Musk warns of a potential Twitter bankruptcy. He would be the big loser

BY JODI XU KLEIN | UPDATED NOV 11, 2022 04:00 PM EST

Those that joined him in taking equity stakes would also lose out in an insolvency process. But he is by far the biggest investor.

If Twitter Inc. files for bankruptcy, Elon Musk would be the biggest loser.

Mr. Musk told Twitter employees in an all-hands staff meeting Thursday that he wasn’t sure how much financial runway the social-media company still has and that “bankruptcy isn’t out of the question.”

Mr. Musk can be flamboyant at times, but let’s take his words seriously for a moment. In case of a Twitter bankruptcy, Mr. Musk—who took over Twitter for $44 billion just two weeks ago and put in $27 billion of his own money—most likely would have his investment wiped out as equity holders are the last to be paid when a company restructures.

Those that joined him and took equity stakes, like Sequoia Capital, Binance and the Qatar Investment Authority, would face a similar outcome. But Mr. Musk is by far the biggest investor.

Banks, including Morgan Stanley and Bank of America Corp., that together put up $13 billion of their own money for debt in Twitter, could also see losses. The banks had to place the debt on their books as they couldn’t sell the bonds fast enough to a wider group of investors.

They, however, have some safety nets. Roughly $10 billion of the $13 billion in debt is backed by specific assets, ensuring that they would be paid back, even if not in full.

This isn’t the first instance of Mr. Musk using the B-word with regard to his other companies.

In a June interview about electric-vehicle maker Tesla Inc., he said, “Our concern is how do we keep the factories operating so we can pay people and not go bankrupt.” He was commenting on the supply-chain problems at Tesla’s factory in China after Covid-19 lockdowns.

Last year, he also raised the specter of chapter 11 protection for SpaceX, his rocket company, when he tweeted, “If a severe global recession were to dry up capital availability/liquidity while SpaceX was losing billions on Starlink & Starship, then bankruptcy, while still unlikely, is not impossible.”

Mr. Musk’s latest grim statement about Twitter is consistent with his previous comments and actions. He laid off roughly half of Twitter’s 7,500 employees in the first week, blaming a massive drop in ad revenue caused by “activist groups pressuring advertisers” to cancel contracts with the platform. Mr. Musk had also tried to walk away from the purchase after he said he was shocked at how many bots and spam accounts there were on the platform.

But crying wolf—or in this case, raising the specter of bankruptcy—can become a self-fulfilling prophecy if advertisers, users and employees abandon the company because they don’t hear a strategic vision from Twitter’s leadership. Senior managers are already exiting the company since Mr. Musk took the reins, and two more high-ranking executives just made public their departures yesterday.

Mr. Musk may end up being right about Twitter filing for bankruptcy. But in that scenario, he will lose the most.