Where we last left the Twitter saga, our reluctant hero Elon Musk had essentially made the difficult decision that he’d be better off forking over another $20 billion of his own cash rather than continue to fight Twitter in court and still end up paying a fine in the billions of dollars—perhaps double-digit billions—and have only a bunch of lawsuits to show for it. Let’s face it, Elon is past the point of good choices, while his banks, led by Morgan Stanley and Bank of America, are presumably rueing the day they ever got involved in this disaster of a deal. His co-investors, who back in May agreed to pony up some $7.1 billion, can’t be happy either. Sure, Larry Ellison is probably rich enough not to care if he loses his $1 billion. But Marc Andreessen, at a16z, is a fiduciary for his investors and is on the hook for $400 million. He needs to care.
Obviously, the original sin of the deal stems from Elon’s decision to pay $44 billion for Twitter, or 44x for Twitter’s approximately $1 billion in EBITDA. After he altered the capital structure on the deal—to remove a layer of subordinated debt and replace it with more of his own equity—he left himself with a deal that has $13 billion of senior secured debt and $31 billion of equity, $24 billion of which is coming from Elon and $7 billion of which was to come from his buddies. And right now, despite the media narrative and endless think pieces about how this is all just a fait accompli, that $13 billion of committed secured financing is shaping up to be an insidious stick of dynamite that could blow up the whole deal.
The group of banks that committed to the deal back in April is comprised of some of Wall Street’s heaviest hitters: Morgan Stanley and Bank of America, of course, but also Barclays, MUFG, BNP Paribas, Mizuho, and Société Générale, among others. They pledged their capital to Elon back in April, in a very different interest-rate environment than the current one. And not to put too fine a point on it, but the banks are fucked. They committed contractually to the financing and received fees for that commitment. That basically means there are no outs, unless they want to get sued by both Elon Musk and Twitter for welching on their agreement.