Several major banks, including Morgan Stanley, Bank of America, and Barclays, are still dealing with the consequences of financing Elon Musk’s $44 billion acquisition of Twitter (now known as X), according to a report by the Wall Street Journal. These banks lent Musk approximately $13 billion last year to purchase the social media platform, and they are now expected to face losses of at least 15%, equivalent to around $2 billion, when they sell the debt.
Musk’s debt package consisted of $6.5 billion in term loans, $6 billion in secured and unsecured bonds evenly split, and a $500 million revolving line of credit. Typically, the banks would have quickly unloaded the debt after the transaction. However, due to a sharp decline in investor interest for X, the banks were forced to hold onto the debt on their own balance sheets at a discounted value.
Sources cited in the report claim that the banks have started preparations to offload at least a portion of the debt. This situation parallels what the banks faced during the global financial crisis of 2007-08 when investor confidence in the financial system dwindled.
The Wall Street Journal noted that X’s debt is now considered one of the biggest and longest-held “hung” deals, referring to financing deals that result in banks suffering losses due to unsuccessful acquisitions. The inability to resell the debt has not only impacted the banks’ lending businesses but has also raised questions from their own investors.
Furthermore, the longer the banks hold onto the debt, the more scrutiny they will face from regulators. This added pressure from regulators could have long-term consequences for the banks involved in the transaction.
Overall, what was expected to be a profitable endeavor for the banks, with the potential to earn them tens of millions of dollars in fees, has turned into a significant burden on their balance sheets. The situation highlights the risks financial institutions face when financing acquisitions that ultimately do not meet investor expectations.
In conclusion, the banks that lent Elon Musk the funds to acquire Twitter are now grappling with significant losses as they struggle to sell the debt in a market that has lost confidence in X. The repercussions of this financing deal continue to cast a shadow on the banks’ balance sheets, prompting questions from regulators and concerns from their own investors.