After borrowing $13 billion to secure Twitter’s acquisition, Elon Musk is looking to recover debts by selling up to $3 billion in company shares to investors, according to the Wall Street Journal.
If Musk’s fundraising attempts are successful, the capital would be used to pay down unsecured bridge loans — the portion of the debt that carries the highest interest rate.
With the platform’s ad revenue dropping by a shocking 70% in December 2022, Musk’s liaisons with investors appear to be a last-ditch attempt to avoid bankruptcy.
Yet, as Twitter continues to reel from one of the biggest “hung deals” of all time, will the billionaire’s efforts be enough to keep the company’s lights on?
Elon Musk Considers Raising $3 Billion to Recover Debts
Elon Musk has been exploring equity financing as a way to tackle Twitter’s debt issue, as the social media platform contends with rising annual percentage rates (APRs).
According to sources in the Wall Street Journal, Elon Musk and members of his team reached out to new and existing backers about the prospect of raising equity capital last December. In these talks, Musk reportedly discussed selling up to $3 billion in Twitter shares, to repay some of the debts incurred during his acquisition of the company.
This $3 billion would be used to pay off Musk’s unsecured bridge loans, the priciest portion of the debt, which carry an interest rate of 10% plus the secured overnight financing rate that is currently sitting at 4.3%.
According to regulatory findings, the interest rates of unsecured bridge loans rise 0.5% each quarter too, contributing to Twitter’s total interest expense of roughly $1.25 billion a year.
Twitter’s Ad Revenue Continues to Take a Hit
While Musk’s acquisition debt is the main impetus for seeking outside funding, Twitter’s financial difficulties are compounded by the company’s ongoing fallout with advertisers — with Reuters reporting that ad spending on the platform dropped by 70% in December alone.
Over 500 of the company’s top advertisers have paused spending on the site since Musk’s takeover in October, making it harder for the social media giant to recover costs organically.
Despite advertisers dropping like flies, Musk hasn’t shied away from contentious actions like lifting Donald Trump’s Twitter ban and firing its content moderation council — alongside 75% of the workforce.
Are Twitter’s Financial Woes Curable?
Elon Musk’s financial struggles are no secret. Just last week the Tesla CEO hosted an online garage sale, auctioning off an eclectic array of Twitter memorabilia, including an industrial food smoker, an espresso machine, and a statue of the company’s blue bird logo, which sold for $100,000.
So far in auction of Twitter office stuff, seems like memorabilia and industrial kitchen stuff is getting eyeballs. Fair amount of office furniture still languishing without at opening bid or 10-20% retail price pic.twitter.com/Sf3gZYlvBW
— Jake Swearingen (@JakeSwearingen) January 17, 2023
However, despite Musk reducing Twitter’s workforce to a skeleton team, encouraging his remaining workers to crash at the HQ overnight in line with his “hardcore” vision for the company, and Twitter employees in Singapore being forcibly evicted over unpaid rent, glimmers of hope remain, somehow.
According to a new report carried out by MediaRadar, while Twitter’s ad revenue remains weakened, the number of interested agencies rose from 3,000 to 3,700 in the last quarter of the year. This suggests that while the platform’s debts are mounting, vital streams of revenue still remain open to the company.
But while rays of hope remain, it’s safe to say Musk will need to shift a lot more Twitter merch before the company makes it out of the red.
