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> $10B of additional debt $13 Billion actually. > and now is facing annual $1B interest payments Estimated to be 10% APY given where CCC Debt was in April. B

> $10B of additional debt $13 Billion actually. > and now is facing annual $1B interest payments Estimated to be 10% APY given where CCC Debt was in April. But the details are sketchy and I haven't been able to get a better estimate than that. I've heard rumors of 50% fixed + 50% adjustable, meaning some of that debt can be as high as 16% right now (today, CCC Debt is going for 16% APY). So we're looking at $1.3 Billion to $2 Billion in interest payments alone (let alone principal) by my estimate. I've been curious if anyone out there has been able to get a better estimate on Twitter's LBO debt. -------- In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate).

_jal 4y ago
3500*300000=1050000000 I have no idea what average salary was there, but it looks to me like the layoffs don't even cover that.
- jimiray 4y ago
  you can't cut deep enough to cover $1B in interest paymets, maybe now people will figure out that Musk is the wealthiest man in the world by taking tax dollars as subsidies for all his businesses.
  - aaomidi 4y ago
    Wonder if he's going to use money from his other companies for interest payments for twitter, and then claim tax deductions for those companies because these were interest payments. FWIW I have no idea how finances work, just can imagine Elon getting into weird loopholes.
    - encryptluks2 4y ago
      He's proven that you can do pretty much anything if wealthy enough and face almost no consequences.
      - mikkergp 4y ago
        I suspect this is only true if the wealthy people protecting you keep making money.
    - boeingUH60 4y ago
      He can only do that if he owned Tesla and SpaceX outright. But, Tesla is a publicly-traded company with tens of thousands of shareholders that’ll sue him into oblivion if he tries that. SpaceX is privately-held, but has raised billions of dollars from dozens of investors, so that won’t fly neither.
  - parineum 4y ago
    Going into a sector with lots of incentives is good business. It's not like he lobbied congress for those subsidies and they were tailored so that basically only he could qualify. Everyone had access to all of those subsidies, Musk was a nobody before Tesla and SpaceX. Why didn't Ford and Boeing, companies with a much better footing than Musk, simply move into those sectors (EVs and re-usable rockets, respectively) and mop up all those subsidies for themselves?
    - aaomidi 4y ago
      https://www.opensecrets.org/orgs/tesla-inc/lobbying?id=D000057516 https://www.opensecrets.org/orgs/tesla-inc/lobbying?id=D0000... Tesla did lobby, quite a bit. They've also been angry about the subsidies that require cars to be union made.
      - parineum 4y ago
        The Roadster was released in 2008. Barely any money was spent on lobbying until after the Model S was already released (2012), the Powerwall announced (2015) and the Model X was released (2015). That's also post-IPO (2010). Tesla was already a successful, innovative electric car company before it started lobbying like a regular car company. All of the risk that paid off (what makes a businessman a good businessman) was done in the early days when he invested 6.5 million that he turned into billions.
        danaris 4y ago
        Yeah, and Musk only became the CEO in 2008. He didn't create the company, and he didn't create the Roadster.
        parineum 4y ago
        He invested 6.5m of the 7.5m that was raised in funding. Without that investment, Tesla probably dies on the vine. He didn't "create" the Roadster but he did believe in the electric car and backed it up with a significant investment that allowed the people who were hired to create it to stay employed. He deserves credit for believing in the David and turning it into Goliath (of EVs), even if government subsidies helped. I support the government subsidizing clean energy, electric cars and cheaper access to space and I think it's hypocritical to turn around and shit on the companies that take advantage of those subsidies and do exactly the thing that they are meant to encourage.
  - s1artibartfast 4y ago
    >you can't cut deep enough to cover $1B in interest paymets Why not, when twitter's operational costs are ~5.5 billion and you are reportedly laying off 50-75% of staff?
    - watwut 4y ago
      You need to do it in a way that does not make the remaining core hugely dysfunctional. And it would be miracle if Musk could. And trolling does not help either. The sink thing was trolling and between that and layouts, the remaining people will be dysfunctional for quite a long time.
  - mdasen 4y ago
    Just for some context, Twitter has around $4.5B in revenue per year. Clearly, you can't cut all spending. It looks like the "cost of revenue" is around half that ($2B) and you probably can't cut that. Do you cut sales and marketing? Well, then your revenue probably ends up declining. Do you cut R&D? Well, eventually others are going to eat your lunch. You have $1.6B in R&D costs and $1.2B in sales and marketing and $700M in admin costs (like Human Resources). As you note, it's really hard to cut deep enough to cover $1B in interest payments without cutting stuff that ends up hurting your revenue. As Twitter cuts their R&D, they're leaving themselves open to missing out on the future. Should Twitter have continued to invest in Vine? Well, the benefit of hindsight says "yes" given TikTok's success. As much as everyone is making fun of Meta's metaverse plans, it's certainly possible it'll be important in the future. We really just don't know. I remember everyone saying the iPhone was a silly toy and people would want to keep their Blackberries and Windows Mobile devices with keyboards. We can literally see the future and say, "nah, that'll never happen." If Musk cuts engineering too much, does the service just become mediocre? As you say, it's hard to cut deep enough to come up with $1B.
- andrewstuart2 4y ago
  There's little chance average salary even for engineers comes to 300k in cash. Even Senior Staff SWE is ~270k base per levels.fyi, and that's got to be a 1-3% position, and that's just engineering, which is probably not the majority of these layoffs.
  - grogenaut 4y ago
    You do need to take all the support costs for staff into account. Buildings, network capacity, hr staff, managers, software licenses, hardware, benefits, fica/etc. It's not unreasonable to assume 30% extra for every head than their salary. Also most of those folks on levels also get compensated with stock or equity, so it's more than base. Going private means that goes away and their comp also gets slashed. Is he going to take it back public, what beyond base does twitter offer as comp.
