• One Hat Research LLC

Musk's Twitter-Acquisition Lenders Face Severe Losses with Specific Performance (& Worse for Elon)

If market pricing is a guide, the two big losers from an order of specific performance requiring Elon Musk to close his agreed merger with Twitter, Inc. will be Musk himself and the lenders under the debt commitment letter.

Twitter stock ($TWTR) is priced for two outcomes: (1) a deal close at $54.20 and (2) a distribution of possible values without a merger. The second of these indicates a possible expected enterprise value of Twitter without a deal of about $20 billion.

That value, however, is what Musk himself will own if forced to close and what the lenders will lending against.

The lenders are Morgan Stanley Senior Funding , Inc., Bank of America, N.A., BofA Securities, Inc., Barclays Bank PLC, MUFG Bank, Ltd., BNP Paribas, BNP Paribas Securities Corp., Mizuho Bank, Ltd., and Societe Generale.

The debt commitment is comprised of senior secured bank loans in the amount of $6.5 billion, a senior secured revolving facility in the amount of $500 million, senior secured notes in the amount of $3 billion, and senior unsecured notes in the amount of $3 billion.

If Musk and the lenders are getting a company with an expected enterprise value of about $20 billion, then the resulting leverage and equity value will make post-acquisition Twitter by far the most leveraged firm in the interactive media & services sub-industry.

Given the amount of senior debt, it is hard to see how the banks do not lose at least a collective $500 million in offloading that portion of the debt. Ouch.

While it's unlikely to save anyone's bonus, at least that isn't as bad as Musk's losses, which are currently priced to be near $30 billion on day 1. No wonder he is making every argument he can, no matter how ridiculous.

Twitter: "If you have to ask, you can't afford it."

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