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Fidelity marks down the value of its Twitter stake by 56%

90 points by elsewhen 4y ago

version_five 4y ago
Stupid question- so some people still own part of it? What percentage does Musk actually own? Does a drop like this trigger a margin call?
- poniko 4y ago
  A bunch of people chipped in when musk took Twitter private. No margin calls in private held companies. (But the banks might want repayment if the collateral is not the same value anymore) https://www.washingtonpost.com/technology/2022/12/24/elon-musk-twitter-funders/ https://www.washingtonpost.com/technology/2022/12/24/elon-mu...
  - snake_doc 4y ago
    Banks cannot recall LBO debt because they think the debtor’s value decreases. That would be ludicrous. Like most corporate debt, the debtor must service the debt repayment schedules while following financial covenants (addition rules on performance ratios). If debtor fails to make payment or breaches covenants, it can lead to a technical default. In this case, most of Twitter’s LBO debt haven’t been syndicated (ie. The banks still hold them and haven’t securitized them to be sold to other investors.) Twitter no longer has a credit rating (Moody dropped them in Nov, S&P dropped them in Dec; both citing insufficient information to assess credit risk). Without a credit rating, most bond investors simply won’t buy the debt because it wouldn’t meet their investment guidelines. Also, there can absolutely be margin calls on equity holders of private equity if their stakes were financed on margin. ie. If a hedge fund (most are leveraged at least 100% for financial reasons) chipped in, their margin creditor (ie their prime broker) can absolutely request the fund to post more collateral.
    - mixdup 4y ago
      Some of the loans are backed by Tesla stock and have triggers to require Musk to turn over the collateral if its (TSLA) value drops below a certain number. I recall seeing that number being $100/share
      - IntelMiner 4y ago
        Bottomed out at $109 a share but the dead cat has bounced
      - snake_doc 4y ago
        While the margin loans were originally part of the commitment letter in April 2022, Musk later decided against them and sold more Tesla stock instead to fund the deal with cash. None of the Twitter debt is backed by Tesla stock. https://www.bloomberg.com/opinion/articles/2022-05-26/elon-called-off-his-margin-loan https://www.bloomberg.com/opinion/articles/2022-05-26/elon-c...
    - jjeaff 4y ago
      You say it would be ludicrous for banks to be able to recall debt based on their assessment of the value, but it isn't far off from normal lending practices for commercial real estate where the bank can just decide that your property has fallen below an arbitrary threshold and require you to pay back a portion of the loan immediately.
      - snake_doc 4y ago
        Mortgages are not typically corporate debt. Mortgages are by definition collateralized. Therefore, there are covenants triggers related to the value of the collateral. The vast majority of corporate debt (bonds) is unsecured. There is no collateral. https://corpgov.law.harvard.edu/2020/01/27/the-decline-in-secured-debt/ https://corpgov.law.harvard.edu/2020/01/27/the-decline-in-se...
  - SilasX 4y ago
    Weren't there also people who owned TWTR stock and were able to retain those shares in the bought-out Twitter (thus declining the $54.20/share buyout price)?
    - jjeaff 4y ago
      I think it was subject to the buying syndicate's approval. For example, my reading was that the Saudi investors put up additional cash before the sale knowing that they would be getting a payout of a similar value when the buyout went through.
      - SilasX 4y ago
        Right I figured it would have to get authorized by the buyer group. (But on that note … why?? If Musk thought he was overpaying, to the point he even tried to back out, wouldn’t you want as many suckers as possible to remain shareholders? Each share is $54.20 you don’t have to come up with.)
        jjeaff 4y ago
        Too small and it's not worth the paperwork. Plus, you run into regulatory problems once you exceed 500 investors or so.
- deleted 4y ago
  [deleted]
braingenious 4y ago
This isn’t exactly my wheelhouse, can someone explain what this means in simple terms? In my mind it kind of seems like the value as a public company was (at time of purchase, at least) $44 billion, but Fidelity’s internal analysts have decided that if it were to be sold today it would go for about half that?
- poniko 4y ago
