15 days of chaos: Twitter to go bankrupt? Banks that funded its acquisition to lose billions of dollars?

November 11, 2022  10:45

For 15 days now, the world has been watching how one of the richest people in the world is single-handedly destroying one of the most powerful communications platforms he recently bought for $44 billion.

According to Twitter employees, what is happening in the company is like "the beginning of the end." Even Elon Musk himself now does not rule out that the company may go bankrupt; moreover, the banks that funded the deal to buy this social network may lose billions of dollars.

How, why Twitter became “sinking Titanic?”

One Twitter employee who was recently laid off—and there are a lot of layoffs recently; almost one in two—said that the company is now like the Titanic sinking while "everyone is looking for lifeboats."

What went wrong?

The main source of Twitter's income is advertising. However, ever since Elon Musk bought the platform, many big advertisers—such as L’Oreal, General Motors, and others—have decided to stay away from Twitter—at least for now. This, according to dw.com, led to a decrease in revenue—as expected.

The problems started also after the decision to create three types of accounts: "official" accounts with a gray checkmark, verified accounts with a blue checkmark—and cost $8, and everyone else. This subscription model has led to the rise of fake accounts impersonating various celebrities, such as those created under the names of LeBron James and former UK Prime Minister Tony Blair. And shortly after the gray benchmark was launched, Musk eventually abandoned it.

Mass layoffs of the Twitter employees also became a problem. When Musk laid off half of Twitter's 7,000 employees, many senior executives in key positions left voluntarily. They include Yoel Roth, Twitter's head of trust and security department; Damien Kieran, Twitter's chief privacy officer; and Lea Kissner, the company's chief information security officer.

All these reductions could not but affect the performance of the platform. Facebook's former head of security, Alex Stamos, even expressed concerns that there was a serious risk of Twitter being hacked due to drastic staff cuts.

Amid what happened, Twitter ended up in the focus of the US Federal Trade Commission (FTC). The FTC is a regulatory agency whose primary function is consumer protection. The FTC on Thursday released a statement specifically saying that the commission is "following recent developments at Twitter with deep concern" and that "no CEO or company is above the law."

Experts are concerned that problems with this regulator could lead to serious fines amounting to billions of dollars.

Twitter to go bankrupt?

Twitter is currently losing $4 million every day. The social media platform also has a debt of $13 billion, and the company has to pay $1.2 billion in the next 12 months to pay off the interest only. That's more than Twitter's last reported cash flow of $1.1 billion.

Elon Musk on Thursday warned Twitter employees to prepare for the "hard times" they may face. He didn't rule out Twitter going bankrupt if the company doesn't start making more money next year than it spends; and for that, it will be necessary to find new ways of making money.

Amid problems with big advertisers, Musk plans to make Twitter less dependent on advertising contracts and get at least half of its revenue from the $8 subscriptions to verified user accounts.

Banks that funded Twitter acquisition could lose billions of dollars

According to many experts, the deal to buy Twitter came at a bad time for the US bond market. And now the banks that gave Musk $13 billion to buy Twitter are having trouble reselling those bonds. As per Bloomberg, discounts on this debt can now reach 40 cents for one dollar—the lowest level in a decade.

The consortium of seven banks, led by Morgan Stanley, is now forced to keep the debt on its balance sheet because lenders are unwilling to sell it at current interest rates. The most liquid portion of that debt—$6.5 billion—was originally slated to be sold, but banks don't want to lose more than 30 cents for one dollar, and senior lenders could lose billions of dollars even at that discount.

Twitter's acquisition has had a negative impact also on Tesla's business and Elon Musk's fortune. After the first news about the acquisition of this social media platform, the price of Tesla's shares began to fall and reached a two-year low, and Musk lost $70 billion. His net worth now amounts to $194.8 billion.

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