are the topic of the article.
3. The $30 equity portion of that deal was coughed up by Musk and other investors. Musk’s portion of the $30 billion was in part borrowed against his Tesla shares. That’s what you’re talking about, but it has nothing to do with the leveraged loans in the article that X is on the hook for.
The destruction of value began fast, with the name change. If a valuation of Twitter itself had been seriously undertaken, a lot of it would have been the name, which had entered the language as the verb ‘tweet.’ Imagine buying Gucci and then changing the name to Flubber or X. ‘Oh you’re wearing brand X, cool’
Twatter was a failed company from the get go with no means of ever being able to be profitable so why were any banks in on any ‘deal’ at all to finance this sort of utter garbage?
Because it’s another big brother spy tool to vacuum up our personal lives just like Facebook. They also use it to instigate coups and false flags as well as suppress real events. Very valuable to the orwellian class.
You’re projecting.
projecting…
truth?
please do elaborate, DC.
Free speach is not that free
Money well spent
Musk opened up minds around the world
No other app compares, to engage world leaders
May he succeed to turn X into the app of everything
His goal is to go public when ready
LOL!
See above. If you are willing to pledge assets that do have value, the banks don’t much care what you buy.
Please return to posting comments on Michael Snyder’s Economic Collapse blog. Oh, that’s right, you can’t post there because you were posting comments literally every few minutes and he shut down the comments section because of you. I’m glad Wolf doesn’t tolerate that nonsense.
Obviously, Musk wants Don to win so he can force the government to buy the underwater paper and lower the interest rates. like Trump did last time with all the banks bad paper during the pandemic.
The lenders should just sit back and collect the payments. if they were smart, they would ask the Saudis to buy the paper. the debt would get paid off for sure along with the other 1.9 billion they put in so far. or heads would be rolling. Didn’t musk loose over 200 billion a few years ago. and made it back again. Twitter will get paid off since the Saudis’ are investors.
Don has stock in DJT, a competing platform.
While Musk isn’t quite to the Trump level, you’d still have to be out of your mind to lend anything to that guy. The way he tried to back out of the TWTR deal told all of us anything we needed to know about him (that we already knew anyway).
“you’d still have to be out of your mind to lend anything to that guy.”
Well, he’s the richest man in the world. So he’s got some resources and needs lots of financial services, including for his IPOs. That’s very motivating for banks.
And they didn’t really lend to him, they lent to Twitter, and Twitter owes this money.
i actually believe Putin is richer.
“…you’d still have to be out of your mind to lend anything to that guy.”
This has to be one of the dumbest things I’ve ever read in my life. When lending money, the most important fact to consider is the borrower’s ability to repay the loan. He’s the richest guy on the planet. But hey, don’t let facts get in the way of your emo posts.
ohhh come on DC.. dont exaggerate. im sure you have heard many things far dumber than that..
and..
he’s the richest guy THAT THE PUBLIC IS AWARE OF on the planet.. i very much doubt he is the richest person in absolute terms, given how much untold wealth is locked away hidden in secret bank accounts or sequestered in front corporations, trusts, and other institutions designed to hide who REALLY IS the richest person…
“When lending money, the most important fact to consider is the borrower’s ability to repay the loan. He’s the richest guy on the planet. But hey, don’t let facts get in the way of your emo posts.”
Given that banks cannot sell the debt at face value, it appears the entire debt market disagrees with you.
So according to you: the entire financial system aside from you and the lender hoping to flip that debt are “emo”
Why would Elon not pay from his own funds and save the 10%-15% interest cost on few Billions? Or is he thinking X might choose to default one of these days??
He doesn’t have that much cash sitting around. He’s rich because he owns valuable companies, including a big portion of Tesla.
I wonder who the $20B defunct GFC-era borrower was.
X is still making the interest payments? Seems like a good deal for the banks (although risk of that money stream cutting off at any time is not good) X easily worth 13 billion if that had to take over and wipe equity holders including musk out. Advertisers would come back without him around.
“X easily worth 13 billion”
Are you sure?? Even Elon himself is implying a value of $19 billion… and he has many incentives to over-estimate.
Revenue of $600m and interest expense of $1.5b is crippling, and that’s before you pile in the hundreds of millions required to actually operate the company. And that picture only gets worse every month as Musk keeps telling advertisers to go f’ themselves.
So who would want to pay $13 billion for a money pit hot mess like that
At 10 or 15%, I’d take a piece of that action.
Of course, I don’t have $13B.
Same. I already invest in other floating rate debt with similar yields.
15% is a nice juicy risk premium.
I thought much of the Twitter value destruction was ADL pushing advertisers to pull their spend from the platform, starting right as Elon bought it? There was some lawsuit squabble over it once it came to light.
Plus much of the user base was fake.
Also let’s not forget Taibbi and the Twitter Files.
There are a LOT more bots on twitter today than ever before.
