Social media platform X continues to cause headaches for the banks that agreed to hold its debt, which are now preparing to begin unloading it.
The firms, including Morgan Stanley, Bank of America, Barclays, and MUFG, lent Elon Musk $13 billion in Fall 2022 with the intention to quickly sell it to Wall Street investors. However, this plan hit a wall when speculation on Twitter dropped off after Musk finally bought the platform. The banks were then forced into holding onto the debt for a year, which will result in them taking an expected 15 percent hit (about $2 billion) when they eventually sell it.
The banks wanted to sell it by Labor Day, which did not come to fruition. Now, they must first secure a good rating from Moody’s, S&P and so on to convince investors to buy.
The banks that financed Elon Musk’s $44 billion purchase of Twitter are still struggling a year later to contain the damage to their balance sheets https://t.co/WKFEVqaD6x
— WSJ Markets (@WSJmarkets) October 25, 2023
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Musk’s debt package included $6.5 billion in term loans, $6 billion evenly divided between secured and unsecured bonds, and a $500 million revolving line of credit, according to The Wall Street Journal. Its debt is considered to be among the largest and longest held in recent history, reminiscent of 2007-2008 era.
Currently, not counting the debt, the company is cash flow positive. Current CEO Linda Yaccarino joined the company in June to help ramp up its revenues, but only began to transfer in an executive team in September.
Earlier this month, social media platform X announced to its debt holders that it was going to introduce a three-tier subscription policy as part of a plan to attract more advertisers. The premium plan, which is currently priced at $7.99 a month, will be divided into Basic, Standard, and Plus, the company said. As of Oct. 25, the new model had not been implemented.
(RELATED: X Plans to Introduce Three Tiers to Premium Subscription)
On that call, Yaccarino was hopeful about the company’s outlook, citing revenue growth from advertising, data licensing, and subscriptions. About 90 percent of the company’s top 100 advertisers have returned, up from 75 percent in June. However, she admitted that even as advertisers come back to the platform, their spending has been reduced and their spending is far from historic levels. To hit positive cash flow when taking the debt into consideration by the end of 2024, X will need to do some advertising reforms.
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