  As an investment firm you specify what you current investments are valued at, up or down from time to time. When the company is public its just the stock price but as private it's more of the precived value, that can also differ from one firm to another holding the same paper. So in short they say their investment now is half the value compared to when they put money in. In 6 months they can reevaluate and say the value is xx amout more again.
  - braingenious 4y ago
    So this is strictly the value of their investment and not reflective of their assessment of the business as a whole? How exactly does that work? Is it like if I bought a stake in a bag of apples but only my apple went bad?
    - everforward 4y ago
      It's reflective of their assessment of the business as a whole. That number is basically "what we think Twitter as a whole is worth * the percent we own". They think Twitter as a whole is worth half as much, so they're marking down the value of their shares.
      - braingenious 4y ago
        Thank you, that actually makes sense.
- maxerickson 4y ago
  It doesn't mean anything. Fidelity is required to tell people that have money in the fund what they think the asset is worth, but they own such a small stake that they aren't going to have particularly different information than anyone else.
willmadden 4y ago
That's meaningless. They don't have inside information.
- hackerlight 4y ago
  It'd only be meaningless if there was a recent last-traded price, which reflects the most up to date information. But there isn't, so this is actually meaningful.
jasmer 4y ago
It's significant because it's a legit institutional entity and it will validate actions of other partners. Even if it's entirely an issue of 'market conditions' the albatross will be hung on Musk for the time being irrespective of how much we can truly allocate to his 'antics' vs. actual market problems. He really timed the market very badly on that.
deepzn 4y ago
I don't get how it is significant. Almost all tech stocks are down by roughly that much ~50%. Silly.
- infotogivenm 4y ago
  Most tech stocks are not down 56% in the last month. Most large funds, when presented with a high buyout offer in the midst of a down market, would not roll over their investment in a LBO saddling the company with yearly interest payments nearing 25% of its revenue. etc
  - deepzn 4y ago
    First of all, the amount in question is 20 million dollars down to 10 million? That is really insignificant, and this feels meaningless in the context of discussing Twitter's performance. It's not a large sum to write down. They also agreed to the Twitter deal in March/April. If a fund manager bought Twitter 1 month ago, or looks like the write down was from the price it was 2 months ago, then they needed to get their head checked, no one would touch Twitter at $44 Billion in October.
andrewflnr 4y ago
Still seems pretty optimistic to me. Twitter's institutional engineering knowledge and relationships with its customers, i.e. advertisers, have all been set on fire. It's unlikely Twitter will fully die, but I can't see how, next time anyone gets to sell it, it will have even a quarter of its original value. And Musk isn't likely to cut his losses, seeing how his actions up to this point have been driven by hubris. He's going to ride it all the way to the bottom. I expect it to go for pennies on the dollar.
- pifm_guy 4y ago
  Users seem to be spending more time in twitter than ever before... Sure, everyone 'hates' it, but by one key metric it seems to be doing rather well.
  - andrewflnr 4y ago
    Active users aren't revenue. In fact they're a cost unless Twitter can get enough advertisers.
    - temp2022account 4y ago
      I actually began paying for twitter just to be a metric; if twitter throws advertisers out and becomes a paid-only social network I think it will pave the way for a less toxic internet with fewer perverse incentives. I wish you could give them more than $11 without having to resort to buying dummy ad-space.
deepzn 4y ago
A grand value slashed of $10 million of a fund in November that had assets of $36 Billion.
afinlayson 4y ago
It was worth 50% less before Elon bought it based on the valuations adjustment in most tech companies. (-22B) Then Elon cut/lost 75% of their workers… which is a significant value to any valuation(-5-10B) based off the ability to make new products or sell parts of the company. Then they lost a significant income stream by many companies buying ads leaving. And haven’t found an equal source of income. My guess is they are closer to 6-12B. Also their debt is really significant…

