Elon Musk’s bankers are considering Tesla (TSLA) stock-backed margin loans to support Twitter, which is under heavy interest expenses.
Stock-backed margin loans are a popular way for billionaires whose money is tied up in stocks to get some cash.
You can be worth $100 billion on paper, but if all that money is tied up in a stock, like Tesla, it doesn’t mean that you have cash to spend. For those people, banks can offer loans backed by their stocks. If the stocks go down to a predetermined level, they have to sell to cover the loan.
Elon Musk has used this financing vehicle several times with several hundred-million-dollar loans backed by Tesla stock over the years.
To finance his $44 billion acquisition of Twitter, Tesla-backed loans were reportedly considered, but Musk ended up selling billions of dollars’ worth of Tesla stock instead.
The rest was covered by investment partners and $13 billion in debt that is reportedly resulting in $1.2 billion in annual interest costs.
That’s putting a lot of pressure on the company’s financials, and now Bloomberg reports that Musk’s bankers are considering Tesla-backed margin loans again:
Elon Musk’s bankers are considering providing the billionaire with new margin loans backed by Tesla Inc. stock to replace some of the high-interest debt he layered on Twitter Inc., according to people with knowledge of the matter.
According to the report, the plan is not yet finalized. The loan amount is not known, but the discussions have reportedly focused on replacing a $3 billion loan at 11% interest.
Musk selling over $10 billion in Tesla stock has already put a lot of pressure on the stock and its shareholders.
That would just add more pressure as downturns in the stock’s price could result in Musk selling even more Tesla stocks.
At the same time, Tesla’s board is reportedly considering a stock buyback program to help the stock price. It would create a potentially strange ethical situation if Musk takes margin loans backed by his Tesla stock and then Tesla’s board spends billions of dollars of the company’s money to help maintain the stock price.