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Elon Musk has to make the first interest payment on the $13 billion debt he took on to buy Twitter – and the company’s dire financial situation means it faces risks including bankruptcy

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Elon Musk's Twitter account displayed on a mobile with Elon Musk in the background are seen in this illustration. In Brussels - Belgium on 19 November 2022. (Photo illustration by Jonathan Raa/NurPhoto via Getty Images)The first interest repayment for Elon Musk’s Twitter takeover could be due as early as this month, according to the Financial Times.

Jonathan Raa/NurPhoto via Getty Images

  • Elon Musk financed his $44 billion Twitter takeover with $13 billion of borrowings.
  • The first interest payment on the debt could be due as early as this month, according to the Financial Times.
  • Twitter’s weak finances have raised questions about its ability to repay debt – a default could lead to bankruptcy, the report said.

Elon Musk may be facing the first interest payment on the debt he took on to buy Twitter as early as this month, according to a Financial Times report that cited three people familiar with the matter.

And given Twitter’s high level of indebtedness, the world’s second-richest man may have to weigh options including the sale of more Tesla shares to finance the repayment – or even initiating bankruptcy proceedings for the struggling social media company, the newspaper said.

Musk bought Twitter for $44 billion in October, financing the deal with $13 billion of borrowings from banks including Morgan Stanley and Bank of America. 

The debt is held by Twitter, rather than Musk personally – and the company is required to pay back around $1.5 billion a year in interest payments, according to the Financial Times.

If Twitter failed to make that payment, its management could file for bankruptcy to initiate a debt restructuring process.

As an alternative to bankruptcy, Musk could sell more of his Tesla shares, having already offloaded nearly $40 billion to help finance the takeover deal, or use Twitter’s limited cash reserves to pay off the debt.

Twitter lost $221 million in 2021, its last year of full reporting. Musk has scrambled to cut costs and boost revenue since buying the company, laying off around 50% of employees and launching a new subscription service called Twitter Blue.

He has repeatedly sounded the alarm about Twitter’s finances and floated the possibility of filing for bankruptcy to restructure its debt.

“We have an emergency fire drill on our hands,” Musk told a Twitter Spaces forum in December. “This company is like you’re in a plane that is headed towards the ground at high speed with the engines on fire and the controls don’t work.”

“That’s the reason for my actions that may seem sometimes spurious,” he added.

It’s rare that companies fail to make their first debt repayments – with Hertz being one of the last high-profile companies to default when it missed lease payments on its fleet in April 2020 as the COVID-19 pandemic hammered its profits.

Read more: Paul Krugman says Elon Musk’s Tesla can never be a ‘profit machine’ like Apple, because there’s no scope for that in the car industry

Read the original article on Business Insider

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