2023-10-29 13:51:02
Published on Oct. 29, 2023 at 11:45 a.m. Updated on Oct. 29, 2023 at 2:51 p.m.
The banks that lent money to Elon Musk to buy Twitter are biting their fingers today. A year later, these seven banks – including Morgan Stanley, Bank of America and Barclays, but also BNP Paribas and Société Générale – have still not managed to resell this debt.
A year ago, Elon Musk was forced by the courts to buy Twitter for $44 billion. Of this sum, 13 billion came from loans. Normally, these banks would have resold this debt to other investors shortly following the acquisition.
But the value of Twitter – renamed X – has collapsed since the takeover. The seven banks wish to resell this debt, but they should get a price lower than the amounts lent, according to information from the Wall Street Journal. The American daily estimates that their losses should amount to at least 15% of this amount, or $2 billion.
Leaking advertisers
Elon Musk’s erratic management, who fired most of Twitter’s employees and decimated the moderation teams, scared away advertisers. Advertisements made up the majority of the social network’s revenue before its takeover. The new boss tried to diversify these sales by promoting subscriptions on the site, with mixed results.
“Musk has failed to make concrete improvements to the platform, and he is no closer to his vision of an ‘app that does everything’ than he was a year ago,” notes Jasmine Enberg, analyst at Insider Intelligence. “Instead, X scared away users, advertisers, and now it has lost what made it valuable in the world of social networks: being the place where the news converges. »
Result: the social network’s revenues are in free fall. X, which is no longer listed, does not publish its results, but Insider Intelligence estimates that its revenues will amount to $1.89 billion this year, compared to $4.12 billion estimated in 2022. Subscription revenue are currently far from compensating for this loss.
Very uncertain profits
Despite this decline, the new CEO of She says the company will be in the green next year. But the platform must now repay the debt contracted by its owner. This will require generating substantial profits.
For the moment, the platform is not taking this path. According to Similarweb data, traffic fell by 14% in one year. And the consulting firm Ebiquity, which works with 70 of the 100 brands that spend the most on in the United States, estimates that only two of its clients buy space on was the case for 31 of them.
« Junk bond »
Before reselling Twitter debt, banks must obtain a rating from agencies like Moody’s and S&P. However, this platform was considered a speculative investment (“junk bond”) even before its purchase by Elon Musk. It is very unlikely that this rating has improved since then, especially since X is now heavily in debt.
Twitter’s debt is made up of $6.5 billion in term loans, $6 billion in secured and unsecured bonds, and $500 million in revolving lines of credit. For the banks that agreed to lend to Elon Musk, this is now the biggest “glue” of all time.
This gigantic loan which weighs on their accounts limits their ability to lend to other, more solvent companies. Particularly since the fall of Silicon Valley Bank, saved at the last minute by the American government, regulators around the world are closely scrutinizing the quantity of debt on bank balance sheets.
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