Elon Musk is reportedly at risk of defaulting on the money borrowed to fund his acquisition of Twitter, now rebranded as “X.”
The acquisition, finalized in October for a staggering $44 billion, was partly financed with a $13 billion loan from major financial institutions, including Morgan Stanley, Bank of America, and Barclays.
These loans were secured by a portion of Musk’s Tesla stock.
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In the year since Musk assumed ownership of X, the platform has encountered a series of challenges. The changes he brought to the platform have exacerbated revenue problems, resulting in a soured relationship between X and advertisers. Advertisers, unhappy with content moderation and other changes following Musk’s takeover, have departed in significant numbers and have yet to return. The marketing consultancy firm Ebiquity reported that only two of the world’s top 100 advertisers chose to advertise on X in the previous month.
The world’s wealthiest person has made several attempts to recoup his investment, including monetizing certain features of X, with a particular focus on verification badges. He has also strived to transform the platform into a financial hub, part of his broader “everything app” concept. Despite these efforts, the monetized features have not yielded the expected revenue, and user adoption has been slow.
Moreover, concerns have arisen about X’s user growth, which reports suggest has been declining, contrary to claims made by Musk and CEO Linda Yaccarino. App downloads fell by nearly 30% between July and September, according to data from Apptopia.
These challenges have led to concerns that Musk may default on his loan payments, as reported by Insider. Fidelity, an asset manager holding a stake in the company, has drastically reduced its valuation of Twitter, marking it down by two-thirds, reducing the company’s estimated worth to approximately $15 billion.
The Wall Street Journal has reported that Musk’s lenders are taking steps to unload the debt. Bankers involved in the transaction have suggested that X could receive a junk bond rating, indicating a heightened risk of loan default. This assessment arises from concerns regarding Musk’s unconventional management style and a sluggish advertising market.
Insiders familiar with the matter informed the Journal that the banks anticipate absorbing a 15% loss, totaling $2 billion. For major stakeholders like Morgan Stanley and Bank of America, this would translate into hundreds of millions in losses.
While Musk has acknowledged that it may take time for his changes to produce financial results, the burden of X’s revenue shortfalls is likely to be shouldered by the lending banks.