(Bloomberg) -- Elon Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter Inc. with new margin loans backed by Tesla Inc. stock that he’d be personally responsible for re-paying, according to people with knowledge of the matter.

The margin loans are one of several options the Morgan Stanley-led bank group and Musk’s advisers have discussed to soften the burden of the $13 billion of debt that Musk used to purchase the social media company in October, said the people, who asked not to be identified because the discussions are confidential.

While many details, including how terms of the swap from one debt to the other would work and how advanced the talks are, remain unclear, the mere fact that the two sides are discussing such an option underscores just how badly this deal has gone for all involved in the six weeks since it was finalized.

The banks have been unable to find buyers for the Twitter debt and are facing the prospect of realizing steep losses. Musk, meanwhile, is under increasing pressure to turn around the finances of a company that was already struggling when he and his partners bought it. Musk put up billions of his own dollars, selling Tesla shares to make the purchase, and pledging more stock to help prop up Twitter now would be risky. It could give Twitter the breathing room it needs to turn operations around, or it could mean Musk is just throwing good money after bad.

The financing discussions have so far focused on how to replace $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75%, the maximum banks had guaranteed Musk when they agreed to finance the acquisition in April, the people said. The company is estimated to face annual interest costs of about $1.2 billion based on the current debt structure, more than a measure of Twitter’s earnings for the whole of 2021. It’s unclear what the rate would be on the margin loan.

Representatives for Musk didn’t respond to requests seeking comment, nor did Twitter and Tesla, which no longer have communications departments.

Morgan Stanley and the other Twitter lenders — Bank of America Corp., Barclays Plc, BNP Paribas SA, Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Societe Generale SA — did not provide comment.

Tesla shares whipsawed on Thursday, dropping as much as 2.9% at one point before closing down 0.3% at $173.44.


While the $13 billion of debt Musk took to finance the deal sits at the Twitter corporate level, any margin loans against Tesla shares would be taken by the billionaire in a personal capacity. The swap, however, could still make sense considering that Musk has a significant amount of his own money tied up in Twitter equity and given the margin loans would likely carry a much lower interest rate than Twitter’s unsecured debt, the people said.

Tesla’s last proxy statement disclosed that at the end of March, Musk had about half of his Tesla shares already pledged to secure an existing margin loan. After accounting for subsequent share sales, his remaining unpledged shares could secure a margin loan of more than $5 billion at a 20% loan-to-value ratio, according to Bloomberg calculations.

But since the March update, Tesla’s shares are down more than 50%, meaning Musk would likely needed to have pledged more shares to satisfy margin calls unless he repaid some of his existing loan.

Musk could exercise some of his options to obtain more Tesla stock to pledge as collateral for the loan. Those options are currently worth more than $40 billion, according to the Bloomberg Billionaires Index.

The original Twitter financing package included $12.5 billion in margin loan commitments backed by Tesla stock. That was ultimately replaced by additional equity commitments, including investments from several partners.

Musk, who has said he wants to turn Twitter into a forum for free speech, is also facing a backlash from advertisers and Democrats in Washington over concerns that harmful content may increase on the platform.

The banks are not expected to attempt to offload any of the Twitter debt — which also includes $6.5 billion of term loans and $3 billion of secured bonds — to institutional investors until the new year, when the company could offer a clearer picture of how Musk’s changes have affected its operations, the people said.

--With assistance from Tom Maloney.

(Updates with details of interest expense in fifth paragraph.)

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