Can Elon Musk’s Twitter go bankrupt? How much is the company’s debt?
The world’s richest man lost an astonishing $200bn from his personal weath last year, raising questions about Twitter’s future under his leadership.
Last month Elon Musk was forced to respond to claims that Twitter, the company he paid $44 billion for in October, was headed for bankruptcy unless it could turn around its financial outlook.
Musk insisted that the social networking site is “not on the fast lane to bankruptcy anymore”, but admitted that the new leadership “still much work to do”. His brief career as Twitter CEO has been characterised by uncertainty and chaos, but later this week he could face the first real financial test of his time in charge.
The Guardian reports that Twitter has to make the first quarterly repayment on $13 billion of debt, utilised by Musk to provide cash for his takeover. Musk took on huge amounts of debt to fund the purchase and claimed that he would be able to cover the repayments by increasing Twitter’s profitability. But those hopes have not yet materialised; in fact, Musk’s laissez-faire approach to content moderation actually appears to be losing the company advertising revenue.
Twitter bankruptcy? The numbers
Elon Musk is the world’s richest person, but in 2022 he became the first person to lose $200 billion worth of personal wealth as his net worth crumbled. That was, in part, due to the declining value of technological stocks, which hold the majority of his fortune, but also due to the declining financial health of Twitter.
Here’s how the picture looks, just three months after the purchase was finalised:
- Musk took on $13 billion of debt to complete $44 billion Twitter deal
- $13 billion debt consists of a $6.5 billion senior secured term loan; $3bn senior secured bridge loan facility; $3bn senior unsecured bridge loan facility; and $500m senior secured revolving facility
- Financing has resulted in annual interest repayments of $1.2 billion
- The first quarterly repayment of that debt, $300 million, is due this month
- Since Musk took over, daily revenue has fallen by 40%
Can Elon Musk save Twitter from bankruptcy?
Profitability has not yet increased at the rate that Musk needs to justify his huge financial outlay, but he does have options to buy more time. He only used around $20 billion of his own cash reserves to fund the purchase, meaning that he still has a vast fortune to secure the company.
Bin Silverman, VerityData’s director of research, estimates that, even once his outstanding personal obligations are accounted for, Musk still has at least $67 billion of Tesla shares that could be sold to support Twitter.
However selling shares is a risky business for the company’s owner. As was the case last year when he was securing the money to buy Twitter, a major share sell-off from the company CEO would likely cause the value to plummet, sparking further fall in Musk’s personal fortune.
Tesla stock is down 57% in the past 12 months and Musk will be weary of selling off more shares until its fortunes have shown signs of improving. If he were to default on an interest payment there is a real possibility that Twitter could enter into Chapter 11 bankruptcy proceedings. This could bring about a restructuring of company finances, which might see Musk lose a proportion of his stake in Twitter to the banks.
The bottom line is that Musk needs to improve Twitter’s profitability if he is to keep the company functioning in the long-term.
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