The High Price Of Financing Elon Musk

Elon Musk turned social media on again this week by announcing that he is finally buying Twitter . In practice, this change of decision means that the CEO of Tesla must disburse 44,000 million dollars, money that he, despite being the richest person in the world, does not have.

Nor was it in his power when he put on the table in April the offer to acquire the platform, although he did have the support of lenders of the weight of Morgan Stanley, Bank of America, Barclays and Mitsubishi UFJ Financial Group. At the time, these entities promised to provide 13,000 million dollars of financing. However, things have changed since then and this operation no longer seems so attractive to them. The problem is that getting out could be very expensive: if they sold this debt now,their losses would amount to $500 million or more .

The original plan of these banks was to sell $6.5 billion of leveraged loans to investors and another $6 billion of secured and unsecured junk bonds. However, the rise in interest rates has meant that, in just half a year, Bank of America, Barclays, Mitsubishi UFJ Financial Group and the rest of the banking entities find themselves in a scenario in which the market is not going to accept the returns with whom they agreed to fund Musk in April .

Just ditching the unsecured bonds would cost Morgan Stanley and the rest of the group up to $400 million in losses , according to Bloomberg . This is because this type of title has a maximum interest rate of around 11.75%.

With the sale of bonds and loans ruled out, the banks would have no other alternative than to resort to their reserves – amounting to 50,000 million dollars – to finance debt operations, which will have a negative impact on their profits and needs. capital .

However, all this is assumptions and first we will have to wait to see if the founder of SpaceX buys the social network, something that it questions. Twitter is based on the testimony of a banker involved in the financing of this debt, who assured this week before the Delaware judge that they had not yet received Musk’s loan notice .

Although the lack of this document is not a problem in itself, since it is usually sent when the purchase process is about to close, it should be remembered that the magistrate handling the Elon Musk-Twitter case has set a deadline to carry out the transaction . on October 28. If not done, she will set new dates for the trial .