Litigation takes years to play out, paying the lease would result in bankruptcy imminently. Plan is to live another day, long enough to stabilize finances, and then unload it on the public markets where the litigation becomes somebody else's problem.
This is Musk stiffing a supplier for $100k. That seems unlikely to make their bankruptcy any more imminent.
But it does signal (on the record, not just rumours) to literally anybody that Twitter is doing business with that they are distressed, and should be extended no credit. Payment up front, or no service.
Seems a reasonable for a service company with no inputs to COGS that are on credit terms. Payroll is not on credit, and most infra is metal, or on some VP's CC, anyway.
The reasonable signal is yes indeed for Twitter vendors, if you are opex and a long contract, be ready to have our lawyers sit down and hash it out.
it does signal ... that Twitter ... are distressed
Disagree - this is automobile industry tactics where you pay your suppliers late and short because they have no choice. Musk is negotiating for lower rent.
Yep... Ford, GM, and the rest have played that game for years, including just telling suppliers they are now going to pay less for parts.... and since the suppliers have built their business around that one contract there is not much they can do about
In the United States creditors can file a petition for an involuntary bankruptcy, which if granted would effectively put the company into receivership and no doubt under less friendly administration than a voluntary Chapter 11 filing.
Usually not. Typically in a bankruptcy the debtholders become the new shareholders and then replace existing management with ones more friendly to their interests.
That wouldn't happen in this case because there would still be residual value in the equity. Is Twitter worth $45bn? No. Is Twitter worth more than the $13bn in debt? Yes.
In this case, they can file, rollover the debt into a new company with no financial loss and then recap the equity with Musk (who obviously has the money to do so) and other shareholders.
Also, the banks who own the debt do not want to run Twitter. All they want is to be able to mark the loan as performing...that is it. In cases where debtholders take over the company, the debt has usually been sold for significantly less than par to someone who wants to run the company. This isn't the case here because the debt is still worth par (imo, largely because it is obvious that a recap would be straightforward...it may be the case that Twitter's financial position is significantly worse, but we will need to wait and see).
Obviously, the question for the leases is how much it is, whether it is worth it, whether the landlord thinks they can get a new tenant (unlikely at this point), and whether the company can be relocated...the lease would have to be a rather large proportion of expenses to make this all worth it...but it may be worth it if the company is going to recap anyway (which seems likely).
Just because someone payed that amount doesn't mean that it's worth it. It's only worth what people are willing to pay, which AFIK is now way less then before musk bought it.
Part of it is that due to the (IMHO absurd to be legal) financial instruments Musk used to loan (part of) the money used to buy twitter, twitter has now a pretty high financial burden. Means it now has to earn much more to be profitable then before. (It was something which you could oversimplified describe as Musk taking out a lone in the name of twitter before being able to represent twitter to buy twitter..., in practice it's more convoluted then that but it's kinda similar.)
Through in the broader picture this specific case of Twitter is more then an indicator for something being wrong, like either impending Bankruptcy, him doing improper business and being very untrustworthy or him crippling the operations department to a point where Twitter has lost overview about what they need to pay where.
And look at HY indexes. The marks that have been in the media are roughly where other HY bonds have moved. Banks have bids but they are seeking bids from hedge funds that trade in distressed debt, who are obviously going to bid with a markup (the same thing happened with British corporates a few months, because pension funds had to sell they had to take bids from hedge funds so the bonds went from 100 t0 90 for AAA securities because there was no bid, you had private equity funds trading at 70p in the £1 on money-good securities). The secured portion is down 10%...that looks about right based on HY indexes.
The 50% markdown that Fidelity is taking means that it is worth more than $20bn. Classic HN.
> The 50% markdown that Fidelity is taking means that it is worth more than $20bn.
Care to explain? When the debt is already being marked down, how does the equity have any positive value? (other than maybe extreme variance, but I still don't see how that gets anywhere near 20?)
Anybody taking over Twitter will have years of work ahead of them to rebuild trust with advertisers, let alone addressing the core problem of growing user numbers. That was Musk's original job, which is not going well, even after he reinstated pillars of society like Andrew Tate and Trump.
If Twitter fell like every other social media, it would have barely been worth $20B when Musk closed the deal. Add the mass destruction Musk has wrought, coupled with the fact that the debt holders have been trying to offload the debt at a discount, and there is a very real probability Twitter, if independently valuated, is worth less than the debt.
Breaking apart Twitter would certainly be in the interest of Saudi-Murderabia. For the Saudis, their loan amount is petty change, and they get to destabilize the main driving force behind all major political unrest in the Arabic region and the best and most efficient way to share and spread documentation of government-committed crimes also vanishes.
What are your thoughts on why this is the direction it's headed? What is your experience with dealing with bankruptcy for multibillion dollar companies?
It does, but only temporarily. Think of bankruptcy as fundamentally that the debt holders take over, and so a short time is given for everything to be sorted out. Creditors are paid by priority based on lien rights and some policy preferences encoded into the bankruptcy code. Nobody gets to jump ahead in line.
That is what the automatic stay does--it provides the pause to make sure nobody gets to jump ahead in line. As long as the stay remains in place, the landlord (or any other creditor) is forbidden from taking steps to evict a debtor. But it is possible to get relief from the stay if you can demonstrate that you would not be jumping ahead in line, and often relief from stay motions can be heard quickly. If the debtor needs the stay in order to reorganize (the theory being that it is better to have a bigger pie) then the debtor can apply for an extension, but only if it provides "adequate protection," which generally means paying according to the terms of the contract, or supplying additional collateral, or some such.
Timing is important. Once you file, all legal actions against you cease, and that is a very powerful tool. Unfortunately, you can only use that tool once. (Well, if you are a human individual, you get another chance years later.)
That is a very brief sketch. I haven't been a lawyer for years. You can ask a real bankruptcy lawyer for details.
UK perspective: can the landlord not instruct bailiffs to take possession of the building? Change the locks &c. This is distinct from any debts owing except that the non-payment of rent provides the grounds for obtaining a possession order.
I often see the bailiff notices on defunct companies here. There is a standard form of letter that is pasted onto the door. Quite Victorian.
In the US, not during the automatic stay that follows a bankruptcy petition. When filing for bankruptcy notices are sent out to all of the debtor's creditors notifying them of the bankruptcy filing and informing them that they must cease all collection activity against the party in question for the duration of the automatic stay.
The reason why is that the debtor ceases to be in control of their own assets. The assets (and contracts and liabilities etc) become part of a bankruptcy estate that is administered by a trustee appointed to administer the estate in an appropriate manner, such as by liquidating assets and paying creditors in an equitable fashion.
Once the automatic stay is in effect, landlords can petition the bankruptcy court for permission to retake possession of their property, and can't do much of anything until they receive it or the case is closed.
I have no idea about the contracts, but I could imagine a scenario where Twitter signed a 10 year lease that's expiring in five years or more, and Musk believes / hopes that being enough of an arsehole will lead the landlords to just dropping the contracts instead of risking a multi-year court battle - even if the landlords would eventually win the lawsuit, it will be a risk on their balance the whole time, whereas Musk doesn't have to answer anyone but his creditors about the lawsuit risk.
