Tesla CEO Elon Musk is looking to eliminate margin loans by raising more equity and preferred financing for his $44 billion Twitter buyout. The termination of a margin loan, which is leveraged against shares of Tesla stock that are in his name, would be less risk for both Musk and lenders.
According to Bloomberg, who cited people with knowledge of the matter, Musk’s advisors, which include Morgan Stanley, have started to talk about as much as $6 billion in preferred equity financing from potential investors who could help eliminate the need for margin loans at all.
Musk had $12.5 billion of the $44 billion price tag tied up in margin loans but was then halved during a massive $7.1 billion filing that showed he had equity commitments from several new investors. Among the largest with Larry Ellison’s $1 billion commitment, but Sequoia Capital, Qatar Holding and Saudi Prince Alwaleed bin Talal also contributed to Musk’s funding round. bin Talal rolled his Twitter holdings into the deal.
Musk has reportedly received over $1 billion in equity commitments from other investors after the initial round of funding was obtained. He is currently in talks for even more, one of the people said, according to the report.
Elon Musk secures $7B more for Twitter buyout, Larry Ellison pitches in $1B
Margin loans have not been a popular topic when it comes to Musk’s Twitter deal, especially from Tesla investors who feel the pressure from the margin loan on the CEO’s holdings put extensive pressure on the stock. Musk also sold around $8.5 billion in Tesla holdings to fund the deal. Shares of the electric automaker are trading below $730 currently but fell down to $680 during trading on Thursday. Tesla shares are still up nearly 23 percent from one year ago today.
Investors have been “hyper-focused” on Musk’s margin loan because he has already pledged more than half of his shares toward other borrowings, the report states. This only leaves a limited amount of holdings he could put up as collateral for the Twitter buyout, but this raises the risk that a slide in Tesla’s stock price could jeopardize the terms of the purchase. Bloomberg said that Musk would not have had enough unpledged Tesla shares to cover the margin loan if the stock fell below $837 if he didn’t initially pledge $12.5 billion and sell $8.5 billion in stock last month. Now, Musk could still afford to purchase the platform as long as Tesla shares do not fall below $420 per share.
Disclosure: Joey Klender is a TSLA Shareholder.
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