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 well-liked way for billionaires whose money is tied up in stocks to get some money.
You’ll be able to be price $100 billion on paper, but when all that cash is tied up in a stock, like Tesla, it doesn’t mean that you might have money to spend. For those people, banks can offer loans backed by their stocks. If the stocks go right down to a predetermined level, they must sell to cover the loan.
Elon Musk has used this financing vehicle several times with several hundred-million-dollar loans backed by Tesla stock through the years.
To finance his $44 billion acquisition of Twitter, Tesla-backed loans were reportedly considered, but Musk ended up selling billions of dollars’ price of Tesla stock as an alternative.
The remaining was covered by investment partners and $13 billion in debt that’s reportedly leading to $1.2 billion in annual interest costs.
That’s putting lots of pressure on the corporate’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 recent margin loans backed by Tesla Inc. stock to exchange a few of the high-interest debt he layered on Twitter Inc., based on individuals with knowledge of the matter.
In keeping with the report, the plan shouldn’t be yet finalized. The loan amount shouldn’t be known, however the discussions have reportedly focused on replacing a $3 billion loan at 11% interest.
Electrek’s Take
Musk selling over $10 billion in Tesla stock has already put lots of pressure on the stock and its shareholders.
That will just add more pressure as downturns within the stock’s price could lead to Musk selling much more Tesla stocks.
At the identical time, Tesla’s board is reportedly considering a stock buyback program to assist the stock price. It could create a potentially strange ethical situation if Musk takes margin loans backed by his Tesla stock after which Tesla’s board spends billions of dollars of the corporate’s money to assist maintain the stock price.