Musk’s Twitter has been sued by no less than six corporations over unpaid payments

Elon Musk attends the 2022 Met Gala Celebrating In America: An Anthology of Fashion at Metropolitan Museum of Art on May 02, 2022 in New York City.

Dimitrios Kambouris | Getty Images

Elon Musk’s Twitter was sued again this week in California for alleged non-payment by a seller.

The latest complaint comes from a tech startup called Writer, Inc., and it’s at least the sixth company to sue Twitter in the US for breach of contract and non-payment since Musk took over about 4 months ago.

The Tesla and the CEO of SpaceX led a $44 billion buyout of Twitter that closed around October 27, 2022. He sold billions of dollars worth of his Tesla stock and took on around $13 billion in debt to Twitter by the time he became the sole director, new owner and CEO there.

Since then, Musk’s social media venture has been sued by Writer and at least five others for non-payment:

  • His landlord in San Francisco, Columbia REIT
  • A private jet transportation service provider, Private Jet Services Group
  • An event planning and production company, Blueprint Studios Trends
  • An M&A advisory firm, Innisfree M&A
  • And Analysis Group, a company that provided litigation-related consulting services to Twitter and its attorneys before Musk bought the company.

PlainSite, a legal and public records database, tracks these lawsuits as they arise.

Twitter’s alleged failure to pay rent to Columbia REIT has caused the real estate company to default on loans for buildings, including where Musk leased office space at 650 California Street in San Francisco, Fortune first reported.

Twitter has also allegedly defaulted on payments to larger companies. According to a Platformer report Thursday, this week Twitter suddenly suspended employees’ access to Slack after they failed to pay a bill. Slack is the chat and collaboration platform in the workplace Foreclosure.

In the latest lawsuit, filed in California Superior Court in San Francisco, Writer says Twitter failed to pay a bill for the relatively modest amount of $113,856.

Writer, formerly known as Qordoba, describes itself as an AI company that helps employees create content that meets their employer’s standards for brand, copy, and other style guidelines.

Writer did not immediately respond to a request for comment on the matter.

Twitter’s Vice President of Product, Trust, and Safety Ella Irwin told CNBC via email, “We are not commenting on pending litigation or various speculations about Twitter’s financial health.”

Musk has publicly berated and downplayed Twitter’s financial woes. He tweeted this week, “Say what you want about me but I acquired the largest nonprofit in the world for $44 billion lol.”

Red flags

Non-payment disputes like this are not common after a leveraged buyout, according to Edith Hotchkiss, a finance professor at Boston College. She said in an email to CNBC that they are “more typical of companies that are within a very short window of opportunity to file for bankruptcy.”

Vanderbilt University finance professor Josh T. White, a former SEC economist, agreed the moves were unusual, saying litigation for non-payment to vendors could result from an “improper and aggressive capital structure.”

Musk’s Twitter deal was funded with around 30% debt and 70% equity at closing.

White explained that the high level of debt is aggressive for a company with volatile and sometimes even negative free cash flow like the one Twitter has experienced over the past three years.

Leveraged buyouts more often target companies with stable cash flows that can be used to service debt and generate tax protection by deducting interest expense, he wrote.

“Using more debt and less equity reduces the amount of cash Musk and his co-investors had to bring up, which can potentially generate a higher internal rate of return if the company turns out to be profitable,” White said.

Meanwhile, even after aggressive cost-cutting measures, including widespread layoffs and cuts to perks and infrastructure, Twitter is likely still struggling to generate positive free cash flow to meet its obligations, White suggested. “Defaults on payments and breaches of contract are certainly a red flag that the company is likely to be in financial distress.”

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