Twitter

[DaveE]

They said they had advocated for a more traditional testing approach, in which researchers would test one element at a time in an animal study and draw relevant conclusions before moving on to more animal tests. Instead, these people said, Neuralink launches tests in quick succession before fixing issues in earlier tests or drawing complete conclusions. The result: More animals overall are tested and killed, in part because the approach leads to repeated tests.

Fuck me he's trying to Agile in animal testing

Move fast and kill things

[Rich B]

Apparently Elon is refinancing part of the debt he took to to acquire Twitter: https://electrek.co/2022/12/08/elon-mus ... t-twitter/

It seems he didn't give security over his Tesla shares but that he will do so to refinance. So contrary to my previous analysis, his ownership of Tesla was not in direct jeopardy previously but will be if he goes with this and Twitter fails/loses value.

an awful lot more Tesla shares than it would have been back then to cover the amount!

[Jobbo]

Apparently Elon is refinancing part of the debt he took to to acquire Twitter: https://electrek.co/2022/12/08/elon-mus ... t-twitter/

It seems he didn't give security over his Tesla shares but that he will do so to refinance. So contrary to my previous analysis, his ownership of Tesla was not in direct jeopardy previously but will be if he goes with this and Twitter fails/loses value.

an awful lot more Tesla shares than it would have been back then to cover the amount!

Doh! You'd expect someone so highly intelligent and brilliant to have spotted that in advance

[GG.]

Interesting stuff.

Apparently the original cap stack was going to include a margin loan secured on Tesla shares but the tanking value of said shares back at the outset of all this caused him to contribute that amount in equity instead... Long story short he's probably well aware that the fluctuating price of the shares has the potential to cause a significant issue in having a margin loan component to the deal.

The portion of debt that they are talking about refi-ing will be the $3bn of unsecured bridge loans. As the article states they're now accruing interest at 1100bps as the idea behind these loans is that they are a bridge to a bond (high yield bond) so get taken out once syndication occurs (the interest steps up at 3 month intervals with the idea that this incentivises purchasers of the debt in syndication (market flex terms). The unfortunate thing for the banks (and Musk) is that the syndicated bank and bond markets have shut up shop given the tumultuous macroeconomic environment we're currently living through...

The arrangers are currently sat with this debt (and apparently have been receiving bids of 60c on the dollar by certain funds to offload it ... which predictably they haven't agreed to) and the bridge loans have a 12 month maturity from closing. That is clearly not ideal... There is actually another tranche of $3bn bridge loans (secured this time) with a 12 month maturity too.

So he's screwed right? Well, no actually - it looks like if the bridge loans are not refinanced by bonds prior to maturity then they just flip into term loans. On that basis he's probably doing this to reduce interest cost (the secured notes are priced significantly lower at 675 (or likely now 775bps given the interest step up) so mainly the unsecured debt he'll be focused on getting rid of.

The commitment papers contain all the details in summarised form here https://www.sec.gov/Archives/edgar/data ... ex99-c.htm (though I presume the long form docs are filed on Edgar (the SEC's regulatory disclosure site) now the deal has closed).

Also interestingly, this all looks to be floating rate debt so the margin is plus the benchmark (in this case SOFR for USD). SOFR is currently running at 4.67% for a 3 month term so that debt is actually 15.67%. Eyewatering. I'm surprised that twitter has the cashflow to meet interest payments to be honest.

It only took about 7 years of being on here for my area of expertise to come up but there we go!!

[DaveE]

Interesting stuff.

Apparently the original cap stack was going to include a margin loan secured on Tesla shares but the tanking value of said shares back at the outset of all this caused him to contribute that amount in equity instead... Long story short he's probably well aware that the fluctuating price of the shares has the potential to cause a significant issue in having a margin loan component to the deal.

The portion of debt that they are talking about refi-ing will be the $3bn of unsecured bridge loans. As the article states they're now accruing interest at 1100bps as the idea behind these loans is that they are a bridge to a bond (high yield bond) so get taken out once syndication occurs (the interest steps up at 3 month intervals with the idea that this incentivises purchasers of the debt in syndication (market flex terms). The unfortunate thing for the banks (and Musk) is that the syndicated bank and bond markets have shut up shop given the tumultuous macroeconomic environment we're currently living through...