    - mikeyouse 4y ago
      Yeah as a reference - I do a lot of this type of planning for non-equity employees and our number is 37% right now (site costs + US payroll taxes & benefits + hardware + incidentals).
      - andrewstuart2 4y ago
        Thanks for the reference. I've heard numbers thrown out but never anything asserted as an actual researched number.
        mikeyouse 4y ago
        Yeah the org I work with has an interesting setup where the employees are employed by the parent organization and then we have dozens of projects as legal entities but no staff on their books. So to calibrate the passthrough cost that we charge those projects, we do a big analysis every quarter of all of our expenses for tax, 401k matching, 'staff development', non-capital hardware purchases, health/dental/vision, life insurance, etc. etc. So it's a pretty robust number. For highly paid employees over ~$200k, it's probably more like 34% since a bunch of that stuff doesn't scale with salary, but lower employees are closer to 40% so the blended rate covers a "typical" company.
- jjeaff 4y ago
  There is no way the average salary of all the employees cut would be $300k. I'd be surprised if the average was higher than $100k. At least one source I found says the average salary of Twitter employees is $97k. (US only total compensation is closer to $300k with an average of $270k. But a lot of that is probably stock options which now must be paid in cash). So I would imagine the total savings are closer to $250m compared to when Twitter was public but maybe a lot more in savings vs what Twitter would have bled considering the stock options portion of the compensation would have had to have been cash.
  - Ancapistani 4y ago
    Yeah, total comp is the number the business cares about in this situation. Salary is only a part of that. > a lot of that is probably stock options which now must be paid in cash I won't say that's not a big deal, but it's a one-time cost. Paying $500k today to save $300k / year is an excellent move for Twitter - assuming, of course, that Musk is correct in his estimation that the employees cut were not contributing to the company's revenue.
  - GoldenStake 4y ago
    Level.fyi suggests much higher than 97k https://www.levels.fyi/companies/twitter/salaries https://www.levels.fyi/companies/twitter/salaries Although level.fyi is probably biased to high earners who post their salaries and has less data for non-engineers.
    - jjeaff 4y ago
      My guess is that the majority of employees at Twitter are not in fact engineers.
svdr 4y ago
I don't know much about finance, but why didn't he just pay the 13B? This seems much more expensive.
- klooney 4y ago
  He doesn't want to sell all that stock, which would lose him control, and probably move the market around and be even more costly in terms of shares than what it looks like on paper.
- bpodgursky 4y ago
  Presumably because he thinks he will make more than 10% y/y from his Tesla and SpaceX stock.
- edf13 4y ago
  More expensive for Twitter - the company, rather than Musk and his palls.
- karmicthreat 4y ago
  Because then he doesn't have to sell his assets to pay for it.
- bcrescimanno 4y ago
  He's not personally liable for the $13B. If (when?) Twitter implodes, he gets to walk away not owing a dime of that money--so why spend it if he doesn't have to?
  - bmitc 4y ago
    How is that possible? I can’t just buy a house with a mortgage and walk away. He personally owns the company with loans.
    - deltree7 4y ago
      You can walk away when you declare bankruptcy. Lot of people in 2008 just did that
romankolpak 4y ago
this is insanity
- deleted 4y ago
  [deleted]
galdosdi 4y ago
The adjustable debt rumors should also be viewed in the context of an economy where everyone believes the fed will likely keep raising rates repeatedly and often over the next year or so. Definitely a risky situation
a4isms 4y ago
Having been adjacent to the world of finance during the height of the Drexel/Milken/KKR leveraged-buyout craze of the 80s, I seem to remember that what ushered in the end of the excesses was a series of major failures where companies were taken private and saddled with huge debts, but attempts to sell off the parts and retain a profitable core that could then be taken public again or sold for a huge windfall began to fail. This buyout may be headed in the same direction, and if it is, I conjecture it will have serious negative repercussions for Musk personally and his other companies. Everyone insists he's playing 5D chess with his moves, but a lot of his success depends upon the strength of his "reality distortion field." In a very real way, he is successful because people think he's successful. A small failure here and a merger with another company there are merely blips. But a major failure that can be reasonably attributed to his "drinking his own kool-aid"[1] will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk. [1]: Yes I am aware of the origin of the phrase.
- madeofpalk 4y ago
  What are the parts of Twitter that can be sold off, while retaining a profitable core? They've already shut down (Periscope, Vine) or sold off everything else apart from the core bird app
  - a4isms 4y ago
    Precisely. (I did not actually mean to suggest that Musk needed to follow the original LBO strategies, I was just saying that the end of the 80s LBO frenzy happened when those strategies begun to fail with massive LBOs. It's 35 years later. Musk will invent new strategies to win or fail.)
  - toomuchtodo 4y ago
    That’s one of the LBO playbooks, but it’s not the only method. In this case, Musk believes he can trim the fat and make Twitter profitable. But if advertisers flee and he thinks he can rely on verified payments alone, everyone on HN who signals interest for a social network they pay for will get to see how viable such a business model truly is. CircleCI is a recent example of this PE play.
wnevets 4y ago
> In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate). I wish I was this good at business.
- ben_w 4y ago
  I vaguely remember a quote, something like: "Making a small fortune is easy. You just have to start with a large fortune and then go into business."
  - moralestapia 4y ago
    It was Branson's (maybe?), "If you want to be a millionaire, start with a billion dollars and launch a new airline."
  - deleted 4y ago
    [deleted]
mritchie712 4y ago
yes, but twitter now owns twitter. You need to pay money to buy a company usually.

