3 ms·

The debt payments and IR -- was this the trick to have the money upfront, then sell the debt, so banks, do they own any amount of Twitter or did they get a payo

by dpflan 4y ago

The debt payments and IR -- was this the trick to have the money upfront, then sell the debt, so banks, do they own any amount of Twitter or did they get a payout immediately after "the ink dried", and now this $1.3bb scenario is going to be offloaded onto someone else? Financial engineering that leads to Musk's ownership and banks payout. And now is the when the price of that debt is highest, so the highest possible payout (?). Because you've pointed out the paradoxical financials, IR payments seem whimsical, or a way to eventually sell more TSLA stock... Any good resources on the deal structure?

dragontamer 4y ago
I don't recall the full details. But I think it was roughly 50% effectively fixed (in April 2022) and 50% effectively adjustable. Thus: the estimate for ~10% for the overall debt deal. The fixed-portion of the debt is already hilarious to look at, IIRC Morgan Stanley expected 11% yields for the CCC tranche, but are now looking at 16%+. Morgan Stanley's losses are already in the hundreds-of-millions.
- dpflan 4y ago
  Thank you, interesting details on MS. Some of the classic "yield farming"...Twitter deal as the black box this time.
  - dragontamer 4y ago
    https://archive.ph/PMvWz https://archive.ph/PMvWz Here's an archived Bloomberg quick-take back when the debt was financed last April. Here's some commentary on the subject: * https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-banks-backing-him-morgan-stanley-buyout-debt/ https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-ba... * https://www.axios.com/pro/media-deals/2022/10/05/musk-twitter-deal-banks-debt https://www.axios.com/pro/media-deals/2022/10/05/musk-twitte...
merely-unlikely 4y ago
The banks own the debt and will try to syndicate it out to new investors later. This is standard in an LBO. The banks provide "bridge financing" for the deal while they line up end debt investors. But the banks are ultimately on the hook if the debt market freezes up, as happened here. ETA: Financing the Merger section of the proxy lays all this out: https://www.sec.gov/Archives/edgar/data/1418091/000119312522202163/d283119ddefm14a.htm#toc283119_16 https://www.sec.gov/Archives/edgar/data/1418091/000119312522... Pursuant to a debt commitment letter (which we refer to as the “debt commitment letter”), Morgan Stanley Senior Funding, Inc. and the other financial institutions party thereto committed to provide to Acquisition Sub (which we collectively refer to as the “bank debt financing”): • a senior secured term loan facility in an aggregate principal amount of $6.5 billion; • a senior secured revolving facility in an aggregate committed amount of $500.0 million; • up to $3.0 billion in aggregate principal amount of senior secured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior secured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter); and • up to $3.0 billion in aggregate principal amount of senior unsecured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior unsecured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter).
- lazide 4y ago
  This is why banks always take it in the shorts really badly during downturns. They’re always chasing yields and behind the curve while being in the stereotypical ‘conservative’ financial position of low information about how anything actually works. I’m amazed we haven’t had several high profile ‘jumped out of window’ events related to this already. Seriously, who thought it was a good idea to sign off in this from the financier side? I’m amazed
- collegeburner 4y ago
  tbh i've heard quite a few CLOs are sitting with warehouses now open for upwards of 200 days, so MS may just be waiting for them to get desperate to fill up so they don't take so much of a haircut. my guess is the overall prime to sub-IG spread isn't going to be moving down, but this is kinda an advantage for illiquid 144a offerings.
bogomipz 4y ago
What is IR here? My understanding is that normally the banks would have sold this debt long before the deal closed. However due to Elon's putting the deal "on hold" and what followed, the bank wasn't able to do the usual road show to sell the debt to investors. The banks are on the hooks for this now. And while they will likely be able to package and sell it still, they will be doing so in a much different environment than back in April when Elon made the offer to buy the company.

by dpflan 4y ago

dragontamer 4y ago

I don't recall the full details. But I think it was roughly 50% effectively fixed (in April 2022) and 50% effectively adjustable. Thus: the estimate for ~10% for the overall debt deal. The fixed-portion of the debt is already hilarious to look at, IIRC Morgan Stanley expected 11% yields for the CCC tranche, but are now looking at 16%+. Morgan Stanley's losses are already in the hundreds-of-millions.

dpflan 4y ago
Thank you, interesting details on MS. Some of the classic "yield farming"...Twitter deal as the black box this time.
- dragontamer 4y ago
  https://archive.ph/PMvWz https://archive.ph/PMvWz Here's an archived Bloomberg quick-take back when the debt was financed last April. Here's some commentary on the subject: * https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-banks-backing-him-morgan-stanley-buyout-debt/ https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-ba... * https://www.axios.com/pro/media-deals/2022/10/05/musk-twitter-deal-banks-debt https://www.axios.com/pro/media-deals/2022/10/05/musk-twitte...

merely-unlikely 4y ago

The banks own the debt and will try to syndicate it out to new investors later. This is standard in an LBO. The banks provide "bridge financing" for the deal while they line up end debt investors. But the banks are ultimately on the hook if the debt market freezes up, as happened here. ETA: Financing the Merger section of the proxy lays all this out: https://www.sec.gov/Archives/edgar/data/1418091/000119312522202163/d283119ddefm14a.htm#toc283119_16 https://www.sec.gov/Archives/edgar/data/1418091/000119312522... Pursuant to a debt commitment letter (which we refer to as the “debt commitment letter”), Morgan Stanley Senior Funding, Inc. and the other financial institutions party thereto committed to provide to Acquisition Sub (which we collectively refer to as the “bank debt financing”): • a senior secured term loan facility in an aggregate principal amount of $6.5 billion; • a senior secured revolving facility in an aggregate committed amount of $500.0 million; • up to $3.0 billion in aggregate principal amount of senior secured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior secured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter); and • up to $3.0 billion in aggregate principal amount of senior unsecured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior unsecured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter).

lazide 4y ago
This is why banks always take it in the shorts really badly during downturns. They’re always chasing yields and behind the curve while being in the stereotypical ‘conservative’ financial position of low information about how anything actually works. I’m amazed we haven’t had several high profile ‘jumped out of window’ events related to this already. Seriously, who thought it was a good idea to sign off in this from the financier side? I’m amazed
collegeburner 4y ago
tbh i've heard quite a few CLOs are sitting with warehouses now open for upwards of 200 days, so MS may just be waiting for them to get desperate to fill up so they don't take so much of a haircut. my guess is the overall prime to sub-IG spread isn't going to be moving down, but this is kinda an advantage for illiquid 144a offerings.

bogomipz 4y ago

What is IR here? My understanding is that normally the banks would have sold this debt long before the deal closed. However due to Elon's putting the deal "on hold" and what followed, the bank wasn't able to do the usual road show to sell the debt to investors. The banks are on the hooks for this now. And while they will likely be able to package and sell it still, they will be doing so in a much different environment than back in April when Elon made the offer to buy the company.