This is typically the quietest week of the year. I’d intended to write about how I intend to approach 2023 starting today (basically we’ve all got to find something we think will be significant for the stock market next year and, in the ideal case, that’s not well-recognized. But I decided to write instead about Elon Musk’s seemingly continuous sales of TSLA stock.

The general situation is well-known. Musk agreed to buy Twitter a while ago, pretty much sight unseen, at a price that appeared, even at that time, to be wildly high, and using debt financing whose servicing costs would likely absorb all the cash flow Twitter would be likely to generate.

It seems to me that Musk has done a lot of reputational damage to himself, and by implication to TSLA, both by the apparently very unfavorable deal he agreed to and by what seem to be reckless operating decisions since talking control.

Today’s question: why has Musk continued to raise money?

I think the issue is the $13 billion in face value of bank debt Twitter took on as part of the Musk purchase. That debt is still on the banks’ balance sheets. They’d planned to sell on to debt investors but the wheels started to come off Twitter before they could do so at par.

This debt is potentially a big problem for Musk. If Twitter is not able to make interest payments, the debt holders will sooner or later be able to force Twitter into bankruptcy. In bankruptcy, current equity would be cancelled and existing debt would be redeemed in exchange for the equity of a successor company. In other words, control of Twitter would pass from Musk and his co-investors to the creditors.

Suppose the banks are warming up to sell to third parties who would have no compunctions about throwing Twitter into bankruptcy. If so, it would be important to Musk to bid for enough of the debt that he would emerge from the ensuing bankruptcy still in control rather than out on the sidewalk.