Elon Musk has warned in the past that Twitter could go bankrupt. Here's what would happen if it did.
The company also has some $13 billion in debt from banks like Morgan Stanley, which are, Reuters reported this month. That can create pressure on lenders to work with Musk to reorganize the debt, whether in court, or privately, experts said.
Musk's leveraged purchase of Twitter with such vast borrowed funds comes with its own price tag — more than $1 billion in interest payments each year thatCompanies dealing with large amounts of secured debt — often backed by assets like its cash on hand, or property, or inventory — sometimes use Chapter 11 bankruptcy as a way to restructure so that they can stay in business.
Some creditors are more hands-on. Banks can wind up offloading their debt to investors like hedge funds and private equity firms, which assert more control, especially in decisions around the bankrupt company's management and direction, said Gotberg, the BYU law professor. A court-supervised bankruptcy follows a common framework of repaying a bankruptcy company's creditors — it prioritizes those who hold secured debt to get repaid first, and relegates those who own equity in the company to the bottom. That means that secured lenders like banks get top dibs on recoveries, while equity holders, including Musk, could lose the value of their equity, unless they work out ways to preserve it, attorneys said.
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