5 ms·

Wait Musk saddled Twitter with debt? Please elaborate...

by mikeweiss 4y ago

deleted 4y ago
[deleted]
hn_throwaway_99 4y ago
It was a leveraged buyout. Musk borrowed $13 billion to complete the deal, which Twitter needs to pay back.
- kaba0 4y ago
  And if he doesn’t, it might effect tesla very negatively (he used his tesla shares as collateral)
  - minhazm 4y ago
    > he used his tesla shares as collateral No he did not. It was initially proposed but there's no margin loan against his TSLA holdings in the final deal. For the debt that Twitter took on in the buyout the collateral is the company itself. There's zero connection to Tesla in the actual financing. https://www.cnbctv18.com/business/who-is-funding-elon-musk-in-44-billion-twitter-acquisition-15036371.htm https://www.cnbctv18.com/business/who-is-funding-elon-musk-i...
whatshisface 4y ago
It was a leveraged buyout. They are a deal where the company borrows money and combines it with the investor's money to buy all of the shares back. https://www.washingtonpost.com/business/elon-musks-twitter-deal-is-different-than-most-lbos-heres-how/2022/10/06/1cee4b02-45be-11ed-be17-89cbe6b8c0a5_story.html https://www.washingtonpost.com/business/elon-musks-twitter-d...
AtlasBarfed 4y ago
Yeah, it's private equity 101. I can't believe it happens. A bunch of MBA sharks get loans to buy something with some chop shop plan or other ruthless scheme to carve up or spitshine a company. The loans are then assigned to the company they bought, rather than the core sharks ... uh investors. The "investors" then repackage/selloff/spit shine as necessary to get it resold to some sucker. The investors get THEIR money back with a profit, leave the debt to the company and the sucker who buys it, and look for the next victim/target. Musk likely went the rapacious route because he made a dumb move, and this is the only way he's getting the money he committed to the deal back. Oh yeah, and when they buy the company, they are in charge of it. So they can pay themselves whatever they want in executive bonuses / etc.
- deleted 4y ago
  [deleted]
- eru 4y ago
  You make it sound like it's a bad thing. The people who buy the debt know what they are getting into. (And if those 'suckers' don't know, honestly, they shouldn't be investing in junk bonds etc.)
  - butlerm 4y ago
    It is not a bad thing as such. The main problem comes when a business is stripped of all its assets and/or weighed down with more debt than it can repay and fails as a consequence, leaving employees out of a job and communities without a formerly productive enterprise.
    - eru 4y ago
      Well, business people take risks, and sometimes those risks turn out badly.
  - emodendroket 4y ago
    It is more that it tends to beat raw deal for the purple who lose their jobs for no good reason. The Twitter people will likely mostly land on their feet but most leveraged buyouts aren't affecting highly compensated employees with highly in-demand skills.
  - fatneckbeardz 4y ago
    do they though? what if the debt is sliced up and repackaged and rated AAA fraudulently?
    - eru 4y ago
      The problem there is with whatever rules that make AAA ratings magic.
- bnjms 4y ago
elgenie 4y ago
It’s quite bad for the business as a going concern and its ability to serve customers and employ employees when it suddenly, and for no obvious reason, takes on tons of debt. Money isn’t free and loans demand payment. In Twitter’s case, its $13B in new debt on the balance sheet means that, every year, they have to come up with $13B times the interest rate in additional revenue and/or reduced cost merely to be in the same place profit/loss-wise. Elon already massively overpaid what Twitter’s business-as-usual can generate even before accounting for that $13B; as a result, the post-acquisition Twitter has to try a bunch of negative-expected-value moonshots in the unlikely hope that one of them hits against the odds and the others don’t turn out fatal, because doing nothing or iterating sustainably kills the company via debt service. In a lot of cases the best solution would be for the company to declare bankrupcy, reorganize, and discharge the debt by convincing creditors to take pennies on the dollar and a share of the resulting smarter-run healthier company, and a judge that the plan is reasonable. However, Elon both poisoned that well by firing people, angering advertisers, and bumbling around product-wise, and also staked a bunch of $TSLA that would need to be liquidated to go through with the bankruptcy.

