Musk’s Purchase of Twitter is Not Just Emptying His Pockets, Banks are Losing Money Too

Elon Musk’s turnaround in purchasing Twitter could not have come at a worse time for the banks financing a large part of the $44 billion deal and could face significant losses. As with any major acquisition, banks are trying to sell the debt to remove it from their books, but investors have lost their appetite for riskier debts like leveraged loans in this case, Reuters reported. 

It is hard not to understand them, given the rise in interest rates worldwide, growing fears of recession, and unstable markets driven by the Russian invasion of Ukraine. 

While Musk will secure a larger portion of the $44 billion by selling his stake in Tesla and relying on capital financing from large investors, banks have also committed to providing as much as $12.5 billion. These are major players like Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group, BNP Paribas SA, Mizuho Financial Group, and Societe Generale SA.

There have been increasing recent significant losses for banks in financing through leverage, and more than ten bankers and industry analysts told Reuters that the outlook for banks trying to sell the debt is getting worse. Twitter’s debt package consists of $6.5 billion in leveraged loans, $3 billion in secured bonds, and another $3 billion in unsecured bonds. 

Wall Street Could Lose Hundreds of Millions of Dollars 

– From the banks’ perspective, this is not ideal. Banks are backed against the wall, they have no choice but to finance the deal – said Wedbush Securities analyst Dan Ives. 

Powerful funding sources have also previously indicated to Reuters that potential losses for Wall Street banks involved in Twitter’s debt in such a market could amount to hundreds of millions of dollars. Societe Generale SA did not respond to a request for comment, while other banks simply declined to comment on the situation, as did Twitter. 

Just last week, a group of lenders had to cancel attempts to sell $3.9 billion in debt that financed Apollo Global Management Inc’s acquisition of telecommunications and broadband assets from Lumen Technologies Inc. This occurred shortly after a group of banks had to take a loss of $700 million due to the sale of approximately $4.55 billion in debt that supported the buyout of business partner Citrix Systems Inc. 

– Banks are in a bind because of Twitter. They suffered a significant loss from the Citrix deal a few weeks ago and are facing an even bigger headache with this deal – commented Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital. Banks have been forced to withdraw from leveraged financing after Citrix and other deals that heavily burden their balance sheets, and it is hard to believe that this will change anytime soon. 

American banks also began to feel the blows in the second quarter due to their exposure to leveraged loans as the outlook for deal-making has significantly worsened. Banks will begin reporting earnings for the third quarter next week.