_jal 4y ago

3500*300000=1050000000 I have no idea what average salary was there, but it looks to me like the layoffs don't even cover that.

jimiray 4y ago
you can't cut deep enough to cover $1B in interest paymets, maybe now people will figure out that Musk is the wealthiest man in the world by taking tax dollars as subsidies for all his businesses.
- aaomidi 4y ago
  Wonder if he's going to use money from his other companies for interest payments for twitter, and then claim tax deductions for those companies because these were interest payments. FWIW I have no idea how finances work, just can imagine Elon getting into weird loopholes.
  - encryptluks2 4y ago
    He's proven that you can do pretty much anything if wealthy enough and face almost no consequences.
    - mikkergp 4y ago
      I suspect this is only true if the wealthy people protecting you keep making money.
  - boeingUH60 4y ago
    He can only do that if he owned Tesla and SpaceX outright. But, Tesla is a publicly-traded company with tens of thousands of shareholders that’ll sue him into oblivion if he tries that. SpaceX is privately-held, but has raised billions of dollars from dozens of investors, so that won’t fly neither.
- parineum 4y ago
  Going into a sector with lots of incentives is good business. It's not like he lobbied congress for those subsidies and they were tailored so that basically only he could qualify. Everyone had access to all of those subsidies, Musk was a nobody before Tesla and SpaceX. Why didn't Ford and Boeing, companies with a much better footing than Musk, simply move into those sectors (EVs and re-usable rockets, respectively) and mop up all those subsidies for themselves?
  - aaomidi 4y ago
    https://www.opensecrets.org/orgs/tesla-inc/lobbying?id=D000057516 https://www.opensecrets.org/orgs/tesla-inc/lobbying?id=D0000... Tesla did lobby, quite a bit. They've also been angry about the subsidies that require cars to be union made.
    - parineum 4y ago
      The Roadster was released in 2008. Barely any money was spent on lobbying until after the Model S was already released (2012), the Powerwall announced (2015) and the Model X was released (2015). That's also post-IPO (2010). Tesla was already a successful, innovative electric car company before it started lobbying like a regular car company. All of the risk that paid off (what makes a businessman a good businessman) was done in the early days when he invested 6.5 million that he turned into billions.
      - danaris 4y ago
        Yeah, and Musk only became the CEO in 2008. He didn't create the company, and he didn't create the Roadster.
        parineum 4y ago
        He invested 6.5m of the 7.5m that was raised in funding. Without that investment, Tesla probably dies on the vine. He didn't "create" the Roadster but he did believe in the electric car and backed it up with a significant investment that allowed the people who were hired to create it to stay employed. He deserves credit for believing in the David and turning it into Goliath (of EVs), even if government subsidies helped. I support the government subsidizing clean energy, electric cars and cheaper access to space and I think it's hypocritical to turn around and shit on the companies that take advantage of those subsidies and do exactly the thing that they are meant to encourage.
- s1artibartfast 4y ago
  >you can't cut deep enough to cover $1B in interest paymets Why not, when twitter's operational costs are ~5.5 billion and you are reportedly laying off 50-75% of staff?
  - watwut 4y ago
    You need to do it in a way that does not make the remaining core hugely dysfunctional. And it would be miracle if Musk could. And trolling does not help either. The sink thing was trolling and between that and layouts, the remaining people will be dysfunctional for quite a long time.
- mdasen 4y ago
