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On November 25 2022 08:26 KwarK wrote:Show nested quote +On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship.
Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion?
On November 25 2022 08:22 Manit0u wrote:Show nested quote +On November 25 2022 06:54 Razyda wrote:
As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. I'm not sure it'll be fine. Even if it holds the traffic and advertisers return Twitter failed to turn profit 8 out of 10 years of its existence and past 2 years it was a total loss of $1.6 billion. Without some major overhauls (and while firing half of the workforce is a major overhaul it's not the kind I'm talking about) it is simply unsustainable. Right now there doesn't seem to be anything on the horizon that could boost anyone's confidence in the project, especially if even Musk says bankruptcy is on the table (not something you want to hear from someone who just acquired the business).
I specified that "I think that..." I am by no means sure. Frankly I dont think anyone can be sure about actual outcome at this point. As if he will be able to make it profitable if advertisers come back I simply dont know. It may go both ways. Firing did cut his expenses and we live in times were people are willing to spent tens of thousands on microtransactions in phone games, so he may try to go this route. Bottom line is we will have to wait and see how it will turn out.
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On November 25 2022 08:58 BlackJack wrote:
There's no need to quibble over every minutiae. It's clear Kwark's post was to show that their is low confidence in Twitter. The banks being unable to offload the debt without taking massive losses to the tune of 60 cents on the dollar makes it an obviously true statement. Arguing over whether the banks "literally can't sell" the debt is so trivial. Especially since the word literally can be used informally for things that aren't actually true.
Actually it seems you are right
@Kwark
Sorry I misread this post:
On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low.
as something along the lines: "Twitter is pretty much bankrupt now, nobody is willing to pay even a dollar for it"
My bad.
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United States43212 Posts
On November 25 2022 09:02 Razyda wrote:Show nested quote +On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion?
Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b.
Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value.
Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down.
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Only $3b of the $12.7b is secured debt though. It's packaged with $3b of unsecured debt and a $6.7b leveraged loan
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On November 25 2022 09:26 KwarK wrote:Show nested quote +On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down.
As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate.
While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have.
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United States43212 Posts
On November 26 2022 16:48 RvB wrote:Show nested quote +On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have.
You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity.
What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about.
The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness.
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On November 26 2022 18:04 KwarK wrote:Show nested quote +On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness.
The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase.
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United States43212 Posts
On November 27 2022 00:59 RvB wrote:Show nested quote +On November 26 2022 18:04 KwarK wrote:On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness. The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase.
The banks expected to flip this quickly to mitigate this risk. Why couldn’t they?
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On November 27 2022 02:01 KwarK wrote:Show nested quote +On November 27 2022 00:59 RvB wrote:On November 26 2022 18:04 KwarK wrote:On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:On November 25 2022 06:54 Razyda wrote:[quote] From what I read it seems that they only tested the market and received offers as low as 60 cents a dolar https://www.theatlantic.com/ideas/archive/2022/11/elon-musk-twitter-banks-loans/672258/Thats not exactly "can't sell". As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness. The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase. The banks expected to flip this quickly to mitigate this risk. Why couldn’t they?
Because the deal took much longer than expected and there's been an unprecedented rise in rates? Bank expectations are not reality. Banks expectations have been wrong multiple times in the last few years.
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United States43212 Posts
On November 27 2022 08:19 RvB wrote:Show nested quote +On November 27 2022 02:01 KwarK wrote:On November 27 2022 00:59 RvB wrote:On November 26 2022 18:04 KwarK wrote:On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:On November 25 2022 07:43 KwarK wrote:
[quote]
Are you arguing that 60 cents on the dollar for secured debt isn’t a catastrophe? The market thinks Twitter, recently bought for $40b, isn’t good for a valuation of $10b. Okay few things: As low as 60 means I believe that this were the lowest offers. "Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses. If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness. The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase. The banks expected to flip this quickly to mitigate this risk. Why couldn’t they? Because the deal took much longer than expected and there's been an unprecedented rise in rates? Bank expectations are not reality. Banks expectations have been wrong multiple times in the last few years.
