Some bad news about Elon Musk

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The New York Times reports that Elon Musk’s cunning strategy for cutting costs at Twitter Inc. consists of not paying the bills?

To cut costs, Twitter has not paid rent for its San Francisco headquarters or any of its global offices for weeks, three people close to the company said. Twitter has also refused to pay a $197,725 bill for private charter flights made the week of Mr. Musk’s takeover, according to a copy of a lawsuit filed in New Hampshire District Court and obtained by The New York Times.


Mr. Musk’s team has also deliberated the merits of not paying severance to the thousands of people who have left the company since he took over, when there were about 7,500 full-time employees. While Mr. Musk and his advisers had previously considered forgoing any severance when discussing cuts in late October, the company ultimately decided that U.S.-based employees would be given at least two months of pay and one month of severance pay so that the company would be compliant with federal and state labor laws.

Mr. Musk’s team is now reconsidering whether it should pay some of those months, according to two people familiar with the discussions, or just face lawsuits from disgruntled former employees. …

In other money-saving moves, Twitter has laid off its kitchen staff and begun to list office supplies, industrial-grade kitchen equipment and electronics from its San Francisco office for auction.

Imagine being the lawyer hired to help steal one month’s salary from a laid-off kitchen staff member to give to the second-richest person in the world. Imagine thinking that was an ethical thing to do. Obviously the second-richest person in the world is going to pay you more to steal money from the kitchen staff than the kitchen staff will pay you to stop him. Nevertheless!

Meanwhile Musk’s bankers loaned him $13 billion to buy Twitter and are still holding all of that debt, and they can’t be enjoying any of this. Musk’s purchase of Twitter has been a giant experiment to see how far you can go in ignoring contracts, and while that has not exactly worked out great for Musk, it’s not like it has worked out great for anyone else either.

If Twitter’s strategy is to just not pay bills, well, it has $1.2 billion of interest bills to pay each year, and surely Musk is curious about what will happen if he doesn’t pay those. I certainly am! The obvious standard analysis is “Musk’s banks will call a default, put Twitter into bankruptcy, and seize it for themselves,” and I have to say I don’t see it? If I were the Morgan Stanley banker in charge of launching a legal fight against Elon Musk where the prize is owning Twitter, I would quit? If Musk came to me and said “I’m not going to pay you the $1.2 billion, but I’ll give you a stick of gum and tweet something nice about you,” that would probably seem like a reasonable compromise? Like if the banks do manage to foreclose on Twitter, what will be left? 

Elsewhere, here is a funny story about how Musk’s banks plan to deal with the mark-to-market losses on their loans by … uh … doing some light accounting fraud?

Some of the banks that lent Elon Musk $13 billion to buy Twitter are preparing to book losses on the loans this quarter, but they are likely to do so in a way that it does not become a major drag on their earnings, according to three sources with direct knowledge of the situation. …

Banks still have to mark the loan to its market value on their books and set aside funds for losses that are reported in quarterly results. In the absence of a price determined by actual sales of the debt, however, each bank can decide how much to write it down based on its market checks and judgment, according to the three sources who are familiar with the process of determining the value of such loans. …

Another one of the three sources with direct knowledge of the matter estimated that some banks might only take a 5% to 10% writedown on the secured portion of the loan. …

Two of the banking industry sources said if the banks tried to sell the loans now, they would not get more than 60 cents to the dollar on the secured bond and an even lower price on the unsecured portion. That would add up to billions of dollars in losses for the syndicate as a whole.

Yeah I mean 60 is quite a lot less than 95? But I guess if you ask an investor “hi, we are selling this loan, what will you pay for it,” and if you ask them “hi, we are not selling this loan, but hypothetically what would you pay for it,” you will get different answers.