Elon Musk's financing of the acquisition of microblogging website Twitter involves a margin loan tied to the billionaire's Tesla shares.
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Elon Musk Has Some Good News for Tesla Investors
Elon Musk's financing of the acquisition of microblogging website Twitter involves a margin loan tied to the billionaire's Tesla shares.
LUC OLINGA25 MINUTES AGO
Tesla (TSLA) - Get Tesla Inc Report investors and fans may breathe a bit more easily.
Since Elon Musk's April 14 announcement of a $44 billion bid for social network Twitter, (TWTR) - Get Twitter, Inc. Report, they've seen the price of Tesla shares wobble.
Besides concern about Musk focusing less on the manufacturer of high-end electric vehicles, they also worry about the prospect of his financial withdrawal from Tesla.
Indeed, to fund the Twitter transaction, the billionaire, whose assets are illiquid, got loans including a margin loan of $12.5 billion linked to his Tesla shares.
This margin loan has pressured Tesla shares; they've lost almost 29% of their value since I announced the Twitter deal. That's because investors wonder whether Musk might sell more Tesla stock than the $8.5 billion he's already sold to finance Twitter.
Musk sits at the center of Tesla. He is the vision, the products, the marketing manager, the sales manager, the senior public-relations executive. Two things: its cars and the serial entrepreneur's efforts underpin tesla's meteoric stock market rise.
If Musk were to become less involved in Tesla, it's hard to see how investors will maintain absolute faith in the Austin company.
Musk Wants to Erase the Margin Loan
The tech tycoon is taking initiatives to reassure investors and fans.
He has already pared the margin loan after having got $7.1 billion in preferred-equity commitments from a group of investors including Oracle (ORCL) - Get Oracle Corporation Report Founder Larry Ellison, Sequoia Capital, Qatar Holding and Saudi Prince Al Waleed bin Talal Al Saud, a current Twitter shareholder.
Since that announcement, Musk has also secured another $1 billion equity commitment, two sources told TheStreet on condition of anonymity.
The billionaire and his advisers are currently in discussions about getting other equity commitments, which together with the preferred financing, would make it possible to curb the margin loan and eliminate any financial risk for Musk and his lenders.
The preferred equity may have a 20-year maturity and include a feature allowing interest to be paid in kind at a rate of 14%, Bloomberg reported.
That interest rate would be increased by 0.75 percentage point in the seventh, eight and ninth years. I could also structure it with a 10% interest rate and warrant, Bloomberg said, citing people close to the matter.