Elon Musk will have to explore cash-raising options including a further sale of Tesla shares soon as he is due to pay huge interest on loans taken to complete the acquisition of Twitter.
The Financial Times reported that as huge sum is up for payment as interest this month, making it difficult for Musk even as he spends money and time on getting Twitter's finances on track. The immediate interest payments pertain to the $13 billion loan Musk raised to fund the takeover of the microblogging platform.
"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," Musk had said earlier, referring to the poor finances at Twitter.
Musk had used nearly $26 billion of his own money, including the $4 billion worth of shares he had owned before the takeover, to complete the transaction. While Sequoia Capital, Oracle co-founder Larry Ellison and Saudi prince Alwaleed bin Talal also committed their money, Musk had to raise $13 billion to complete the deal. He was forced to sell Tesla shares in a few tranches to raise this, along with loans from lenders.
Twitter reported a loss of $221 million in 2021, before Musk acquired the company. The finances have worsened after the acquisition as advertising revenues were hit after big advertisers withdrew from deals owing to political differences.
Musk responded by aggressively cutting cost, taking measures such as laying off nearly half the employees in the company. Musk even warned that Twitter would go into bankruptcy unless extreme cost cutting measures were adopted.
In another measure intended to shore up revenue, Musk proposed charging $8 per month for the verification badge for Twitter users. Musk then sold Tesla stock worth about $4 billion in early November, apparently in a bid to shore up finances. The Twitter nightmare continues as Musk uses Tesla as his own ATM machine to keep funding the red ink at Twitter which gets worse by the day as more advertisers flee the platform with controversy [increasingly] driven by Musk," Dan Ives of Wedbush wrote in a note.
In November, Musk also raised the specter of bankruptcy at Twitter. The mercurial tech billionaire has said he won't rule out Twitter filing for bankruptcy in 2023.
The options for Musk include selling more Tesla shares to raise money to pay interests, strike a deal with lenders or file for bankruptcy.
Many analysts believe that filing for bankruptcy will not be an easy option for Musk. The tech billionaire has already committed more than $26 million of his own money to fund the takeover. All this money will be all but gone if he files for bankruptcy. Also, the stake of investors like Larry Ellision and Alwaleed bin Talal will also be at the bottom of the list of repayment if bankruptcy proceedings start.
However, Musk could effectively use the bankruptcy specter in his discussions with the lenders. According to the Financial Times, a more feasible option for Musk would be to cut a new deal with lenders. This could involve landing a debt-for-equity exchange at a discount. This would effectively give Musk the time to put Twitter finances back on track or to raise money elsewhere. "It is more likely [Musk] would ask Twitter's creditors for a forbearance and try and work something out," a banker told FT.