Banks Exploring Ways to Recoup $12.5 Billion Debt to Elon Musk

Mar 5, 2024

It’s a race against time as banks that loaned tech billionaire Elon Musk $12.5 billion for the acquisition X, formerly Twitter, seek to recoup their investment. Immediate reports indicate that the banks have already discussed refinancing the loan that helped take X private in 2022 with Musk.

X Purchase Debt

It is not the first time the group of banks led by Morgan Stanley has held discussions with the X owner. Similar talks are believed to have faltered early this year. The banks and Musk’s team are reportedly exploring various options as they look for ways to strengthen the debt package. Part of the discussions revolves around exploring ways to reduce the cost of debt and make it less risky for the banks.

The group banks led by Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho, and Societe Generale have been stuck with the debt since 2022. The banks have already reached an agreement in the past agreeing not to offload their holdings individually.

The banks have agreed to hold their holdings until X is on its feet with stable advertising revenues, subscription froth, and traction, therefore able to pay back the amount. X has been trying to lure advertisers back to the platform after most left following Musk’s takeover, resulting in a significant decline in advertising revenues. Last year, the company is believed to have generated $2.5 billion in ad sales, falling short of its $3 billion target.

Morgan Stanley holds the biggest share of the $12.5 billion loan amount that plunged it into an $876 million loss in 2022 on corporate loans. The bank has sought to downplay the impact of its debt holdings in X, insisting they are a much smaller part of its loan portfolio.

Fidelity is one of the financiers that have successfully recouped a significant chunk of its investment, having received a stake in X after helping Musk complete the $44 billion purchase. The firm has recently cut the value of its stake in the social networking company by about 10% after it had risen to $6.2 million late last year. Its take has also dropped by 72% since Musk completed the takeover in 2022.

Reincorporating Companies in Texas

Even as Musk continues to explore ways of paying off the debt used to purchase X, he is also looking at reincorporating his companies into Texas and Nevada. The billionaire investor is reportedly looking to move the headquarters of SpaceX and Neuralink to Texas and Nevada after a Delaware Judge took issue with his $56 billion payout package at Tesla.

Musk has already indicated he will summon Tesla shareholders to vote on moving the EV giant incorporation to Texas, where there is less scrutiny. While the executive has already reincorporated Neuralink in Nevada, it will take more time and steps to move Tesla out of Delaware, given that it is a publicly-traded company.

It is not the first time Musk has moved his company’s headquarters. In 2021, he moved Tesla’s headquarters out of California and into Austin, Texas, after criticizing the state’s Covid restrictions. Texas has emerged as one of the favorite states for tech giants, given its low taxes and light regulatory touch.

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