What to know about Elon Musk’s $12.5 billion margin loan

Elon Musk, who submitted the letter to buy Twitter in April, effectively rolled the dice to land the billions of dollars in loans he needed to get his offer in front of the social media network’s board. In order to secure the $12.5 billion margin loan on his Tesla shares, Musk gave a personal guarantee, according to reporting from my Fortune colleagues, published this weekend. Here’s what that means: If Musk can’t repay the loan by selling shares of Tesla, banks could take Musk’s equity stake in Twitter, his 46% stake in SpaceX, his sundry personal assets—anything.

No one could claim Musk is risk-averse. He has a history of taking big swings where he has skin in the game, even if the odds don’t stack up. Look at Tesla. Musk, as an investor in the company, appointed himself as CEO of the company after a rocky couple years at the company in which he pushed out the company’s cofounder and first chief executive. As he said at the time, in 2008: “That’s part of the reason I decided to take over as CEO. I have so many chips on the table. I need to steer the boat completely.”

Now he is taking a big bet—with his personal assets on the line—for the social media platform he frequents (sometimes to his own detriment). The fine print indicates that Musk has pledged $62.5 billion as collateral—five times that $12.5 billion figure. At the time when Musk made the deal, Tesla shares were trading at $1,001, and he would have needed to put down 62 million shares as collateral. Since then, Tesla share prices dropped to $871 per share, meaning that Musk will need to put down approximately 72 million shares (or an additional 16%). That’s about 44% of his current holdings in the stock.

Where that could get messy, per my colleagues’ reporting: If Tesla’s stock price falls more than 40%, Musk would face a margin call. He’d need to come up with either $14 billion in cash, or quickly sell enough shares to pay down the margin loan. That could be to the tune of 10 million shares. While it’s unlikely shares would fall so drastically, I’ll leave it at this: Yikes.

But while Musk may be fronting a whole lot to get this deal done, the dozen banks involved are still taking a bet on Musk, too. Namely—Morgan Stanley, which is leading the financing. The investment bank’s largest margin loans to clients typically fall below $1 billion, per the Financial Times. This time around? Try $2 billion.

Morgan Stanley, which owns more than 8% of Twitter stock, according to S&P Global Market Intelligence data, has come in fast to win the fervor of the world’s wealthiest man—part of a years-long effort to do so, per the Financial Times and court documents. In the past, Musk has turned to Goldman Sachs first. Goldman led Tesla’s IPO in 2010. In 2018, he turned to Goldman first when he was weighing taking Tesla private. Will the tables turn after Morgan Stanley puts its neck out for Musk—lending a whopping $2 billion to seal the deal? The bank reportedly helped coordinate calls between Musk’s family office (run by ex-Morgan Stanley senior vice president Jared Birchall) and other lenders. 

As my colleagues write: “It’s only evident in hindsight whether big, counterintuitive leaps are going to pay off.”

And now… for this month’s cartoon from Ian Foley.

Until tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Hello Heart, a Menlo Park, Calif.-based heart health-focused digital therapeutics company, raised $70 million in Series D funding led by Stripes and was joined by investors including IVP, Resolute, and BlueRun Ventures.

- Ashvattha Therapeutics, a Redwood City, Calif.-based clinical-stage therapeutics platform treating ophthalmology, neurology, inflammation and neuro-oncology diseases, raised $69 million in Series B funding led by Huadong Medicine Investment Holding Co. and was joined by investors including Natural Capital, Plum Alley, and Tribe Capital. 

- Clerk, an Austin-based retail marketing and merchandising solution, raised $30 million in Series B funding led by Sageview Capital. 

- Concerto, an Austin-based credit card partnerships platform, raised $21 million in Series A funding led by Matrix Partners and was joined by investors including PayPal Ventures and GoldenTree Asset Management. 

- Federated Wireless, an Arlington, Va.-based shared spectrum and CBRS technology company, raised $14 million in additional Series D funding from investors including Fortress Investment Group, Giant Leap Capital, LightShed Ventures, GIC, and Singapore’s sovereign wealth fund.

- Switchboard, a remote-based collaboration platform for remote work, raised $13.8 million in funding from Sequoia, XYZ Ventures, The General Partnership, Spark Capital, and other angel investors. 

- Baseten, a remote-based machine learning models developer for full-stack apps, raised $12 million in Series A funding led by Greylock.

- Pando, a San Francisco-based career progression platform, raised $6.9 million in seed funding from investors including Lerer Hippeau, Craft Ventures, and others.

- hampr, a Lafayette, La.-based on-demand laundry marketplace, raised $5 million in funding from investors including Gurtin Ventures, Benson Capital Partners, Ochsner Ventures and Techstars.

- Kahoona, a San Diego-based first-party data generation and activation platform, raised $4.5 million in Seed funding led by Global Founders Capital and was joined by investors including Cardumen Capital, Plug and Play, and Fourth Realm. 

- JackBe, an Edmond, Okla.-based on-demand pick-up-only grocery service, raised $3.75 million in Seed funding led by RCC Ventures and was joined by Purpose Equity.

- WILE, a Portland-based hormonal wellness brand for women 40+, raised $3 million in pre-seed funding led by Serena Ventures and is joined by investors including Springdale Ventures, angel investor Sara Bright, Coyote Ventures, and others. 

PRIVATE EQUITY

- Industrial Opportunity Partners acquired Raven Engineered Films, a Sioux Falls, S.D.-based flexible films and sheeting provider. Financial terms were not disclosed.

EXITS

- Adnoc acquired a minority stake in Borealis, a Vienna-based chemicals company, from Mubadala Investment Co. Financial terms were not disclosed. 

- Florida Food Products acquired T-Bev, a Eugene, Ore.-based tea extracts, instant tea, natural, and organic caffeine and other botanical extracts manufacturer and distributor, from Swander Pace Capital. Financial terms were not disclosed.  

- SK Capital Partners acquired Florachem Holdings, a Jacksonville, Fla.-based plant-based ingredients including citrus, pine, and specialty rosin resins manufacturer and supplier, from an affiliate of Carmelina Capital. Financial terms were not disclosed. 

OTHER

- Itau acquired a minority stake in XP, a São Paulo-based brokerage firm, for $1.6 billion. 

- Shell agreed to acquire Sprng Energy, a Pune, India-based renewable power supplier, for $1.55 billion. 

- MGM Grand offered to acquire LeoVegas, a Stockholm-based online gaming company, for $607 million. 

- G-III agreed to acquired a majority stake in Karl Lagerfeld, a Paris-based fashion brand, for $210 million. 

- Helen of Troy agreed to acquire Recipe Products, a London-based maker of Curlsmith, for $150 million. As part of the deal, BFG Partners exited. 

- Google Cloud acquired Mobiledgex, a San Jose, Calif.-based computing management company. Financial terms were not disclosed. 

- Snap! Mobile acquired 8to18 Digital, a Lombard, Ill.-based sports and activities software service for athletic directors, and SchoolCNXT, a Lombard, Ill.-based family engagement language platform. Financial terms were not disclosed.

PEOPLE

- Churchill Asset Management, a New York-based investment firm, hired Jason Quinn as managing director of origination. Formerly, he was with Antares Capital. 

- HarbourView Equity Partners, a Newark, N.J.-based global investment firm, hired Vincent Searcy as an advisor.

- Transformation Capital, a Boston and San Francisco-based growth equity firm, promoted Scott Rosen to partner.