4 ms·
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 de
by 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 agoSome 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 agoBottomed out at $109 a share but the dead cat has bounced
- snake_doc 4y agoWhile 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 agoYou 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 agoMortgages 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...