And he’s one election away from a cabinet position…
Fittingly. These guys are both from central casting. In the 1980’s, the darling of lenders was a certain brash hotel developer and aspiring casino magnate/airline CEO/football team boss, etc., etc., who represented the future of business, to many. That was faith-based investing to the hilt, until it crashed. But these guys ascend into some kind of faith-based media-star sphere of human influence where they don’t seemingly need to follow conventional rules of finance. There are always more suckers to pick up the tab while gazing worshipfully at these guys are some kind of psych father-deity figures.
Got this from Google Gemini:
According to a 2021 YouGov study, 41% of Americans believe in ghosts, with 20% claiming to have had a personal experience with one. This would mean that over 50 million Americans have experienced a spirit encounter.
Why not believe that Don really cares about the little people?
phleep/How – …could be no more of a case to some ‘Murican minds as one of: “…as seen on TV…”…best.
may we all find a better day.
BofA
First loaded up 10 yrs Notes during Pandemic without thinking about long term Interest Risks. So excessive Paper losses and reduced Profitability last few quarters. Now this X crap on Balance sheets.
Should we connect this with Warren selling BofA shares last Quarters and this week also news coming?
Twitter loans are a glaring example of how overleveraged the whole financial system is with toxic debt! By 2025 the whole toxic mess will implode spreading its stench to every corner of the world and especially America!
X / SpaceX / Starlink will be a browser, search engine, mapping function, news delivery system, and communications app. It will put the telecoms out of business, along with all the news corps, and a score of other industries while spawning new ones.
The same investment banks that bankroll takeovers of newspapers and entertainment companies are finally going to get one right, if they’re on the short list of lenders for what is coming for X.
What looks like a smarter moon-shot gamble in this space? Musk taking over Twitter at the same time his Starlink is connecting the planet with free communications coverage? Or Bezos’ vanity purchase of WaPo? Which would you rather have in 50 years?
Ooooh slow satellite internet when I can have fiber.
Weeeeeee!
Gotta think you are on to some thing here KW; maybe THE main thing going forward.
While some, including unfortunately most if not all of the ”brass” at all levels of all kinds of things, manufacturing, military, politics, etc., etc., are clearly ”fighting the LAST war”,,,
many or perhaps sadly very less than many, are focusing on not only ”fighting” the NOW and present challenges,,, but, ,,WE can hope, are focused on figuring out how to ”fight” not only the current challenges, but those clearly or not so clearly coming to USA and globally.
VERY clearly IMO,,, #1 challenge in USA today is to make sure ALL schools, public, charter, private are actually teaching ”HOW to THINK” as opposed to WHAT TO THINK.
Otherwise, USA will go down the exact same drain as the British and so many other ”empires.”
Too late!
VVNv – the extreme cognitive dissonance of ‘next-quarter’ driving strategies of the markets, accelerated speed of human technological development, and their effects on the collapsing of the windows of thoughtful and effective long-range planning on the mundane systems of human governance/spacecraft maintenance…
may we all find a better day.
Starlink plans start at $50/mo. Who tricked you into thinking $50-$150/mo is “free”?
What would cause 100% of people to switch to these imaginary map/search/news/communication apps when we’ve got decades of tenured competitors entrenched in the space?
Will this all happen before or after delivery of full-self-driving which Elon also promised would put competitors out of business by 2017?
I saw those banks you listed and thought “yep”
as in the banks who aren’t on James Bond’s side in the movies.
If you catch my drift
I was going to name two of the most notorious giants that are not on the list — Goldman and JPM — but didn’t. Goldman has worked very extensively with Musk and Tesla, including on its massive follow-on share offerings. So there’s that. And I was going to add that five of the seven banks on the list are non-US banks.
Yep. The smart money wouldn’t/didn’t touch this with a 10 foot pole.
There seems to be a lot of American jealousy of South African Musk, maybe because he came in and flattened NASA, Boeing Space, Ford, Chevrolet etc.? Perhaps you are fortunate that he can’t stand for president, the charge into the future that he would make would out pace too many of the entrenched old guard and the methods they use to accumulate power and wealth.
Yes, one can do a lot with government grants, that never have to be paid back…
Government created large scale aviation, freeways, the microchip, the Internet, fostered big business which advanced autos, space, etc. Then some savior comes along piggybacking some more on it all, OK, adds some value, but he is going to replace the whole society’s accomplishments and throw everybody out? Fix everything? Right. Pure faith, the halo effect of a few accomplishments, which will just keep being more and more transformative. Sorry, IMO, never ever has that gone where you say it does. Especially this guy who is so arrogant (not to say deeply ignorant) to anything that is a friction to him in the slightest. The world doesn’t work that way.
WR wrote “Some of the banks have written down the loans by hundreds of millions of dollars, according to the WSJ. They could recoup the write-downs if the loans pan out.”
Reminds me of the joke-
CEO: What’s the bottom line on our profit/loss statement?
Accountant: What do you want it to be?
So many conflict of interest and outright illegal BS. For fuck’s sake, can we let the bad debt clear already? This centrally-planned eCONomic game is getting tiresome, let’s find out who is swimming naked already. Fuck em.
It is so complex, maybe AI could untangle all this spaghetti that has accumulated, but I doubt it. The biggest push of any kind is like shoving a giant blob of gel, it moves a tiny bit on one edge.
At this point, the people swimming naked are too heavy in fixed income.