You don’t think the fact that Musk spent several months insisting that the financials of Twitter were fraudulent might have impacted it? He was actively torpedoing Twitter before he even bought it. They can’t sell the debt at par because of Musk. He scuppered his own ship and has to own that.
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The banks not beeing able to sell the debt is not Twitters problem.
The other day i read that twitter now has 18b debt in total,coming from 600m debt before the takeover. It was a surprise to see twitter had so little debt,they managed to grow and operate without taking on a lot of debt.
The banks might not lend to twitter again so easily but i doubt that is a problem for twitter. They needed the loan the buy the shares,not to invest in the company.
Either way, i dont see the apeal of twitter. Facebook ,insta ,whatsapp and tiktok can do everything that twitter does and more.
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United States43212 Posts
On November 28 2022 11:25 pmh wrote:
The banks not beeing able to sell the debt is not Twitters problem.
The other day i read that twitter now has 18b debt in total,coming from 600m debt before the takeover. It was a surprise to see twitter had so little debt,they managed to grow and operate without taking on a lot of debt.
The banks might not lend to twitter again so easily but i doubt that is a problem for twitter. They needed the loan the buy the shares,not to invest in the company.
Either way, i dont see the apeal of twitter. Facebook ,insta ,whatsapp and tiktok can do everything that twitter does and more.
I don’t think you’re following the conversation.
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On November 27 2022 08:56 KwarK wrote:Show nested quote +On November 27 2022 08:19 RvB wrote:On November 27 2022 02:01 KwarK wrote:On November 27 2022 00:59 RvB wrote:On November 26 2022 18:04 KwarK wrote:On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:On November 25 2022 08:13 Razyda wrote:
[quote]
Okay few things:
As low as 60 means I believe that this were the lowest offers.
"Catastrophe" and "cant sell" are two different things. Not every investment bring profits, sometimes you just have to cut your loses.
If they were actually convinced that Twitter is going bankrupt they would sell for 60 and added big "thank you" card gratis. Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness. The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase. The banks expected to flip this quickly to mitigate this risk. Why couldn’t they? Because the deal took much longer than expected and there's been an unprecedented rise in rates? Bank expectations are not reality. Banks expectations have been wrong multiple times in the last few years. You don’t think the fact that Musk spent several months insisting that the financials of Twitter were fraudulent might have impacted it? He was actively torpedoing Twitter before he even bought it. They can’t sell the debt at par because of Musk. He scuppered his own ship and has to own that.
Yes it's a factor you're right. But the point I was trying to make is that there are other important factors influencing the price of the bond so you can't conclude that the market thinks twitter is worth less than the face value of the debt just because investors aren't willing to pay the face value.
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On November 28 2022 20:50 RvB wrote:Show nested quote +On November 27 2022 08:56 KwarK wrote:On November 27 2022 08:19 RvB wrote:On November 27 2022 02:01 KwarK wrote:On November 27 2022 00:59 RvB wrote:On November 26 2022 18:04 KwarK wrote:On November 26 2022 16:48 RvB wrote:On November 25 2022 09:26 KwarK wrote:On November 25 2022 09:02 Razyda wrote:On November 25 2022 08:26 KwarK wrote:
[quote]
Musk paid $44b for Twitter. Twitter can't sell a $10b secured bond for close to $10b which means the market doesn't think that Twitter is worth $10b a month after he paid $44b for it.
