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

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Twitter bankrupt? The social network's debt puts Elon Musk on the ropes

“The < strong>bankruptcy is not ruled out.” In his first meeting with the employees of Twitter , on November 10, Elon Musk warned them that he was not going to do anything. that “without significant income” the social networkit might not survive the economic uncertainty hitting the tech sector. A little more than two months later, what seemed like the umpteenth boutade from the controversial businessman takes the form of a real threat as the deadline for him to pay part of the debt approaches. that he contracted to finance the purchase of the platform. And as it moved forward, bankruptcy is an option on the table.

In October, Musk finished his job. complying with what he had agreed to in April and made the decision. 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 to do so. 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 to help in the financing. That debt was left behind. It's corporately tied to Twitter, not Musk.

In the days ahead, Twitter faces a vital test. At the end of January the first term expires for the company to pay part of this interest equivalent to about 300,000 dollars. In order to meet that obligation, Musk is considering options like draining Twitter's cash reserves –of about $1 billion– or sell shares from Tesla to get money, something it has done in the past. Since last April, its stake in the electric vehicle company has fallen from $170 billion to today's $50 billion.

If it is unable to make that payment, the social network could even file for bankruptcy proceedings, according to sources familiar with the situation to the 'Financial Times'. That option, unlikely but not impossible, would lead to Musk losing control of the company. He would also lose his $26 billion personal investment in Twitter. The US courts would have to carry out 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, a 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, it has adopted controversial measures to cut the company's expenses, such as the dismissal of up to 80% of its workers or stop paying the rent for its offices. On the other, he has desperately sought new sources of income, such as the Twitter Blue subscription plan., which 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 it has been introducing in a chaotic way have caused 500 of its main advertisers (the pillar of its business) to have paralyzed their investments. That, according to what progressed. 'The Information' would have led to a 40% drop in daily income.

The prospects for 2023 are not good. The market analysis firm Insider Intelligence estimates that Twitter will lose a lot of money. It will bring users to its worst level since 2014 and predicts that revenue will not grow in the next two years.

“I'm not at my best”

Twitter is looking for a way out of this dilemma. Bankers consulted by the 'Financial Times' pointed out that Musk is already ready. He was negotiating a possible agreement with the lenders that would buy him time in the meantime to turn around the business of the social network. “The threat of bankruptcy can help you get concessions from creditors, but a real statement would not help him much, “they specify. There is even the option that the tycoon tries to buy Twitter debt at a low price to make it profitable if in the future he manages to make the platform successful .

Twitter's poor financial condition is rubbing off on Musk and his other companies.To finance his purchase of the social network, the mogul pledged part of his shares in Tesla as collateral for He said bank loans, an exposure that could grow.But Tesla's value plunged 65% last year.That devaluation has caused Musk to stop being the richest man on the planet and be the first in history to lose a fortune of 200,000 million, diminishing his entrepreneurial capacity.”Unfortunately, I'm not at my best moment”, Musk confessed Monday during the trial in which shareholders of Tesla accuses him of an alleged stock fraud. He's right.