90 points by elsewhen 4y ago

Stupid question- so some people still own part of it? What percentage does Musk actually own? Does a drop like this trigger a margin call?

poniko 4y ago
A bunch of people chipped in when musk took Twitter private. No margin calls in private held companies. (But the banks might want repayment if the collateral is not the same value anymore) https://www.washingtonpost.com/technology/2022/12/24/elon-musk-twitter-funders/ https://www.washingtonpost.com/technology/2022/12/24/elon-mu...
- snake_doc 4y ago
  Banks cannot recall LBO debt because they think the debtor’s value decreases. That would be ludicrous. Like most corporate debt, the debtor must service the debt repayment schedules while following financial covenants (addition rules on performance ratios). If debtor fails to make payment or breaches covenants, it can lead to a technical default. In this case, most of Twitter’s LBO debt haven’t been syndicated (ie. The banks still hold them and haven’t securitized them to be sold to other investors.) Twitter no longer has a credit rating (Moody dropped them in Nov, S&P dropped them in Dec; both citing insufficient information to assess credit risk). Without a credit rating, most bond investors simply won’t buy the debt because it wouldn’t meet their investment guidelines. Also, there can absolutely be margin calls on equity holders of private equity if their stakes were financed on margin. ie. If a hedge fund (most are leveraged at least 100% for financial reasons) chipped in, their margin creditor (ie their prime broker) can absolutely request the fund to post more collateral.
  - mixdup 4y ago
    Some of the loans are backed by Tesla stock and have triggers to require Musk to turn over the collateral if its (TSLA) value drops below a certain number. I recall seeing that number being $100/share
    - IntelMiner 4y ago
      Bottomed out at $109 a share but the dead cat has bounced
    - snake_doc 4y ago
      While the margin loans were originally part of the commitment letter in April 2022, Musk later decided against them and sold more Tesla stock instead to fund the deal with cash. None of the Twitter debt is backed by Tesla stock. https://www.bloomberg.com/opinion/articles/2022-05-26/elon-called-off-his-margin-loan https://www.bloomberg.com/opinion/articles/2022-05-26/elon-c...
  - jjeaff 4y ago
    You say it would be ludicrous for banks to be able to recall debt based on their assessment of the value, but it isn't far off from normal lending practices for commercial real estate where the bank can just decide that your property has fallen below an arbitrary threshold and require you to pay back a portion of the loan immediately.
    - snake_doc 4y ago
      Mortgages are not typically corporate debt. Mortgages are by definition collateralized. Therefore, there are covenants triggers related to the value of the collateral. The vast majority of corporate debt (bonds) is unsecured. There is no collateral. https://corpgov.law.harvard.edu/2020/01/27/the-decline-in-secured-debt/ https://corpgov.law.harvard.edu/2020/01/27/the-decline-in-se...
- SilasX 4y ago
  Weren't there also people who owned TWTR stock and were able to retain those shares in the bought-out Twitter (thus declining the $54.20/share buyout price)?
  - jjeaff 4y ago
    I think it was subject to the buying syndicate's approval. For example, my reading was that the Saudi investors put up additional cash before the sale knowing that they would be getting a payout of a similar value when the buyout went through.
    - SilasX 4y ago
      Right I figured it would have to get authorized by the buyer group. (But on that note … why?? If Musk thought he was overpaying, to the point he even tried to back out, wouldn’t you want as many suckers as possible to remain shareholders? Each share is $54.20 you don’t have to come up with.)
      - jjeaff 4y ago
        Too small and it's not worth the paperwork. Plus, you run into regulatory problems once you exceed 500 investors or so.
deleted 4y ago
[deleted]

braingenious 4y ago

This isn’t exactly my wheelhouse, can someone explain what this means in simple terms? In my mind it kind of seems like the value as a public company was (at time of purchase, at least) $44 billion, but Fidelity’s internal analysts have decided that if it were to be sold today it would go for about half that?

