Pinched this from Twitter.
It's supposedly the financing terms for Musk's acquisition of... Twitter.
They are... completely insane.
Someone check my math... weighted average rate is SOFR + 4.74%.
SOFR follows the Fed:
So, let's entertain that two more rate increases of 50bps gets done at the next two meetings. That'd put SOFR at ~1.3%.
1.3% + 4.74% = ~6.04%.
Let's call it 6%.
6% on $25b = $1.5b in annual interest.
Next, let's look at Twitter's financials the past two years: specifically, operating profit (i.e., gross profits - SG&A).*
2021 = $3.279B - $1.760b = $1.519b
2020 = $2.349B - $1.450b = $0.899b
So... financing of this deal under a 50bps/next two meetings consumes all Twitter's recently observed annual operating profits.
Let's assume simply a Fed panic and SOFR of 0%: annual financing still would be 4.74% X $25b = $1.185b.
Goldman Sachs has the Fed capping out at 3-3.25%.
Just for giggles, what if the Fed loses control and has to ramp rates aggressively to say... 5.25%?
5.25% + 4.74% = ~10%.
Well, that math is easy: 10% of $25b = $2.5b.
The terms of this deal appear... somewhat... "orthogonal" to some ROI associated with Musk's $21b capital outlay.
But then, most regrettably, I'm not a genius multi-billionaire founder of visionary companies.
I'm just a guy with a calculator....
*Twitter includes R&D as an operating expense, but I don't want to include that because it's a discretionary use of capital/past profits to generate future profits: I'm only interested in observed profits generated by business operations. Data from here: