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What is the bit that is not said? How can the deal have gone south for them that quickly, unless they knew this before hand, which then poses questions about their motivations.

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Itā€™s basically an arbitrage thing. The banks committed to make the loans when interest rates were much lower. That is a locked in rate, much as it might be for a home purchase. Since then, interest rates have increased quite a bit. The banks intended to sell the loans to third parties. Now the amount they can sell these lower-interest loans for is less than their face value. They will likely have to hold them on their own books now.

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Right, but the banks were surely not unaware that rates were about the go up? I knew and Iā€™m a fucking idiot.

They got hosed by Elon. Remember, this thing was supposed to close last May, I think. His contesting it, trying to back out, etc., caused their pain. Next question, donā€™t they have recourse? Any recourse would be spelled out in the transaction agreements. Guess they do not have any.

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My option on the pissy little mortgage i got offered had to close in 30 days or it would expire. They surely wouldnt have left themselves more exposed to changes in the rae environment for a deal worth millions of times more money? Especially as the prospect of rate hikes have been on the table for an age. I just cannot believe their reason for getting involved was to fund it and flip it

Perhaps the short fall was meanā€™t to be made up by Musk through his Tesla stock - didnā€™t he have to use some as collateral for the loan?

Originally he thought he would only have to put in about 10 billion himself, which he could do with loans against those shares. In the end heā€™s had to put up over twice that, closer to half the total price, and has funded that by selling the shares. I donā€™t know if the banks expect to be able to offload their debt on the purchase onto Musk, but what is quoted in that tweet doesnā€™t read like that is the expectation.

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Itā€™s very normal in the U.S. for banks to make loans into a transaction and then to sell the loans to third parties, often packaged as some other security, like a collateralized loan obligation. In this way they recover their capital quickly.

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I think this was Northern Rockā€™s strategy in the UK which worked quite well until the Financial Crisis.

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:rofl:

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Yeah, I understand the strategy but am a little confused about how it can work for a loan like this as it represents the exact opposite in terms of hedging risk. 1 billion of total debt spread across 5000 different loans spreads the risk across the entire pool in a way that a single loan of the same amount doesnt. And individually each loan in that pool is subject to expiration of the terms offered if the deal cannot close in time.

However, right at the end of that guarian piece that I initially skipped over it explains that no such limit was placed on closing this deal.

Generally it would be hard to have deals go forward if they were contingent on bank financing and that bank financing was not rock solid,ā€ Fischer told the outlet.

Essentially just another example of how the banks have one rule for us and another rule for wealthy people.

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Basically, these banks get a nice fee for underwriting the loan and also relationship points with big players (like Musk) for having done the deal with him. They have the deep pockets to fund the deal, but theyā€™d rather parcel the loan off and recover the cash in order to do the next deal. Thatā€™s just their piece of the food chain.

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This one made me laugh:

This is the supposed breakdown of where the money has come from

27b from Musk
5 from investment funds
13 from loans (which interestingly are guaranteed by twitter, not musk himself)

This seems to undersell the Saudi contribution, which other sources are saying is the second biggest contribution and so I wonder if the missing link is that is where a lot of Muskā€™s money is coming from for his contribution. His Tesla share sale raised 15 billion, which still leaves him having to front up 12 billion plus whatever the capital gains tax was on the share sale.

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Would he also not have been taxed on the Tesla share sale?

The simple asnwer is there would be capital gains tax, which would be 20% of the increased value which is presumably the vast majority of the 15 million. So in the ballpark of 2 billion in taxes. But itā€™s complicated because it wasnt a sale that happened in isolation. He was already facing a tax bill of 15 billion related to complex billionaire stock shit and the sale was supposedly a way of doing more complex billionaire shit to reduce that burden, despite it adding to his tax burden through capital gains.

In short I have no idea, but presume so. But dont think it moves the needle much on there being room for the saudis to actually float a significant if not majority of the cash for his supposed $27 billion contribution.

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Will be interesting. Lots of chaos so far, advertising groups advising clients to withhold their advertising until the content moderation fog clears. That hurts. He goes to meet advertisers next week in NY, I think. He needs to quickly calm those waters. He needs to generate more cash flow, either by cutting heads or finding new revenue (subscription) or probably both. The company isnā€™t currently generating enough cash to pay the loan interest, if what is publicly reported (about the interest) is true.

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@El_Dorado The opinion among people who seem to know what theyā€™re talking about is that it was simple reputational damage that prevented the banks walking away. The knew the landscape had changed and closing the deal would cost them a lot more money than they planned for, but chose to stay in not because they legally had to but because no one would want to come to them for business loans in the future if they walked.

Umā€¦arent they the ones with the money? What are people going to do? Turn to the Ukrainian mafia for their 200 million instead because BoA walked away from a deal with Elon he took ages to close? This all seems like a story the individuals involved in making these deal need this to be treated as the prevailing wisdom, because otherwise theyā€™d risk their cut of the deal being lost if they had normal terms on how long it took to close. This way they take their cut even at massive cost to their employer.