Elon Musk, Tesla’s chief executive, really does have his Twitter stash secure at the moment, as per documents he filed with the Securities and Exchange Commission (SEC) on Thursday. Musk stated that he's received commitment letters promising to pay an amount of about $46.5 billion from Morgan Stanley.
The details are fascinating. About $13 billion of that commitment is a fairly normal leveraged buyout (LBO) arrangement, with the funds being loaned to Twitter in the event that Musk purchases the company. About $7 billion is in the form of high-risk bank loans and $6 billion in the form of high-yield bonds. If it's a bit odd that you could purchase a business by borrowing the company funds, keep in mind that when you purchase an apartment with a mortgage, the collateral of the bank is the exact property you're purchasing.
Banks are open to the possibility of lending him $12.5 billion in his name secured by $62.5 billion of Tesla Inc. stock. It's not the usual LBO arrangement. If Blackstone goes private with a company, nobody expects Steve Schwarzman to give up his shares of Blackstone.
Musk has also pledged to contribute an additional $21 billion. An equity contribution from the sponsor is typical for LBOs; however, this is an atypically high amount.
One lesson to take away is that banks aren't willing to take on risks in this area. They may be skeptical of the fact that Twitter is worth the price Musk has made available to pay. It's not a surprise. Prior to Musk's involvement, Twitter had been trading with lesser valuations. Musk himself has said his primary interest isn't in Twitter as a business opportunity. This could be an alert to Twitter's investors about the probability–or, more precisely, the likelihood–of another bidder offering an even higher price.