Elon Musk and the purchase of Twitter: these are the problems that have created this soap opera

Elon Musk and Twitter seek to reach a good understanding and close one of the most bizarre company purchases seen in recent timesin which the world’s richest man launched a takeover bid for the company in April only to back down in July, citing financial problems. spam Y bot in the social network.

Worse Musk has changed his mind again and seeks to reach the agreement in the same amount initially offered, $44 billion. But a problem is added… April was an economic scenario and today is another.

Today the amount offered and the necessary ways to face it is a big problem. Morgan Stanley, Bank of America and Barclays, if they want to lend, it would be at a higher cost of financing. And it is that inflation has increased, interest rates and the economic crisis has deepened, to which must be added the entrenchment of the Russia-Ukraine conflict and Musk’s oscillating behavior.

If we recall the structure of your proposal contains $25.5 billion in funding. In the form of margin loans ($12.5 billion) and debt ($13 billion), as well as Musk’s capital commitment of roughly $21 billion.

Elon Musk has put up some of his Tesla shares as collateral for margin loans involving up to 12 financial institutions.. These loans are used so that, if Musk is unable to meet the obligations incurred, lenders can sell enough Tesla shares on the open market without any problem due to the high liquidity of his property.

But in reality, when investment banks finance leveraged buyouts, seeks to transfer debt to external investorssuch as hedge funds and other major financial institutions. Banks charge fees to arrange these deals and then sell the debt to reduce the risk of borrowers not paying what they owe.

What’s going on? Selling this debt has become more difficult in recent months, which represents a challenge for banks. If they tried to sell the debt now, they might be forced to do so and suffer huge losses.

To give an example, banks were forced to accept losses of 16% in a recent bond sale to back a $16.5 billion purchase of cloud computing company Citrix, considered the benchmark in the leveraged-lending market.

Banks can also keep debt on their balance sheets, which they were recently forced to do with their $3.9 billion leveraged buyout of Brightspeed’s telecommunications business. It also failed to sell Nielsen Holdings, Tegna or MoneyGram debt, which was bought by banks that agreed to finance it.

However, knowing how Musk has been moving lately, no wonder it’s your new excuse for not endorsing the purchase. Legal experts say Twitter is likely trying to make sure Musk can’t use financial troubles to back out of the deal.

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Elon Musk and the purchase of Twitter: these are the problems that have created this soap opera