RBC and CIBC join banking group to help fund Elon Musk’s Twitter bid


Royal Bank of Canada and Canadian Imperial Bank of Commerce line up behind Elon Musk’s US$43 billion offer to Twitter Inc., with the two Canadian banks investing US$1.15 billion in the loan to low risk to the CEO of Tesla Inc. .

Mr Musk is in talks to buy social media platform Twitter using US$25.5 billion borrowed from a dozen banks, led by Morgan Stanley. The richest person in the world, with a net worth of more than US$250 billion, will tap into their own capital for the remainder of the purchase price.

Twitter set to accept Elon Musk’s $43 billion bid for social media company: report

Elon Musk says he secured $46.5 billion in funding for Twitter bid

The largest piece of Twitter’s funding is a $12.5 billion loan secured by part of Mr. Musk’s 17% stake in Tesla, which is currently worth around $170 billion.

RBC and CIBC are among 12 banks involved in the loan, according to the regulatory filing. RBC pledged US$750 million and CIBC provided US$400 million. The lead bank for all financing, Morgan Stanley, has pledged US$2 billion on this loan.

The package also includes a US$3 billion unsecured bridge loan – money borrowed without collateral – and a seven-year US$6.5 billion term loan. The risks that come with each level of debt are reflected in the interest rates banks charge Mr. Musk.

On the loan secured by his Tesla shares, Mr Musk will pay an interest rate of three percentage points above the benchmark secured overnight funding rate (SOFR), which was around 1.04% on Monday. The banks also charged Mr. Musk a fee of US$62.5 million to set up the loan.

Funding from Canadian banks is the least expensive debt in Twitter’s financial package, and therefore the least risky loan. Worst-case scenario, with Mr. Musk defaulting on the loan and banks seizing his Tesla shares, lenders will likely be repaid in full. The RBC analyst who tracks Tesla currently has a price target of US$1,175 per share on the automaker, 18% higher than where Tesla shares were trading on Monday.

Canadian banks are notable for their absence from the rest of Mr. Musk’s loans, which carry much higher interest rates. The $6.5 billion term loan pays 4.75 percentage points to SOFR and there is a US$3 billion secured bridge loan with a fixed rate of 6.75 percentage points to the reference. Mr. Musk is pledging his stake in Twitter as collateral for both loans.

The most expensive debt, a $3 billion one-year unsecured bridge loan, sees Mr Musk pay 10 percentage points on SOFR to seven banks, including two Japan-based lenders – MUFG and Mizuho – and two French banks, BNP Paribas and Société Générale.

Buyers tend to move quickly after takeover to repay bridge loans. However, at a conference in Vancouver earlier this month, Mr Musk said his offer to buy Twitter was “not a way to make money” and said: “I don’t I don’t care about the economy at all.

Mr Musk has always said his motivation for taking over Twitter was to create “an inclusive arena for free speech”.

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