Elon Musk’s Twitter debt backing acquisition of as much as $13bn from $44bn demands a substantial increase of the company’s leverage. Basically it could lead to a multiple-notch downgrade by the credit rating agencies. Therefore, concerns about potentially challenging selldown are lingering.
The most potential downgrades occur in the sinkage of social media juggernaut into territorial junk. The impact would be the more expensive borrowing and the less attractive financing for additional lenders to join. It majorly happens due to the perennially added risks in the credit. The overall financing comprises the funded bank debt up to $13bn, said IFR Asia.
The margin of $12.5bn loan secured against shares in Tesla, the electric car maker owned by Musk. There is also an additional $21bn for equity commitment. The bookrunners and lead arrangers of the bank debt are Morgan Stanley, Barclays, Bank of America, BNP Paribas, MUFG, Mizhuo Bank and Sociate Generale.
The divisions of financing are for many categories. A $6.5bn is for a seven-year senior secured term loan. The $3bn is for a senior secured bridge loan. Then the senior unsecured $3bn is the bridge loan. S&P said that the transaction would affect the downgrade of Twitter’s BB+ issuer credit rating to ‘no higher than B category.
Moody remarked that the new debt would turn into a material that weakens credit metrics. The rating agency’s decision also refers to the added debt burden of private-taken Twitter ownership by a single shareholder. It could be a critical governance risk due to the controlling owner placing his interest above other stakeholders. It covers debt holders. The finalization of the rating is when the acquisition closes. According to the source, prior to signing, the market encountered a seven times range of leveraging.
