JUST IN: Elon Musk gets first margin call for Twitter loan KossyDerrickBlog KossyDerrickEnt

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Thursday, December 29, 2022

JUST IN: Elon Musk gets first margin call for Twitter loan

Information reaching Kossyderrickent has it that Elon Musk gets margin call for Twitter loan.

Tesla TSLA +6.69% CEO Elon Musk might regret his purchase of Twitter—or at least the way he financed it. Based on the agreement Musk signed with bankers to help fund his Twitter purchase, he has already experienced his first margin call, an obligation to cough up cash or provide more collateral.

Musk, on Wednesday, apparently sent an email to Tesla (ticker: TSLA) employees, admonishing them to ignore gyrations in the company’s stock and focus on shipping as many cars as possible as the end of the quarter, and year, approaches.

Tesla didn’t immediately respond to a request for comment about Musk’s borrowings.
Tesla executives are allowed to borrow up to 25% of the value of their Tesla stock, using their shares as collateral for the loan. The initial loan-to-value ratio for the $12.5 billion facility that was part of Musk’s Twitter financing, however, had an initial loan-to-value ratio of 20%.
That means the $12.5 billion in loans needed to be backed by $62.5 billion of stock collateral.

The initial margin call in that agreement happens when the loan-to-value ratio falls below 35%. Assuming the facility was fully drawn when the Twitter acquisition closed, Musk faced his first call this past week.
Tesla stock had to drop about 43% for the loan-to-value ratio to hit 35%. Tesla stock was off 44% from the time of the Twitter purchase when it closed at $125.35 on Dec. 22.
Hitting the call level requires Musk to reset the loan-to-value ratio to 25%.

There are three options for someone facing a margin call: pay back some of the loan, offer more collateral, or a combination of both. For the Musk loan, he could have paid back about $3.7 billion of the margin facility, put up another $15 billion of Tesla stock to back the loan, or some of both.
Musk did sell about $3.6 billion worth of Tesla stock earlier in the month. Maybe he was worried about the margin call, and didn’t want to pledge more Tesla stock.
Musk didn’t respond to requests for comments about the stock sale or the margin call. He did say on a Twitter spaces appearance that he was done selling Tesla stock for the coming 18 to 24 months.
Musk, according to recent regulatory filings, has about 267 million Tesla shares pledged against margin loans. He holds about 423 million Tesla shares, as well as some management stock options that are vested. Investors get updates on those numbers periodically in Tesla filings with Securities and Exchange Commission.
A brutal seven-day losing streak recently sent Tesla stock down about 31%, pushing the loan-to-value ratio below 35%. That streak ended on Wednesday when shares rose 3.3%. Tesla stock is up 6.5% in premarket trading Thursday. S&P 500 and Dow Jones Industrial Average futures are up 0.7% and 0.5%, respectively.

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