Moody’s is considering downgrading its rating on Twitter after the social media company agreed on April 25 to be acquired by Tesla CEO Elon Musk.
The investment service will review its rating on Twitter, with an eye to debt the company may take on as part of the acquisition and the strategic changes promised by Musk. The review underscores the uncertainty felt by Wall Street, as well as the general public, about the platform’s future under Musk.
Twitter accepted Elon Musk’s $44 billion acquisition offer Monday, in a deal that is expected to close in 2022. Once the transaction is complete, Twitter will become a private company.
To make the offer, Musk secured $46.5 billion in financing, which includes more than $25 billion in debt, backed by the major banks, as well as $21 billion in equity, which is likely tied to Musk’s stakes in Tesla.
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Once the acquisition is complete, Moody’s notes that there is a “strong chance” Musk will need to repay or finance Twitter’s existing senior unsecured notes and convertible debt due to provisions that kick in whenever an investor acquires more than half of the company’s shares. The transaction will also likely reduce the amount of cash on hand at the company. These factors, as well as any debt taken on as part of the transaction, will be part of the review.
Moody’s will also take a holistic view of Musk’s proposals for changing the platform. Thus far, these have included a focus on free speech — the details of which are not yet clear — cutting down on the number of bots and spam on the platform and exploring paid subscriptions.
“Moody’s believes that any success in improving the company’s operations and diversifying the company beyond its heavy reliance on advertising, from which it generates about 89% of revenue, would be credit positive,” the firm’s analyst note reads.
Still, analysts warn of a challenging regulatory and political environment ahead for the company, as well as the unknown of how the platform will fare as a private company again.
