I’ve seen so much confusion about who is funding what, I am compelled to publish this here for constant reference.

From Matt Levine writing in Money Stuff on 21 April 2022:

Elon Musk needs about $46.5 billion to buy Twitter at $54.20 per share: about $39.4 billion to pay for the 91% of Twitter’s stock that he doesn’t currently own, about $4.3 billion of debt to refinance and various miscellaneous costs. To pay that, he has:

  1. A letter from his banks offering to lend $13 billion to Twitter, if he buys it, with $7 billion of that coming in the form of senior secured bank loans and $6 billion coming in the form of junk bonds.
  2. A letter from his banks offering to lend him $12.5 billion personally, secured by $62.5 billion worth of his Tesla Inc. stock. At yesterday’s closing price, that comes to about 64 million shares, or about one-third of his Tesla stake.
  3. An agreement with himself to put up the other $21 billion, give or take.

Musk is on the hook for most of this funding. The value of these loans depend upon Musk’s personal fortune (the margin loan, and the $21 billion from somewhere). However, there is $13 billion which depends on the value of Twitter itself. If Musk drives the value of Twitter into the ground, yes, his banks are stuck collecting Twitter (the company) since it is the collateral for that $13 billion dollar loan.

Elon Musk does not seem like the type to blow up his net worth on an ill-fated roll of the dice with Twitter. He might not have a solid business plan for it, but I would feel confident in saying he’s not tossing $33 billion into the wind.

Update 26 May 2022. From Matt Levine’s column today:

Earlier this month, he announced a change in the financing:

  1. $13 billion of LBO debt, same as before. This was always an aggressive amount of debt for Musk’s banks to lend to Twitter — something like 8 times expected 2022 earnings before interest, taxes, depreciation and amortization — and, having gotten them to commit, he’s not going to let that go.
  2. Only $6.25 billion of margin loans, half the original amount. At a 20% LTV that would require him to post $31.25 billion of Tesla stock.
  3. $27.25 billion of equity. The equity would not be all his own money: He had commitments from other investors to either chip in money or else to roll their existing Twitter shares into Musk Twitter, totaling about $7.1 billion. But he signed an equity commitment letter for the $27.25 billion: If for some reason those other people flake, he still has to put up the money; as far as Twitter is concerned he’s on the hook for the whole $27.25 billion.

So basically he replaced half the margin loan with money from other equity investors. He still had to pitch in about $20 billion of his own money, that is, proceeds from selling Tesla stock.

And he goes on…

Yesterday he announced another change in the financing:

  1. Still that $13 billion of good LBO debt.
  2. Never mind the margin loan; it is gone now.
  3. $33.5 billion of equity. The entire margin loan has been replaced by an equity commitment.

The party continues! It will be fun to revisit this post in a year. I wonder how many more updates we’ll see to this.

Find Matt Levine at Bloomberg.