This isn't fine. But sure, let's just call it a catastrophe. The point is that the market has looked at Twitter under his stewardship and concluded that they're not worth close to $10b which is weird when he just paid $44b for it before it was under his stewardship. Okay bolded is just wrong. It is not Twitter but banks which try to sell secured bond. And if they cant sell 10 billion bond for 10 billion that means market thinks that Twitter isn't worth 44 billion which Musk bought it for. I really have no idea how you came to conclusion that market thinks Twitter isnt worth 10 billion? Nope, you’re wrong. Musk’s $44b valuation has nothing to do with whether Twitter’s secured debt is worth the face value. They can’t sell the 12.7b bond because the market thinks Twitter isn’t worth 12.7b. Musk bought Twitter, in part, with Twitter’s own money. He pays $44b but $12.7b of that was borrowed and was secured against Twitter. Once he owned Twitter he planned to use Twitter’s future cash flows to pay the debt on that $12.7b and it was secured by Twitter’s value. Imagine you buy a $400k house with $300k cash and a $100k mortgage from the bank. The bank tries to sell the $100k mortgage secured by the house but the market concludes its a super risky investment, that you’re unlikely to make payments and that in the event of default they’re unlikely to recover the $100k from selling the house. The inescapable conclusion is that the new owner has probably burned part of his house down. As an accountant, you should know that a bond's price is largely determined by its interest rate compared to the market rate. Since coupons are usually fixed an increase in market rates will make the bond less attractive and lower the price. To use your own example if a bank loans a mortgage of 100k with a fixed rate of 1% but the market rate is now 3% no investor will buy the mortgage for 100k. Instead, they'll offer a lower price so the final payoff equals the market rate. While the interest rate is variable according to the article it has a fixed ceiling and current interest rates for non-investment grade companies are already at or close to that ceiling depending on the company. Of course you are right that default risk plays a part in bond pricing but distressed debt is usually a lot cheaper than even 60 cents on the dollar. Your conclusion that Twitter is worth less than 12.7 billion is way too strong for the evidence we have. You’re right that as a CPA and CMA I do know all that. But that’s not relevant at all here. The bank paid $12.7b up front with the expectation of reselling at par. They were only providing liquidity. What you’re saying is that a $100k bond, that is a bond that has a face value of $100k to be paid at maturity, may only be worth, say, $80k depending on interest. The issuer may only receive $80k. That’s not what we’re talking about. The issuer was pre-Musk Twitter. The banks paid pre-Musk Twitter the face value up front, that was the value of the debt when they bought it, and now it trades for less. This isn’t an interest rate thing, the underlying asset has clearly declined due to loss of faith in Twitter’s creditworthiness. The terms and interest rates of the bonds were already agreed in April while the attempt to sell the bonds was in October. Between April and October the interest rate for junk bonds has risen a lot. In some cases above the ceiling they agreed to in April. How can that not influence the price of the bond? Investors aren't going to pay the face value of the bond when the bond has the same rates as in April even if risks did not increase. The banks expected to flip this quickly to mitigate this risk. Why couldn’t they? Because the deal took much longer than expected and there's been an unprecedented rise in rates? Bank expectations are not reality. Banks expectations have been wrong multiple times in the last few years. You don’t think the fact that Musk spent several months insisting that the financials of Twitter were fraudulent might have impacted it? He was actively torpedoing Twitter before he even bought it. They can’t sell the debt at par because of Musk. He scuppered his own ship and has to own that. Yes it's a factor you're right. But the point I was trying to make is that there are other important factors influencing the price of the bond so you can't conclude that the market thinks twitter is worth less than the face value of the debt just because investors aren't willing to pay the face value.
I'm not a finance guy but it seems like a change in the rate for junk bonds wouldn't affect the bond price all the way to the tune of 60 cents on the dollar. Another thing you mentioned affecting the price is the risk of default. I believe Kwark's point is that since the debt is secured against Twitter the risk of default shouldn't affect the price of the bond unless they believe Twitter is worth less than $12.7 billion.
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On November 28 2022 13:59 KwarK wrote:Show nested quote +On November 28 2022 11:25 pmh wrote:
The banks not beeing able to sell the debt is not Twitters problem.
The other day i read that twitter now has 18b debt in total,coming from 600m debt before the takeover. It was a surprise to see twitter had so little debt,they managed to grow and operate without taking on a lot of debt.
