X Lender Diameter Says Platform More Profitable Than Market Saw
(Bloomberg) -- The cofounder of Diameter Capital Partners, one the first firms to snap up debt tied to Elon Musk's buyout of X, says that the social media company was more profitable than the market was accounting for.
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'We've been outside-in, tracking ad data and other things from third-party sources to develop our own view of what revenue was likely at the business,' said Diameter's Jonathan Lewinsohn in an interview from the sidelines of the Bloomberg Invest conference in New York. 'We had a sense that the profitability might be better than what people think.'
Diameter and Darsana Capital Partners were two firms that bought the first offering of $1 billion of debt from X. While Lewinsohn's alternative investment firm was able to buy the debt early at a discount, it wasn't as steep as some hoped for, he said.
He added that the outlook for the Musk-owned company picked up after the election, following advertisers' return to the site and signals from other social media companies. He pointed to Facebook parent Meta Platforms Inc., which has taken its cues from X's strategies for content moderation, choosing to provide warnings instead of censoring and ending third-party fact checking in the US.
The term loan debt for X's leveraged buyout traded at 99.56 on the dollar on Tuesday, according to Bloomberg-compiled data.
The inclusion of xAI — Musk's artificial intelligence startup — was an important part of the deal for Diameter. 'We're credit guys,' Lewinsohn said, 'we get excited when they put in a shiny asset like xAI.'
The cost-cutting tactics of the world's richest man bolstered Diameter's initial investment thesis in X. Those strategies are now coming in to play with Musk's undertakings as the head of the Department of Government Efficiency, better known as DOGE.
'I would never assume that X has anything to do with the federal government, but you are seeing a similar approach to come in, really cut things, maybe ask questions later, maybe be a little over-broad but try to send the message of 'nothing is sacred,'' said Lewinsohn.
However, he cautioned that some of the policy waves made by the administration haven't yet reached the private markets on a numbers basis, although both AI and DOGE effects have already led to repricing in the public markets.
'It's a difficult time to figure out what's going to stick, but looking to public market signals is very helpful in private underwriting,' said Lewinsohn.
--With assistance from Katie Greifeld and Sonali Basak.
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