Elon Musk buys and ruins Twitter

[SWP's back]

I don’t know, people have suggested they want Twitter to fail because the banks haven’t packaged and resold the debt, which would be standard practice.

They’ve held onto the liability because they want the prize at the end of default.

Also I think the guarantee is $X of Tesla shares, not Y amount of teslas shares that are worth half as much as they were in April.

Musk had to put up 4x the value of the loan in TSLA shares.

 

[SWP's back]

There is no 'prize at the end' with a default. You can only claim back the outstanding debt+interest+fees. But that excludes any management time. And you have to carry the debt as a default on the banks books wile it drags through and that has big implications for banks capital requirements. There is some scope for shady practice* in the past but its generally individuals within a bank conspiring with others to make money - Banks do not make money from defaults (its close to my line of work).

An employee with knowledge of a loan/default can work with external professionals and investors to push defaults and ensure others can buy assets at discounted price. This is mitigated by laws around separation of duties in banks and the insolvency process laws.

If the Banks involved haven't sold down the twitter debt that suggests to me its because they cant - or not at the price they want. Seems 100% plausible.

See above.

 

[domalino]

Musk had to put up 4x the value of the loan in TSLA shares.

Does that mean that if he needed 10BN he put up 100m shares @ 400 and if he defaults the bank gets 100m shares whatever their price.

Or does it mean the banks get $40Bn worth of shares, whatever the price is at the time?

 

[Gareth Barry Conlon]

See above.

You dont get 4x the shares in a defualt - you get the debt outstanding + interest +fees. Any surplus goes back to the borrower/guarantor.

 

[Gareth Barry Conlon]

Does that mean that if he needed 10BN he put up 100m shares @ 400 and if he defaults the bank gets 100m shares whatever their price.

Or does it mean the banks get $40Bn worth of shares, whatever the price is at the time?

The Bank only ever gets what its owed. Nothing more.

If you default on your mortgage of £100k and your house is worth £400k. The Bank will force you to sell and take £100k (plus say £20k in fees for people it hired to progress the sale). The Bank ends up with £100k you end up with £280k.

 

[SWP's back]

You dont get 4x the shares in a defualt - you get the debt outstanding + interest +fees. Any surplus goes back to the borrower/guarantor.

Yes absolutely. But the fact remains that the banks do not lose out due to a default and it’s why the collateral (being 4x the amount) is so high.

It’s why a mortgage lender requires additional equity.

Musk’s main issue is that the value of TSLA has dropped, that only increases the likelihood of legal action from JP Morgan in the event Twitter misses any payments on the debt as the bank’s security is vastly diminished and likely to continue to do so. TSLA shares are now tied up in the success of Twitter.

 

[SWP's back]

Does that mean that if he needed 10BN he put up 100m shares @ 400 and if he defaults the bank gets 100m shares whatever their price.

Or does it mean the banks get $40Bn worth of shares, whatever the price is at the time?

They get the monetary value. The 4x is to ensure that they can still get their money back even if the share price drops.

It does show how illiquid Musk is. If he went anywhere near selling that many shares, one would expect a drop of 20-40% in the value of the TSLA simply due to the amount of stock that would suddenly on the market (which would then reduce his net value further). It’s a rather pleasant death spiral.

 

[grunge]

Ta, Still a bit rumour based then unfortunately.

 

[Gareth Barry Conlon]

Ta, Still a bit rumour based then unfortunately.

True but even if its half true. Those 7k people all had a job. Big corps don't run much slack, they avoid and delay every cost they can. You have to justify spending money so every person's salary has to be justified. Randomly dropping to half the work force will cause chaos.

 

[grunge]

True but even if its half true. Those 7k people all had a job. Big corps don't run much slack, they avoid and delay every cost they can. You have to justify spending money so every person's salary has to be justified. Randomly dropping to half the work force will cause chaos.

Yep, just trying to get a decent view of the realities of it. some reports that 1 department had 50% purged turned out to be 15% etc.
If this stuff is even close to true then they will have lost 90% of the inherrent knowledge built up in the staff and are really really screwed.