This new era of monetary policy focuses on recession avoidance. Inflation must be 2% and higher to keep things stable. We already hear talk of rate reductions after the most recent 20% inflationary spike. Stimulus must be constant to avoid recession, until the system pops.
Spinelessness rules the day.
…mebbe time to accept that this is a nude beach we are walking…
may we all find a better day.
So X is making their loan payments?
And these poor small banks, with little ability
to do their due diligence, are left holding the bag?
.”…according to sources”
From tds to…..eds.
X probably swapped the variable rate into a low fixed rate at the time of the deal. They don’t take the risk with AA rates firms- why would they in this super risky LBO?
The WsJ is paywalled to me but it’s no leap of imagination to see that their reporter and academic source don’t know how commercial lending works. The article is just another anti-musk hit piece.
“Servicing the loans isn’t helping X’s financial health. Even before rates stopped rising, Musk said its annual interest payments total around $1.5 billion.”
Notice how the reporters don’t know what the interest payments are now? But our verbally skilled reporters construct a sentence to suggest it must be more now! That’s the value in a Yale education.
Don’t fall for this BS. The banks are over the moon to be collecting those fat margins on the loans while the rate risk was laid off to some speculators via a swap.
Finally someone who get’s it.” collecting those fat margins on the loans while the rate risk was laid off to some speculators via a swap”. The commentors + are a little too emotional /irrational when it comes to Elon, it’s a bummer.
Nope, there is no “rate risk” – these are floating rate loans, and rates float with SOFR, which is why the loans got so expensive for the borrower because SOFR jumped from 0.33% to 5.33% over the duration of the deal, and the floating interest rates on those loans jumped to 10-15%. RTGDFA
Interest rate risk only affects fixed-rate debt that loses value as interest rates rise.
Floating rate loans retain their value as rates rise because their floating interest rates rise also.
But there is CREDIT RISK = the risk of not getting your money back. To hedge against credit risk, banks would have to buy Credit Default Swaps, which would be expensive on this deal. It’s the much-bigger-than-anticipated credit risk that caused prices for these loans to fall. The credit risk is much bigger because cash flow at X has plunged because advertisers fled, and advertising revenues collapsed.
Do banks not want these loans because they’re genuinely worried about default? Or does having these loans on their books just make it harder to comply with required leverage ratios?
Fun little stroll down Musk Memory Lane. On Yahoo:
“Elon Musk is foreclosing on an LA home. The owners, who Musk lent money to, say they ‘owe him such a spiritual debt.'”
Maybe THIS is why Elon wants a $44Billion payday from Tesla.
SpaceX is also a money pit .
It would be interesting to know who are the other investors ?
His friends in SV ?
” Musk managed to eviscerate X’s cash flow by verbally whipping advertisers and chasing them out the exits, and then by suing them, alleging that they conspired to boycott his personal toy.” This is incorrect, GARM was proud to stop advertising because he is too “far right” an email was leaked about it then he sued GARM.
Maybe you missed seeing the public interview Musk gave where he literally said to the cameras and the audience: “Don’t advertise on my platform. Go f** yourself”.
Unless Musk is secretly a member of GARM and suing himself…?
” Musk managed to eviscerate X’s cash flow by verbally whipping advertisers and chasing them out the exits, and then by suing them, alleging that they conspired to boycott his personal toy.”
Mr. Wolf has his own biases and brand as does every pundit. But he also offers an interesting angle on the economy. Thats all we can really see, many different angles and maybe thats the most important insight: that a clear view of the world in the large is never available and the “data driven” trope has only limited application.
Bingo. The biases of all become more blatant every day. It’s a shame I have to assume so much is false or misleading on EVERY site.
LOL, both of you. Musk DID eviscerate X’s cashflow, and has said so himself. He did that by pissing off the companies that were funding Twitter. That’s a choice. And he chose to do that. Maybe it was a good thing to do for other reasons, but it caused X’s cashflow to collapse, which caused those loans to become very risky for the holders, and their prices dropped due to this additional credit risk, and now the banks cannot sell the loans without getting big haircuts. That’s what this article is about. The article is about the risky loans and the banks and the cash flow needed to service the loans, you goofballs.
What makes this even more complicated is that currently EU regulators and Twitter (X)/Musk arr in a snit. Both of them with a long history of being unreasonable.
There are rumors that Musk is thinking of leaving the EU. He thinks that the absence of X would cause a backlash against EU regulators. Of course this needs to be taken in the context that this is the same man who thinks suing his customers is a good idea.
Musk’s obscene money has led him to lose any touch with reality that he might have had before.
If X leaves the EU, it would have a huge effect on the advertising bottom line therefore greatly hurting it’s valuation. Furthermore it would risk some other platform becoming popular in the EU moving X that much closer to irrelevancy.
The lending banks cannot be happy that X is fighting the EU. Regardless of the outcome, chances are it isngoing to hurt X’s bottom line.
Musk didn’t learn his lesson after trying to bully his customers, and he probably won’t learn his lesson after trying to bully the EU.
The bankers who were foolish enough to bankroll Musk’s ego trip deserve what they get.