The arrangers are currently sat with this debt (and apparently have been receiving bids of 60c on the dollar by certain funds to offload it ... which predictably they haven't agreed to) and the bridge loans have a 12 month maturity from closing. That is clearly not ideal... There is actually another tranche of $3bn bridge loans (secured this time) with a 12 month maturity too.

So he's screwed right? Well, no actually - it looks like if the bridge loans are not refinanced by bonds prior to maturity then they just flip into term loans. On that basis he's probably doing this to reduce interest cost (the secured notes are priced significantly lower at 675 (or likely now 775bps given the interest step up) so mainly the unsecured debt he'll be focused on getting rid of.

The commitment papers contain all the details in summarised form here https://www.sec.gov/Archives/edgar/data ... ex99-c.htm (though I presume the long form docs are filed on Edgar (the SEC's regulatory disclosure site) now the deal has closed).

Also interestingly, this all looks to be floating rate debt so the margin is plus the benchmark (in this case SOFR for USD). SOFR is currently running at 4.67% for a 3 month term so that debt is actually 15.67%. Eyewatering. I'm surprised that twitter has the cashflow to meet interest payments to be honest.

It only took about 7 years of being on here for my area of expertise to come up but there we go!!

I find all this kind of thing fascinating, but I have to admit I didn't really understand much of that

I'll try and find time to read up more about the things you've taken the time to talk about here as I'd like to get a better handle on it

[Rich B]

Yeah, an Interesting read GG, not sure I understood it all, but I'll reread it a few more times! Welcome back!

[GG.]

@DaveE It'll certainly see you right if you have a bad bout of insomnia to overcome!

Cheers @Rich B

[RobYob]

Very Interesting stuff.

I appreciate that you've dumbed it down.

But, could you go a bit dumberer please

[Jobbo]

Jolly interesting. I’m not sure if you’re able to predict confidently whether Musk’s Tesla stock is likely to be at risk, GG? Welcome back anyway

[DeskJockey]

Who knew that debt accrued interest in beats per second? I'm with Rob.

[GG.]

Jolly interesting. I’m not sure if you’re able to predict confidently whether Musk’s Tesla stock is likely to be at risk, GG? Welcome back anyway

No not confidently as it would require a default and enforcement on the applicable margin loan (to the extent it becomes a thing) before they would foreclose and liquidate those pledged shares and that all revolves around twitters performance and what covenants the margin loan has in it (which we don’t know yet but likely to be loose)

Thing is, on the numbers it will be an irrelevance in the scheme of things. For example, Musk’s Tesla holdings are supposed to be worth $122bn and even if this proposed margin loan has only 50% LTV, to cover the 3bn he is refinancing, that would equate to 6bn of his stock. Clearly if he lost that it would be a blow to him but it’s not going to wipe him out (and he’ll still receive back any equity value above the 3bn once the margin loan lenders liquidate the stock).

[Jobbo]

Hmm - so, basically, he can keep playing around and taking risks with Twitter and he won’t personally lose that much (relatively). I guess he’d still lose control of Twitter if he tanked the the value, though?

[GG.]

Sorry - I was only narrowly answering the question about any Tesla stock he would pledge as collateral for the margin loan. That bit wouldn't hurt particularly.

The wider picture is that he actually only utilised a 'small' (in percentage terms) amount of leverage to buy Twitter so contributed $31bn (existing cash/cash equivalents and proceeds from selling Tesla shares) of equity to $13bn of debt financing. If he royally screws it all up and ends up in a Chapter 11 bankruptcy then he could lose some or all of that equity. Clearly that's what gave the banks the comfort to back him as the value of the business would have to decline drastically for it to eat into their debt in a bankruptcy.

Thing is, as Musk has such reserves of wealth remaining he has various options open to him to protect that equity contribution. He could for example pay off all or a portion of the debt to retain control. Could be a better option that letting the banks trigger a bankruptcy with worse recoveries that trading the business long term and building it back up (clearly he is attempting a slash and re-build strategy (assuming there is a strategy)).

