The company’s dire finances – it made a loss of $221 million in 2021 before the acquisition and Mr Musk has said revenues have declined since – have led the new owner to regularly raise the prospect that the company could crash into bankruptcy.
Such a default on its debt would probably result in Twitter’s management filing for bankruptcy, at which point the US courts would begin an expensive and bureaucratic debt restructuring process. Instead, his options include cutting a new deal with lenders, such as a debt-for-equity exchange at a discount to the debt’s face value, or finding alternative ways to fund its interest payments as he plays for time to turn around the business. “It is more likely [Musk] would ask Twitter’s creditors for a forbearance and try and work something out,” said one restructuring banker.
Negative sentiment around the future of Twitter since Mr Musk took it over as well as higher interest rates have stymied the banks’ ability to offload the debt to investors. The banks’ large balance sheet exposure could put pressure on them to sell the debt to Mr Musk, either in the event of a bankruptcy or out of court.
Such a debt swap would hamper Mr Musk’s financial flexibility. About 63 per cent of his existing Tesla shares are already pledged as collateral for loans, according to corporate filings. The company limits the amount of stock that its executives can pledge to 25 per cent of the value, meaning he could be forced to put up more of his holdings if Tesla stock continued to fall, leaving less to back future borrowing.
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