  Just for some context, Twitter has around $4.5B in revenue per year. Clearly, you can't cut all spending. It looks like the "cost of revenue" is around half that ($2B) and you probably can't cut that. Do you cut sales and marketing? Well, then your revenue probably ends up declining. Do you cut R&D? Well, eventually others are going to eat your lunch. You have $1.6B in R&D costs and $1.2B in sales and marketing and $700M in admin costs (like Human Resources). As you note, it's really hard to cut deep enough to cover $1B in interest payments without cutting stuff that ends up hurting your revenue. As Twitter cuts their R&D, they're leaving themselves open to missing out on the future. Should Twitter have continued to invest in Vine? Well, the benefit of hindsight says "yes" given TikTok's success. As much as everyone is making fun of Meta's metaverse plans, it's certainly possible it'll be important in the future. We really just don't know. I remember everyone saying the iPhone was a silly toy and people would want to keep their Blackberries and Windows Mobile devices with keyboards. We can literally see the future and say, "nah, that'll never happen." If Musk cuts engineering too much, does the service just become mediocre? As you say, it's hard to cut deep enough to come up with $1B.
andrewstuart2 4y ago
There's little chance average salary even for engineers comes to 300k in cash. Even Senior Staff SWE is ~270k base per levels.fyi, and that's got to be a 1-3% position, and that's just engineering, which is probably not the majority of these layoffs.
- grogenaut 4y ago
  You do need to take all the support costs for staff into account. Buildings, network capacity, hr staff, managers, software licenses, hardware, benefits, fica/etc. It's not unreasonable to assume 30% extra for every head than their salary. Also most of those folks on levels also get compensated with stock or equity, so it's more than base. Going private means that goes away and their comp also gets slashed. Is he going to take it back public, what beyond base does twitter offer as comp.
  - mikeyouse 4y ago
    Yeah as a reference - I do a lot of this type of planning for non-equity employees and our number is 37% right now (site costs + US payroll taxes & benefits + hardware + incidentals).
    - andrewstuart2 4y ago
      Thanks for the reference. I've heard numbers thrown out but never anything asserted as an actual researched number.
      - mikeyouse 4y ago
        Yeah the org I work with has an interesting setup where the employees are employed by the parent organization and then we have dozens of projects as legal entities but no staff on their books. So to calibrate the passthrough cost that we charge those projects, we do a big analysis every quarter of all of our expenses for tax, 401k matching, 'staff development', non-capital hardware purchases, health/dental/vision, life insurance, etc. etc. So it's a pretty robust number. For highly paid employees over ~$200k, it's probably more like 34% since a bunch of that stuff doesn't scale with salary, but lower employees are closer to 40% so the blended rate covers a "typical" company.
jjeaff 4y ago
There is no way the average salary of all the employees cut would be $300k. I'd be surprised if the average was higher than $100k. At least one source I found says the average salary of Twitter employees is $97k. (US only total compensation is closer to $300k with an average of $270k. But a lot of that is probably stock options which now must be paid in cash). So I would imagine the total savings are closer to $250m compared to when Twitter was public but maybe a lot more in savings vs what Twitter would have bled considering the stock options portion of the compensation would have had to have been cash.
- Ancapistani 4y ago
  Yeah, total comp is the number the business cares about in this situation. Salary is only a part of that. > a lot of that is probably stock options which now must be paid in cash I won't say that's not a big deal, but it's a one-time cost. Paying $500k today to save $300k / year is an excellent move for Twitter - assuming, of course, that Musk is correct in his estimation that the employees cut were not contributing to the company's revenue.
- GoldenStake 4y ago
  Level.fyi suggests much higher than 97k https://www.levels.fyi/companies/twitter/salaries https://www.levels.fyi/companies/twitter/salaries Although level.fyi is probably biased to high earners who post their salaries and has less data for non-engineers.
  - jjeaff 4y ago
    My guess is that the majority of employees at Twitter are not in fact engineers.

