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Rating Action:

Moody's downgrades Twitter's CFR and unsecured note ratings to B1 from Ba2 following acquisition by Elon Musk; ratings remain on review for downgrade

31 Oct 2022

New York, October 31, 2022 -- Moody's Investors Service (Moody's) downgraded Twitter, Inc.'s (Twitter) corporate family rating (CFR) and senior unsecured notes ratings to B1 from Ba2 following the closing of the acquisition of Twitter by Elon Musk for $54.20 per share or about $44 billion in total value, in a leveraged buyout financed with a combination of debt and equity. The downgrade reflects Moody's expectation of a substantial increase in funded debt and reduction of cash balances at closing which will result in a material increase in leverage and weakening of other credit metrics. Governance is a major driver of this rating action. The credit ratings remain on review on downgrade. The SGL-1 rating has been withdrawn.

Downgrades:

..Issuer: Twitter, Inc.

.... Corporate Family Rating, Downgraded to B1 from Ba2; Placed Under Review for further Downgrade

.... Probability of Default Rating, Downgraded to B1-PD from Ba2-PD; Placed Under Review for further Downgrade

....Senior Unsecured Global Notes, Downgraded to B1 (LGD4) from Ba2 (LGD4); Placed Under Review for further Downgrade

Withdrawals:

..Issuer: Twitter, Inc.

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1

RATINGS RATIONALE

The downgrade of the CFR to B1 reflects Moody's expectation of a substantial increase in debt and reduction in cash balances upon closing of the acquisition. Though the final capital structure at closing has not been disclosed, in prior public filings Musk had disclosed $13 billion in financing commitments for the transaction.  This debt amount is materially higher than the $5.25 billion of reported gross debt at June 30, 2022. Twitter was in a net cash position as of June 30, 2022. As of June 30, 2022, Moody's gross adjusted leverage was already high for the Ba2 rating level at about 6.7x.

Twitter's senior unsecured now B1-rated debt -- $700 million due 2027 and $1 billion due 2030 – have  no covenants on restricted payments or unsecured debt incurrence. However, they do have change of control protections that are triggered when an investor acquires more than half the company's shares and if Moody's and S&P lower the company's credit ratings no later than 60 days after the change of control event. The change of control provisions require the company to offer to repurchase the notes at 101% of their face value assuming investors give notice of their desire to redeem their notes. The company also has convertible senior unsecured notes which Moody's does not rate, of which $1.15 billion mature in 2024 and also have change of control provisions.

Twitter's governance risk is highly negative reflecting Moody's expectation for aggressive financial policies and concentrated ownership by Elon Musk.

Like its social media competitors, Twitter faces risk from potential legislative changes to third-party content liability protection and data privacy laws that could hurt its business. There is a complex and evolving regulatory landscape around social media in both the US and abroad, with governments trying to protect personal data and block manipulation of social networks by bad actors. Concerns over censorship could also affect use or lead to political pressure. Twitter is also highly exposed to social risks stemming from data breaches and platform manipulation by bad actors. To prevent manipulation of its platform, Twitter is investing heavily in removing spam accounts, fake news and other manipulative or abusive content.

Twitter has a strong niche position and brand in social networking, with a user base of 238 million monetizable daily active users worldwide as of 6/30/22. The company benefits from global reach and an ability to target audiences across demographics and interests, offering advertisers a compelling platform as they further shift ad dollars to digital and mobile platforms and services and away from traditional advertising.

Twitter, Inc., with its headquarters in San Francisco, California, is a social networking internet based mobile and desktop platform that helps users discover and converse about what's happening in the world right now. As of June 30, 2022, Twitter had 238 million monetizable daily active users and is available in more than 40 languages around the world. The company generated approximately $5.1 billion of revenue in 2021, roughly 89% of which was generated through the company's Advertising Services segment.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings remain on review for further downgrade. The rating review will focus on the final capital structure at closing and the company's business strategies and financial policies post-closing. With further information on the capital structure, business strategy and financial policies, Moody's could conclude that the CFR should be multiple notches lower. If any of the existing rated notes remain outstanding, the ratings on the notes could be notched below the CFR depending on the degree of subordination if any to secured and other priority obligations. If further information is not provided, Moody's could decide to withdraw the ratings because it believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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