Share this @internewscast.com

Twitter Inc.’s deal to be acquired by Elon Musk will lead to a big increase in the social-media company’s debt burden, which S&P Global Ratings believes will lead to a “multiple-notch” credit rating downgrade.

Twitter’s stock TWTR, -3.91% dropped 3.9% to close Wednesday at $49.68, putting it 8.3% below the agreed-upon buyout price of $54.20 a share.

As part of the $44 billion deal announced Monday, Tesla Inc. TSLA, -12.18% “Technoking” Musk said he had secured $25.5 billion of debt and margin loan financing, and is providing and equity commitment of $21.0 billion.

S&P said late Monday that Musk’s buyout bid includes $13 billion in new debt financing issued by the company and a $12.5 billion margin loan against $62.5 billion of Tesla shares, which will cause Twitter’s leverage to “spike significantly” above levels associated with the current BB+ rating.

A BB+ rating is S&P’s highest noninvestment grade, or “junk,” rating.

The rating agency said that while it plans to gather more information about the margin loan, it’s possible that it will be consolidated in Twitter’s capital structure and credit metrics. Currently, Twitter only has about $5.29 billion of unsecured debt.

“Regardless of whether the margin loan is included in Twitter’s credit metrics, the amount of debt in the capital structure will increase significantly and leverage will be well above our 1.5x leverage threshold for the current rating,” S&P said. “The transaction would likely result in a multiple-notch downgrade of the issuer credit rating, likely no higher than the ‘B’ category.”

The highest B-category rating of B+ would imply a three-notch downgrade from the current rating.

S&P said the acquisition by Musk also increases risks and uncertainty regarding potential changes in strategy, management and governance. S&P said that it doesn’t currently have sufficient information on whether the equity component of the proposed financing will give Musk economic or voting control of Twitter.

“Typically, we view controlling ownership as a key governance risk because the controlling owner may place their interests above the interests of other stakeholders, including debtholders,” S&P said.

Don’t miss: Twitter’s board accepts Elon Musk’s offer — and users are either celebrating ‘free speech’ or saying ‘RIP Twitter.’

Also read: If Elon Musk and Twitter don’t complete their deal, one of them will have to pay $1 billion.

Meanwhile, Moody’s Investors Service placed its Ba2 rating on Twitter’s credit on review for downgrade on Tuesday. Moody’s Ba2 rating is the second-highest “junk” rating.

Moody’s said that not only will the new debt associated with Musk’s bid result in a “material weakening” of credit metrics, it is likely that the deal would also “materially reduce” the amount of cash Twitter has on hand, as that cash is used to help fund the deal.

In addition to the increased debt burden and reduced cash, Moody’s said Twitter also faces “potential legislative changes to third-party content liability protection and data privacy laws that could hurt its business.”

Twitter’s stock has dropped 24.7% over the past 12 months, while shares of fellow social-media company Meta Platforms Inc. FB, -3.23%, which is the parent of Facebook, have tumbled 40.4%. In comparison, the S&P 500 index SPX, -2.81% has inched 0.3% lower the past year.

Source: This post first appeared on http://marketwatch.com/

Share this @internewscast.com
You May Also Like

No, it can’t get too cold to snow

Snowfall is less likely, but still possible, in extremely cold conditions. As…

Connecticut school district avoids pandemic impact on grades by changing math class

Connecticut school district avoids pandemic impact on grades by changing math class…

Arizona forges ahead with container wall despite objections

() — An eyesore, an environmental disaster, a million-dollar junkyard — that’s…

Michael Vaughan: Cops Believe Missing Boy Was Buried in Backyard They Excavated, Then Moved

Investigators also named 2 men they say have ‘firsthand knowledge’ of the…

Antonio Brown wanted on battery charge

Records show the arrest is connected to a reported domestic violence incident.…

AMBER Alert: Massive Search Underway as 7-year-old Texas Girl Vanishes, Possible Abduction

Texas authorities issued an AMBER Alert Thursday for a 7-year-old Wise County…

‘Get the F*ck Off Our Campus:’ Leftist Students Have Meltdown over Charlie Kirk Event at University of New Mexico

Riot police were called at the University of New Mexico (UNM) on…

Obama heads to Georgia ahead of runoff

() — Former President Barack Obama is headed to Georgia ahead of…

WCSO arrests fugitive from Wisconsin | WJHL

JONESBOROUGH, Tenn. (WJHL) – A wanted man from Wisconsin was arrested in…

Supplemental feeding to restart to save Florida’s manatees

A supplemental feeding program began last year after more than 1100 manatees…

World Cup: How to watch United States vs Netherlands

If the U.S. beats the Netherlands, they would reach the World Cup…

Olivia Attwood in tears after dog walker 'screams' at her in X-rated rant in park

The I’m A Celebrity star says she was called a ‘psycho’ and…