Morgan Stanley will take the largest role in a consortium of 12 banks giving Musk $US12.5b in margin loans secured by shares in Tesla, the electric vehicle company he leads. Morgan Stanley agreed to lend $US2 billion of the sum.
Some $US3 billion of the purchase price is being funded by unsecured junk bonds that the banks have already signed contracts to buy. Junk means they are considered high risk, or non-investment grade.Unsecured means there is no collateral backing them. If the borrower can’t afford the interest payments, the lender can’t turn up at her office and demand to be paid in office computers or some other corporate asset.
“They agreed to fund the purchase whether or not they were able to offload the debt to outside investors, according to public documents and lawyers who have looked at them.”Banks can’t just wait until the loans are repaid and say: I told you Musk was good for it! They have to “mark to market”, which means their loans have to be declared on their balance sheets at market prices. If they fall in value, that becomes a loss.
They were good questions! Here’s another: did the Morgan Stanley investment committee meeting that decided to back Musk go something like this?Credit analyst: You want us to lend $2 billion to an over-extended Trump-supporting libertarian and his rich friends to buy an unprofitable social network that is dominated by progressives and advertisers hate?Gorman: C’mon guys! This is a rocket ship. Let’s get on board.
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