Wait Musk saddled Twitter with debt? Please elaborate...

deleted 4y ago

[deleted]

hn_throwaway_99 4y ago

It was a leveraged buyout. Musk borrowed $13 billion to complete the deal, which Twitter needs to pay back.

kaba0 4y ago
And if he doesn’t, it might effect tesla very negatively (he used his tesla shares as collateral)
- minhazm 4y ago
  > he used his tesla shares as collateral No he did not. It was initially proposed but there's no margin loan against his TSLA holdings in the final deal. For the debt that Twitter took on in the buyout the collateral is the company itself. There's zero connection to Tesla in the actual financing. https://www.cnbctv18.com/business/who-is-funding-elon-musk-in-44-billion-twitter-acquisition-15036371.htm https://www.cnbctv18.com/business/who-is-funding-elon-musk-i...

whatshisface 4y ago

It was a leveraged buyout. They are a deal where the company borrows money and combines it with the investor's money to buy all of the shares back. https://www.washingtonpost.com/business/elon-musks-twitter-deal-is-different-than-most-lbos-heres-how/2022/10/06/1cee4b02-45be-11ed-be17-89cbe6b8c0a5_story.html https://www.washingtonpost.com/business/elon-musks-twitter-d...

AtlasBarfed 4y ago

Yeah, it's private equity 101. I can't believe it happens. A bunch of MBA sharks get loans to buy something with some chop shop plan or other ruthless scheme to carve up or spitshine a company. The loans are then assigned to the company they bought, rather than the core sharks ... uh investors. The "investors" then repackage/selloff/spit shine as necessary to get it resold to some sucker. The investors get THEIR money back with a profit, leave the debt to the company and the sucker who buys it, and look for the next victim/target. Musk likely went the rapacious route because he made a dumb move, and this is the only way he's getting the money he committed to the deal back. Oh yeah, and when they buy the company, they are in charge of it. So they can pay themselves whatever they want in executive bonuses / etc.

deleted 4y ago
[deleted]
eru 4y ago
You make it sound like it's a bad thing. The people who buy the debt know what they are getting into. (And if those 'suckers' don't know, honestly, they shouldn't be investing in junk bonds etc.)
- butlerm 4y ago
  It is not a bad thing as such. The main problem comes when a business is stripped of all its assets and/or weighed down with more debt than it can repay and fails as a consequence, leaving employees out of a job and communities without a formerly productive enterprise.
  - eru 4y ago
    Well, business people take risks, and sometimes those risks turn out badly.
- emodendroket 4y ago
  It is more that it tends to beat raw deal for the purple who lose their jobs for no good reason. The Twitter people will likely mostly land on their feet but most leveraged buyouts aren't affecting highly compensated employees with highly in-demand skills.
- fatneckbeardz 4y ago
  do they though? what if the debt is sliced up and repackaged and rated AAA fraudulently?
  - eru 4y ago
    The problem there is with whatever rules that make AAA ratings magic.
bnjms 4y ago

elgenie 4y ago

It’s quite bad for the business as a going concern and its ability to serve customers and employ employees when it suddenly, and for no obvious reason, takes on tons of debt. Money isn’t free and loans demand payment. In Twitter’s case, its $13B in new debt on the balance sheet means that, every year, they have to come up with $13B times the interest rate in additional revenue and/or reduced cost merely to be in the same place profit/loss-wise. Elon already massively overpaid what Twitter’s business-as-usual can generate even before accounting for that $13B; as a result, the post-acquisition Twitter has to try a bunch of negative-expected-value moonshots in the unlikely hope that one of them hits against the odds and the others don’t turn out fatal, because doing nothing or iterating sustainably kills the company via debt service. In a lot of cases the best solution would be for the company to declare bankrupcy, reorganize, and discharge the debt by convincing creditors to take pennies on the dollar and a share of the resulting smarter-run healthier company, and a judge that the plan is reasonable. However, Elon both poisoned that well by firing people, angering advertisers, and bumbling around product-wise, and also staked a bunch of $TSLA that would need to be liquidated to go through with the bankruptcy.