Elon Musk Twitter Bots Problem Pales in Front of His Huge Debt Burden
Elon Musk may be directing his buyer’s remorse at Twitter Inc.’s bot problem. But underpinning the deal is a $13 billion debt bill that’s looking like a bigger burden by the day.
The package, drummed up in a rush and signed by banks before the end of the billionaire’s beloved April 20 weed holiday, will leave the social media platform with an annual interest expense approaching $1 billion, giving the company an alarmingly small margin for error.
To sober-minded credit analysts, second thoughts about the deal are to be expected.
The purchase will be funded with a leveraged loan and high-yield bonds. CreditSights estimates this will dramatically increase Twitter’s annual interest expense to around $900 million, while Bloomberg Intelligence sees $750 million to $1 billion.
With numbers like those, Twitter looks poised to burn cash, boosting the pressure on Musk to transform the company by finding new sources of revenue and slashing costs. That’s even the case with Wall Street analysts estimating record earnings in 2022, though those rosy forecasts could be imperiled if predictions for a US recession come true.
“This is just a bad capital structure to put on a business like Twitter that has never proven to be highly profitable,” said John McClain, portfolio manager at Brandywine Global Investment Management. “It’s been a public company for quite some time and they never have seemed to really figure out how to attractively monetize the consumer.”
The debt is only one of three components of Musk’s financing. He’s found 19 other equity investors to join him in $27.25 billion of equity commitments. And he’s taken out a $6.25 billion margin loan against his Tesla shares, but he’s currently trying to replace that by bringing in
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