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Comment by svdr | Hacker News Reader

I don't know much about finance, but why didn't he just pay the 13B? This seems much more expensive.

He's not personally liable for the $13B. If (when?) Twitter implodes, he gets to walk away not owing a dime of that money--so why spend it if he doesn't have to?

How is that possible? I can’t just buy a house with a mortgage and walk away. He personally owns the company with loans.

Its the terms of the contract.

Twitter borrowed $13 Billion, not Elon Musk. Technically, "X Holdings" took on the debt (a new company Elon started up), but "X Holdings" is effectively Twitter now.

> I can’t just buy a house with a mortgage and walk away.

If you create a business, lets say "Foobar Incorporated", and get the banks to recognize the debt as assigned to "Foobar Incorporated", you can walk away as "Foobar Incorporated" goes bankrupt.

Similarly, it is "X Holdings" who goes bankrupt in this arrangement, not Elon Musk.

Who is going to own Twitter when this whole mess falls apart?

Probably the bondholders (the people who lent the $13B).

Do we know who specifically that is? Because they're going to own a pretty (societally) important property.

Morgan Stanley, Bank Of America, Barclays, Mitsubishi, and a bunch of other banks are the current holders of these bonds.

But the banks can sell those bands over the next few weeks, so the "final owners" are still yet to be seen.

They can sell those bonds at any time, really.

You can, in most states a mortgage is a non-recourse loan, meaning that the bank cannot come after your other assets if you default.

He owns the company that has loans, but the company has the loans -- not him, he hasn't personally guaranteed them. Company folds, creditors have no recourse (generally).

Home mortgage (for first house) is only somewhat non recourse in 12 states, and even then, some of those do not let you just walk away (like Washington):

https://www.financialsamurai.com/non-recourse-states-walk-aw...

https://www.cga.ct.gov/2010/rpt/2010-R-0327.htm

>It is difficult to classify states as strictly recourse or non-recourse. Almost all states allow deficiency judgments under certain conditions, for certain types of property or foreclosure proceedings. However, many states restrict not only the conditions under which deficiency judgments are allowed but the maximum recovery for the creditors.

>he hasn't personally guaranteed them.

Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

> > he hasn't personally guaranteed them.

> Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

We can't know this, I suppose -- but it's quite uncommon from my understanding.

You can walk away when you declare bankruptcy. Lot of people in 2008 just did that

He wouldn’t need to declare bankruptcy because they’re not his loans. They’re Twitter’s.

It's not like a mortgage. When you own a company, the debt of the company are not your debts unless you pledge your own assets as collateral.

1. In a lot of cases you can "just walk away". These are so-called "non-recourse loans". Some states (12) only permit non-recourse loans for residential real-estate.

2. If you own a company and the company goes bankrupt with bonds (loans) outstanding, the recourse is that the bondholders (lenders) get control of the company before the shareholders (you) get anything. (This is analogous to the mortgage situation above: the mortgage lender gets the house, become an REO [real-estate owned] on the bank balance sheet.)

Well he could file for bankruptcy.. but I doubt he'd ever get another loan again.

Do you really think the richest person in the world still has to make personal guarantees on business loans lmao?

It is the same. You put up your 20% down payment and the bank puts up the other 80%.

If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.

It would affect your credit rating (and for musk there would be a similar reputational hit) but neither of you need to pay back the bank.

> If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.

Well, not always. Banks can add clauses which make you responsible for any losses on the price of the house. In other words, when the price goes below the money owned then that can cause a margin call.

Banks can do that? Or they do do that?

I've never seen this happen.

No, he doesn’t. Twitter is formally owned by X Holdings, an LLC Musk set up. In the eyes of the law, Elon Musk and X Holdings are two separate entities, where one can file for bankruptcy and the other may not.

He’ll be liable only if he personally guaranteed the loans, but the details say otherwise.

It's called "the corporate veil". That's the whole reason corporations were invented. He isn't personally liable.

Yes, you literally can. It's sometimes called a "strategic default". More importantly, this was what people did during the subprime mortgage crisis of the mid aughts. In fact, the baller move was to stop making the payments, and then challenge every bank that tried to foreclose because none of them had all the proper paperwork to show they legally owned the debt.[1]

There were even pearl clutching op-eds[0] about how it was "immoral" to stop paying a loan on a property that wasn't worth the loan, even though that is is literally the legal and optimum move that companies do all the time.

[0] https://www.csmonitor.com/Commentary/the-monitors-view/2010/...

[1] https://www.nytimes.com/2010/10/04/business/04mortgage.html

Of course, if Twitter collapses, he'll still lose all the cash that he did put into the buyout.

Wait, he didn't use Tesla stock as collateral?

The debt deal had at least 3 different tranches. I can't find details on how all the $13 Billion is structured (reminder: what I posted above is my best estimate. I'm hoping I was gonna get someone who knew these details better...)

I know that at least $3 Billion is fully unsecured (!!), no collateral involved at all. I forget what the other $10 Billion was like right now though. So its complicated.

-------

Elon Musk was responsible for the $33 Billion. $44 Billion buyout + some debt (I guess Twitter had $2 Billion preexisting debt?) == $46 Billion total buyout, structured as $13 Billion from Morgan Stanley + other banks, and $33 Billion from Elon Musk.

However Elon Musk raised "his end" of the $33 Billion is yet another mystery. He probably sold TSLA shares, or took a loan using TSLA stock as collateral. But this is independent of the $13 Billion I was talking about earlier.

He doesn't want to sell all that stock, which would lose him control, and probably move the market around and be even more costly in terms of shares than what it looks like on paper.

His net worth is tied to Tesla, he would have to post his stock as collateral. If he fails to make good on the interest payments they can take it out of his equity. If tesla stocks drop dramatically, there could be a margin call that could put Twitter in a precarious situation.

Put Musk in a precarious situation.

More expensive for Twitter - the company, rather than Musk and his palls.

Most of Musk's net worth is held in stock. You can sell stock, but then you have to pay taxes and relinquish ownership rights that those stocks grant.

So he might have had to sell ~$20B in stock to pay that extra $13B.

Presumably because he thinks he will make more than 10% y/y from his Tesla and SpaceX stock.

Because then he doesn't have to sell his assets to pay for it.

Most of his assets aren't liquid. Most of his wealth comes from owning about 23.5% of Tesla or 265 Million shares[0]. At Tesla's current value of 641B, that puts his Tesla wealth at about 150B.

For this Twitter purchase, a lot of it was purchased using some Tesla stock as collateral, but he probably has a personal limit to how much stock he wants to leverage, and he continues to have a fiscal duty to Tesla investors to not over-collateralize his position on TSLA[1], so he probably tried to put as much of the company itself up as collateral for the loans he needed to take it private.

Note that Tesla's 10-Q [2] supports this theory: "If Elon Musk were forced to sell shares of our common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline."

Now this has happened before, particularly with Toys-R-Us when a private equity firm came in and did the same thing, using the business itself as collateral to get the loan that pays for all of the currently-public shares. This didn't particularly end well for the company[3].

0: https://www.sec.gov/Archives/edgar/data/1318605/000156459022...

1: if Tesla's stock price drops below the limit price the banks that have loaned to Musk have placed on their collateral, then the banks might not make back their loan amount+interest. There is a fiscal duty here because such an event with millions of TSLA entering the sell market, even over weeks, will tank the value of the stock

2: https://www.sec.gov/Archives/edgar/data/1318605/000095017022...

3: https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...

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