Twitter Deal Will Likely Lead to Tiered Downgrades – S&P Global Ratings

S&P Global Ratings overnight placed its Twitter Inc. ratings on CreditWatch with a negative outlook after the social media platform accepted a $44 billion takeover bid from Elon Musk who represents the one of the largest leveraged buyouts on record.

The April 25 revision applies to Twitter’s issuer and senior unsecured note ratings, which are both at BB+ but are threatened by the debt and equity-backed deal, which it says Ratings, will push Twitter’s leverage well beyond the 1.5x downgrade threshold for rating.

“We expect to resolve the CreditWatch placement, which could lead to a multi-notch downgrade of the company and its debt, once the proposed acquisition closes and we will be able to assess the capital structure, operating strategy and governance of Twitter as a private entity,” ratings analyst Scott Zari wrote in his report.

The proposed transaction includes $13 billion in new debt financing issued by the company and a $12.5 billion margin loan against $62.5 billion in Tesla Inc stock. In an April 20 regulatory filing, Musk revealed that a group of banks led by Morgan Stanley had pledged to provide a $6.5 billion senior secured loan facility, a $500 million senior secured revolver and up to $3 billion each in secured and unsecured bridge financing. .

Twitter currently has approximately $5.29 billion in unsecured debt, which would be hit the hardest in a downgrade scenario if it is not repaid in the takeover. This includes the borrower’s first $700 million offering of 3.875% notes due 2027, issued in December 2019 with a change of control put option at 101. These bonds traded lightly as they went. that the hostile takeover was progressing, advancing just over 2 points on odd-lot trading this morning at 99.5, after bottoming around 95.5 on April 12. Borrower’s February impression of 5% senior notes due 2030 rose 2.375 points on the day and 5.25 on the week, to 104, from April 11, with a 97 handle .

“We plan to gather more information on the details of the margin loan, but we may consolidate the loan into Twitter’s capital structure and credit metrics,” Zari of Ratings wrote, adding that the Twitter’s leverage will likely tilt the rating scale further. without the margin loan and lead to a rating “not higher than category ‘B'”.

The agency will also need to consider details of the $21 billion equity component of the deal as they emerge. Musk said in the April 22 filing that he was considering a takeover bid for Twitter shares directly from shareholders and that a number of private equity firms would be interested in participating in the takeover, including Apollo Global. and Thomas Bravo.

Twitter plans to release its fiscal 2022 first-quarter results before the market opens on April 28, but won’t hold an analyst call given the ongoing buyout.

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