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Banks had to fund the whole debt package with their own cash due to a decline in the credit markets.
According to people familiar with the matter, Elon Musk’s bankers are considering providing new margin loans backed by Tesla Inc (NASDAQ: TSLA) stock to the billionaire in order to cut risky Twitter debt. The bankers are reportedly exploring new margin loans to replace the high-interest debt Elon accrued from the Twitter deal. The bank group, led by financial services company Morgan Stanley (NYSE: MS), have been weighing suitable options for the Twitter CEO to ease his debt. After such deliberations, the margin loans stood out as one of the several options to address the $13 billion deficit that resulted from Elon Musk buying Twitter for $44 billion.
Banks in Talks to Provide Margin Loans to Cut Twitter Debt
Banks had to fund the whole debt package with their own cash due to a decline in the credit markets. Also, the rough start at the beginning of the takeover forced the financial institutions to fund the entire debt package themselves. Meanwhile, Twitter could be facing $1.2 billion in annual interest costs if the debt remains. This figure is significantly more than the social networking company’s earnings for the entire of 2021.
The sources revealed that the discussion is targeted at how to replace $3 billion in unsecured debt. Notably, the CEO pays a 22.75% interest rate on unsecured debt. For now, the talks continued, and there are no specific decisions. The question is whether the margin loans against Tesla shares would help Elon sort the debt. With the look of the situation, this could go well since the billionaire has money invested in Twitter equity.
Also, the people added that margin loans mean Elon Musk would not have to pay higher interest rates than the unsecured debt. About $6.5 billion of term loans and $3 billion of secured bonds are also part of Twitter’s debt. The unnamed sources further said that the group of banks will not offload any of the debt until the coming year. By then, Twitter would be able to draw a clearer picture of where it stands since the acquisition and numerous changes by the new CEO.
In other Twitter news, the social networking service company recently banned Ye for inciting violence. The American rapper posted a swastika image inside a Star of David shortly after he was cut off from his initial suspension from the app.