poniko 4y ago
As an investment firm you specify what you current investments are valued at, up or down from time to time. When the company is public its just the stock price but as private it's more of the precived value, that can also differ from one firm to another holding the same paper. So in short they say their investment now is half the value compared to when they put money in. In 6 months they can reevaluate and say the value is xx amout more again.
- braingenious 4y ago
  So this is strictly the value of their investment and not reflective of their assessment of the business as a whole? How exactly does that work? Is it like if I bought a stake in a bag of apples but only my apple went bad?
  - everforward 4y ago
    It's reflective of their assessment of the business as a whole. That number is basically "what we think Twitter as a whole is worth * the percent we own". They think Twitter as a whole is worth half as much, so they're marking down the value of their shares.
    - braingenious 4y ago
      Thank you, that actually makes sense.
maxerickson 4y ago
It doesn't mean anything. Fidelity is required to tell people that have money in the fund what they think the asset is worth, but they own such a small stake that they aren't going to have particularly different information than anyone else.

willmadden 4y ago

That's meaningless. They don't have inside information.

hackerlight 4y ago
It'd only be meaningless if there was a recent last-traded price, which reflects the most up to date information. But there isn't, so this is actually meaningful.

jasmer 4y ago

It's significant because it's a legit institutional entity and it will validate actions of other partners. Even if it's entirely an issue of 'market conditions' the albatross will be hung on Musk for the time being irrespective of how much we can truly allocate to his 'antics' vs. actual market problems. He really timed the market very badly on that.

deepzn 4y ago

I don't get how it is significant. Almost all tech stocks are down by roughly that much ~50%. Silly.

infotogivenm 4y ago
Most tech stocks are not down 56% in the last month. Most large funds, when presented with a high buyout offer in the midst of a down market, would not roll over their investment in a LBO saddling the company with yearly interest payments nearing 25% of its revenue. etc
- deepzn 4y ago
  First of all, the amount in question is 20 million dollars down to 10 million? That is really insignificant, and this feels meaningless in the context of discussing Twitter's performance. It's not a large sum to write down. They also agreed to the Twitter deal in March/April. If a fund manager bought Twitter 1 month ago, or looks like the write down was from the price it was 2 months ago, then they needed to get their head checked, no one would touch Twitter at $44 Billion in October.

andrewflnr 4y ago

Still seems pretty optimistic to me. Twitter's institutional engineering knowledge and relationships with its customers, i.e. advertisers, have all been set on fire. It's unlikely Twitter will fully die, but I can't see how, next time anyone gets to sell it, it will have even a quarter of its original value. And Musk isn't likely to cut his losses, seeing how his actions up to this point have been driven by hubris. He's going to ride it all the way to the bottom. I expect it to go for pennies on the dollar.

pifm_guy 4y ago
Users seem to be spending more time in twitter than ever before... Sure, everyone 'hates' it, but by one key metric it seems to be doing rather well.
- andrewflnr 4y ago
  Active users aren't revenue. In fact they're a cost unless Twitter can get enough advertisers.
  - temp2022account 4y ago
    I actually began paying for twitter just to be a metric; if twitter throws advertisers out and becomes a paid-only social network I think it will pave the way for a less toxic internet with fewer perverse incentives. I wish you could give them more than $11 without having to resort to buying dummy ad-space.

deepzn 4y ago

A grand value slashed of $10 million of a fund in November that had assets of $36 Billion.

afinlayson 4y ago

It was worth 50% less before Elon bought it based on the valuations adjustment in most tech companies. (-22B) Then Elon cut/lost 75% of their workers… which is a significant value to any valuation(-5-10B) based off the ability to make new products or sell parts of the company. Then they lost a significant income stream by many companies buying ads leaving. And haven’t found an equal source of income. My guess is they are closer to 6-12B. Also their debt is really significant…