The banks might not lend to twitter again so easily but i doubt that is a problem for twitter. They needed the loan the buy the shares,not to invest in the company.
Either way, i dont see the apeal of twitter. Facebook ,insta ,whatsapp and tiktok can do everything that twitter does and more. I don’t think you’re following the conversation.
You are correct and maybe i shouldnt have said anything. But i honestly dont see the problem here. RBV already explained that the price of bonds depends on many things and that you cant make the conclusion that you made.
Maybe an extreme example can make this clear.
Say twitter debt has 1% rate 100 year term. And market rate for similar business went up in the past months and is now at 10%. Then noone is going to pay 100% for that bond,not even if there is zero risk that twitter wont pay it back.
Rates have gone up over the past months,even a 1% difference in rates can have a big impact on the bondprice specially if its long term bonds. If the bond was eternal and the rate goes from 1% to 2% then the bond would be worth about 50%.
I dont know the details on twitters loans and no doubt those loans have dropped in value even without considering the impact from changing interest rates. But you cant conclude that twitter is worth 12b or less by looking at the bond price (which isnt even a real price but more the banks floating an idea to sell to see where the market is about). The banks havent sold at 80% so they must think they can do better.
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On November 25 2022 04:46 Slaughter wrote:Show nested quote +On November 25 2022 02:26 MeSaber wrote:
I watched the Law video too. Musk seems to have gotten in way above his head...
Thats how Musk operates and its working just fine. Doubters to the left and believers to the right. 🤷 I believe in Musk and i also find it highly amusing to follow and also to see all the anger it instantiates. Everyone got an opinion and feel entitled to steer the ship even though they have nothing to do with it. Sit back, relax and watch it unfold. Thats how it should be done. (And what will happen too) If Twitter for whatever reason goes down its not a big deal, it just proves we cant have nice things in the world. If your looking to invest you should be doing more then just watching it play out. If you blindly believed in Musk and bought Tesla a year back you would be down close to 50%. Doing DD and being skeptical because of the underlying strengths of the company isn't as advertised from the general internet consensus (along with the fact that the price seems more tied to the perception of Musk then the actual company, at least compared to other companies)
Kinda fail pointing to a market top. Nearly all companies are down at least 30%, Tesla included. Their finances are among the best on the market so yeah i would easily recommend Tesla as an investment.
Twitter isnt publicly traded anymore so i can only watch it play out.
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On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low.
They had just as little confidence in Tesla. It just recently got investment grade but should have had it for years.
It makes perfect sense to be cautious from a banks pov.
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On November 25 2022 08:22 Manit0u wrote:Show nested quote +On November 25 2022 06:54 Razyda wrote:
As for Twitter itself I think that if it holds the traffic (and there doesnt seem to be reason why it shouldn't) then it will be fine and advertisers will be nearly guarantee to return. I'm not sure it'll be fine. Even if it holds the traffic and advertisers return Twitter failed to turn profit 8 out of 10 years of its existence and past 2 years it was a total loss of $1.6 billion. Without some major overhauls (and while firing half of the workforce is a major overhaul it's not the kind I'm talking about) it is simply unsustainable. Right now there doesn't seem to be anything on the horizon that could boost anyone's confidence in the project, especially if even Musk says bankruptcy is on the table (not something you want to hear from someone who just acquired the business).
Companies will always advertise where there is massive activity, it would be foolish not to.
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United States43212 Posts
On November 29 2022 01:02 MeSaber wrote:Show nested quote +On November 25 2022 05:43 KwarK wrote:
The banks literally can’t sell Twitter’s secured debt due to how little faith the markets have in Twitter. There is a measurable way of assessing confidence in Musk’s leadership and confidence is low. They had just as little confidence in Tesla. It just recently got investment grade but should have had it for years. It makes perfect sense to be cautious from a banks pov.
I don’t think you’re following the conversation.
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EPT