The other point to note is that these New York law credit facilities are based off what we call incurrence tests and not maintenance covenants. TL;DR of that is the covenants will stop him doing much (incurring more debt, making distributions, selling assets, making investments) if leverage spikes as a result of EBITDA underperformance but it is trickier to take action unless something like a payment default arises or other creditors start enforcing.

[drcarlos]

Sorry - I was only narrowly answering the question about any Tesla stock he would pledge as collateral for the margin loan. That bit wouldn't hurt particularly.

The wider picture is that he actually only utilised a 'small' (in percentage terms) amount of leverage to buy Twitter so contributed $31bn (existing cash/cash equivalents and proceeds from selling Tesla shares) of equity to $13bn of debt financing. If he royally screws it all up and ends up in a Chapter 11 bankruptcy then he could lose some or all of that equity. Clearly that's what gave the banks the comfort to back him as the value of the business would have to decline drastically for it to eat into their debt in a bankruptcy.

Thing is, as Musk has such reserves of wealth remaining he has various options open to him to protect that equity contribution. He could for example pay off all or a portion of the debt to retain control. Could be a better option that letting the banks trigger a bankruptcy with worse recoveries that trading the business long term and building it back up (clearly he is attempting a slash and re-build strategy (assuming there is a strategy)).

The other point to note is that these New York law credit facilities are based off what we call incurrence tests and not maintenance covenants. TL;DR of that is the covenants will stop him doing much (incurring more debt, making distributions, selling assets, making investments) if leverage spikes as a result of EBITDA underperformance but it is trickier to take action unless something like a payment default arises or other creditors start enforcing.

I don't understand much of that but it's obviously workable for him. Do you know much about the $20billion debt pile (in bank loans apparently) that they had accumulated (by losing $4 million a week) before he got there?

[Rich B]

And does he have reserves of wealth?

[GG.]

Sorry - I was only narrowly answering the question about any Tesla stock he would pledge as collateral for the margin loan. That bit wouldn't hurt particularly.

The wider picture is that he actually only utilised a 'small' (in percentage terms) amount of leverage to buy Twitter so contributed $31bn (existing cash/cash equivalents and proceeds from selling Tesla shares) of equity to $13bn of debt financing. If he royally screws it all up and ends up in a Chapter 11 bankruptcy then he could lose some or all of that equity. Clearly that's what gave the banks the comfort to back him as the value of the business would have to decline drastically for it to eat into their debt in a bankruptcy.

Thing is, as Musk has such reserves of wealth remaining he has various options open to him to protect that equity contribution. He could for example pay off all or a portion of the debt to retain control. Could be a better option that letting the banks trigger a bankruptcy with worse recoveries that trading the business long term and building it back up (clearly he is attempting a slash and re-build strategy (assuming there is a strategy)).

The other point to note is that these New York law credit facilities are based off what we call incurrence tests and not maintenance covenants. TL;DR of that is the covenants will stop him doing much (incurring more debt, making distributions, selling assets, making investments) if leverage spikes as a result of EBITDA underperformance but it is trickier to take action unless something like a payment default arises or other creditors start enforcing.

I don't understand much of that but it's obviously workable for him. Do you know much about the $20billion debt pile (in bank loans apparently) that they had accumulated (by losing $4 million a week) before he got there?

No I haven't read about that aspect. Transactions are most often structured in what you call a debt-free cash-free way where you don't assume the existing company's debt nor do you "buy" the cash (which obviously wouldn't make sense above a level needed for day to day liquidity). The payment you make for the business is a net figure taking that into account. I don't expect there is an additional $20bn of debt out there in addition to the acquisition financing he has put in. If I get time I'll try and verify that.

[GG.]

And does he have reserves of wealth?

He does in terms of publicly traded stock in Tesla. Not liquid but can be turned into cash reasonably quickly (though not without ill effects in depressing the share price admittedly).

[Brannen]

Twitter Blue is back, but more expensive on the iPhone app, I guess that will teach Apple... https://www.bbc.co.uk/news/technology-63938566

[Rich B]

How long before he realises that google charge the same?!

[Mito Man]

How long until he realises they can just redirect to pay via the twitter website and completely avoid Apple...