Twitter pays first $300mn interest payment after Musk buyout

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95 shares, 156 points

Twitter has made its first $300mn interest payment on the $13bn of debt that Elon Musk used to buy the social media platform, according to people briefed on the matter.

The company settled the quarterly interest payment on Friday with a group of seven lenders led by Morgan Stanley, the people said. The looming bill had been closely watched as the first big test of Musk’s financial stewardship of Twitter and as concerns about its financial health have mounted.

The banks, which also include Bank of America and Barclays, loaned Twitter $13bn to help fund Musk to take Twitter private in a $44bn deal that closed in October. The package consisted of a $6bn loan along with about $7bn of bridge loans and an unsecured credit facility.

The company must pay annual interest of about $1.5bn in quarterly instalments.

The lenders have been stuck holding the debt as outside investors have been wary about buying it, due to controversies surrounding Musk’s ownership of the site, declining revenues and rising interest rates.

Analysts at Wedbush Securities estimated Twitter was currently worth about $15bn, far below the $44bn Musk paid for it.

The payment of the interest has been closely followed given Twitter’s problems since Musk acquired it. Revenues dropped about 40 per cent from a year ago in the final quarter of 2022, his first months in charge, according to reports, as advertisers pulled spending over concerns about content moderation and hate speech.

Musk has raced to cut costs, firing half the company’s staff, and has repeatedly warned Twitter could collapse into bankruptcy. “This company is like you’re in a plane that is headed towards the ground at high speed with the engines on fire and the controls don’t work,” he said last month.

The business has a cash position of about $1bn, Musk has said. He has also warned that its net cash outflow could be about $6bn this year without additional cost-saving measures.

If Twitter defaulted on its debt interest payments it would probably be forced to file for bankruptcy and begin a long and expensive debt restructuring process, in which all of its equity shareholders, the largest of which is Musk, would have their shareholdings effectively wiped out.

One of the bankers close to the debt deal said the payment came as a relief as there were serious doubts that Twitter would be able to make it. The person added that there had been discussions internally at his bank about potentially owning the social media company in a sign that they were preparing for a default.

However, a second banker close to the deal said earlier this month that his bank expected Twitter to meet the payment because it was “pretty cut and dry” that a default would result in a painful bankruptcy process.

Source: Financial Times

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