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

May 2, 2022, 3:45 PM UTC

Big deals always pose risk. This one is different.

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
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Jackson Fordyce curated the deals section of today’s newsletter.


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