svdr 4y ago

I don't know much about finance, but why didn't he just pay the 13B? This seems much more expensive.

klooney 4y ago
He doesn't want to sell all that stock, which would lose him control, and probably move the market around and be even more costly in terms of shares than what it looks like on paper.
bpodgursky 4y ago
Presumably because he thinks he will make more than 10% y/y from his Tesla and SpaceX stock.
edf13 4y ago
More expensive for Twitter - the company, rather than Musk and his palls.
karmicthreat 4y ago
Because then he doesn't have to sell his assets to pay for it.
bcrescimanno 4y ago
He's not personally liable for the $13B. If (when?) Twitter implodes, he gets to walk away not owing a dime of that money--so why spend it if he doesn't have to?
- bmitc 4y ago
  How is that possible? I can’t just buy a house with a mortgage and walk away. He personally owns the company with loans.
  - deltree7 4y ago
    You can walk away when you declare bankruptcy. Lot of people in 2008 just did that

romankolpak 4y ago

this is insanity

deleted 4y ago
[deleted]

galdosdi 4y ago

The adjustable debt rumors should also be viewed in the context of an economy where everyone believes the fed will likely keep raising rates repeatedly and often over the next year or so. Definitely a risky situation

a4isms 4y ago

Having been adjacent to the world of finance during the height of the Drexel/Milken/KKR leveraged-buyout craze of the 80s, I seem to remember that what ushered in the end of the excesses was a series of major failures where companies were taken private and saddled with huge debts, but attempts to sell off the parts and retain a profitable core that could then be taken public again or sold for a huge windfall began to fail. This buyout may be headed in the same direction, and if it is, I conjecture it will have serious negative repercussions for Musk personally and his other companies. Everyone insists he's playing 5D chess with his moves, but a lot of his success depends upon the strength of his "reality distortion field." In a very real way, he is successful because people think he's successful. A small failure here and a merger with another company there are merely blips. But a major failure that can be reasonably attributed to his "drinking his own kool-aid"[1] will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk. [1]: Yes I am aware of the origin of the phrase.

madeofpalk 4y ago
What are the parts of Twitter that can be sold off, while retaining a profitable core? They've already shut down (Periscope, Vine) or sold off everything else apart from the core bird app
- a4isms 4y ago
  Precisely. (I did not actually mean to suggest that Musk needed to follow the original LBO strategies, I was just saying that the end of the 80s LBO frenzy happened when those strategies begun to fail with massive LBOs. It's 35 years later. Musk will invent new strategies to win or fail.)
- toomuchtodo 4y ago
  That’s one of the LBO playbooks, but it’s not the only method. In this case, Musk believes he can trim the fat and make Twitter profitable. But if advertisers flee and he thinks he can rely on verified payments alone, everyone on HN who signals interest for a social network they pay for will get to see how viable such a business model truly is. CircleCI is a recent example of this PE play.

wnevets 4y ago

> In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate). I wish I was this good at business.

ben_w 4y ago
I vaguely remember a quote, something like: "Making a small fortune is easy. You just have to start with a large fortune and then go into business."
- moralestapia 4y ago
  It was Branson's (maybe?), "If you want to be a millionaire, start with a billion dollars and launch a new airline."
- deleted 4y ago
  [deleted]

mritchie712 4y ago

yes, but twitter now owns twitter. You need to pay money to buy a company usually.