Banks that finance Musk’s purchase of Twitter could face big losses

Elon Musk’s new twist on the Twitter takeover couldn’t have come at a worse time for the banks that finance a large chunk of the $44 billion deal.

As with any major acquisition, banks would look to sell the debt to get it off their books. But investors have lost their appetite for riskier debt such as leveraged loans, frightened by rapid interest rate hikes around the world, fears of recession and market volatility fueled by Russia’s invasion of Ukraine.

Much of the $44 billion to be paid by Musk will come from selling his stake in electric vehicle maker Tesla and funding capital from major investors. Still, major banks have committed to providing $12.5 billion.

Among the institutions are Morgan Stanley, Bank of America and Barclays. Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho and Société Générale are also included.

Citing other recent high-profile losses that banks have racked up on risky financing, more than a dozen bankers and industry analysts told Reuters the outlook was poor for banks trying to sell debt.

Twitter’s debt ‘bundle’ comprises $6.5 billion in leveraged loans, $3 billion in secured bonds and another $3 billion in unsecured bonds.

“From a bank’s perspective, this is not ideal,” said Dan Ives, an analyst at Wedbush Securities. “Banks have their backs to the wall – they have no choice but to finance the business.”

Venture finance sources also previously told Reuters that potential losses for Wall Street banks involved in Twitter’s debt could run into the hundreds of millions of dollars.

Société Générale did not respond to a request for comment, while the other banks did not. Twitter did not comment. Musk did not immediately respond to a request for comment.

Last week, a group of banks had to cancel efforts to sell $3.9 billion in debt that financed Apollo Global Management’s deal to buy Lumen Technologies’ telecom and broadband assets.

The cancellation came shortly after a group of banks had to shoulder a $700 million loss on the sale of about $4.55 billion in debt backing the purchase of enterprise software company Citrix Systems.

“Banks are having a hard time with Twitter – they took a big loss on the Citrix deal a few weeks ago and are facing an even bigger headache with this deal,” said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital. .