Technology

Bankrupt Twitter? The social network’s debt puts Elon Musk on the ropes

“The bankruptcy not ruled out.” In his first meeting with the employees of Twitteron November 10, Elon Musk warned them that “without significant income” the social network it might not survive the economic uncertainty hitting the tech sector. Little more than two months later, what seemed like the umpteenth boutade of the controversial businessman takes the form of a real threat as the deadline for him to pay part of the debt that he contracted to finance the purchase of the platform. And, as it progressed, the bankruptcy is an option on the table.

In October, Musk ended up abiding by what he had agreed to in April and made the purchase of Twitter for 44,000 million dollars (about 41,000 million euros). In order to carry out this operation, the head of Tesla agreed a loan of 13,000 million with a group of banks headed by Morgan Stanley, Barclays and Bank of America, which set interest of about 1,500 million per year for helping in the financing. That debt was corporately tied to Twitter, not Musk.

In the days ahead, Twitter faces a vital test. The first term for the company to pay part of that interest expires at the end of January. In order to meet that obligation, Musk is considering options such as emptying Twitter’s cash reserves – of about 1,000 million – or selling Actions from Tesla to get money, something it has done in the past. Since last April, his stake in the electric vehicle company has fallen from $170 billion to the current $50 billion.

If it is unable to make this payment, the social network could even file for bankruptcy proceedings, according to sources familiar with the situation.Financial Times‘. That option, unlikely but not impossible, would lead to Musk losing control of the company. He would also lose his personal investment in Twitter, of 26,000 million. American courts would have to conduct a restructuring of the debt and would prioritize the repayment of what was lent by the banks over what Musk and other investors put out of pocket to buy the social network.

Twitter, deteriorated business

the gigantic investment what he has done on Twitter and the pressure to meet debt payments have led Musk to accelerate all kinds of changes. On the one hand, he has taken controversial steps to cut company expenses, such as dismissal of up to 80% of its workers or stop paying the rent for its offices. On the other, it has desperately sought new sources of income, such as the subscription plan Twitter Bluewhich allows users to pay to access benefits like the blue account verification pin.

However, Twitter’s financial situation remains critical. In 2021, the social network had losses of 221 million dollars. Musk has said that revenue has fallen since its acquisition. And it is that, added to the economic uncertainty, some of the changes that he has been introducing in a chaotic way have made 500 of his main advertisers (the pillar of your business) have paralyzed your investments. That, according to ‘The Information’, would have led to a drop in daily revenue of 40%.

The prospects for 2023 are not good. Market analysis firm Insider Intelligence estimates that Twitter will lose users until reaching its worst level since 2014 and predicts that revenue will not grow in the next two years.

“I’m not at my best”

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Twitter seeks a way out of that crossroads. Bankers consulted by the ‘Financial Times’ pointed out that Musk is already negotiating a possible agreement with the lenders that would allow him to buy time in the meantime to turn around the business of the social network. “The threat bankruptcy can help you obtain awards from the creditorsbut a real statement would not help him much, “they specify. There is even the option that the magnate tries to buy Twitter debt at a low price to make it profitable if he succeeds in the future of the platform.

Twitter’s poor financial situation is rubbing off on Musk and his other companies. To finance his purchase of the social network, the tycoon pledged part of his shares in Tesla as collateral for the Bank loans, an exposure that could grow. However, Tesla’s value plunged 65% last year. That devaluation has stopped Musk from being the most rich of the planet and be the first in history to lose a fortune of 200,000 million, diminishing his business capacity. “Unfortunately, I’m not at my best,” Musk confessed Monday during the trial in which Tesla shareholders accuse him of alleged stock fraud. He is right.

Source of data and images: elperiodico

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