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Banks financing Musk’s Twitter deal face big losses




Oct 5 (Reuters) – Elon Musk’s U-turn to buy Twitter Inc ( TWTR.N ) could not have come at a worse time for the banks that financed a large part of the $44 billion deal, which could face significant losses.

As in any large acquisition, the banks will look to sell the debt to get it off the books. But investors have lost appetite for riskier debt such as leveraged loans, spooked by rapid interest rate hikes around the world, fears of a recession and market volatility fueled by Russia̵[ads1]7;s invasion of Ukraine.

While Musk will provide much of the $44 billion by selling off his stake in electric car maker Tesla Inc ( TSLA.O ) and by relying on equity financing from major investors, major banks have committed to providing $12.5 billion.

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They include Morgan Stanley, Bank of America Corp and Barclays Plc (BARC.L).

Mitsubishi UFJ Financial Group Inc (8306.T), BNP Paribas SA (BNPP.PA), Mizuho Financial Group Inc (8411.T) and Societe Generale SA are also part of the syndicate.

More than 10 bankers and industry analysts told Reuters the outlook was bleak for banks trying to sell the debt.

The Twitter debt package consists of $6.5 billion in leveraged loans, $3 billion in secured bonds and an additional $3 billion in unsecured bonds.

“From the banks’ perspective, this is less than ideal,” said Wedbush Securities analyst Dan Ives. “The banks have their backs against the wall – they have no choice but to fund the deal.”

Leveraged finance sources have also previously told Reuters that potential losses for Wall Street banks involved in the Twitter debt in such a market could run into the hundreds of millions of dollars.

Societe Generale did not respond to a request for comment while the other banks declined to comment. Twitter also declined to comment. Musk did not immediately respond to a request for comment.

Just last week, a group of lenders had to drop its bid to sell $3.9 billion in debt financing Apollo Global Management Inc’s ( APO.N ) deal to buy telecom and broadband assets from Lumen Technologies Inc.

It came on the heels of a group of banks taking a $700 million loss on the sale of about $4.55 billion in debt that backed its acquisition of business software company Citrix Systems Inc.

“The banks are on the hook for Twitter — they took a big loss on the Citrix deal a few weeks ago, and they’re facing an even bigger headache with this deal,” said Chris Pultz, merger arbitrage portfolio manager at Kellner Capital.

Banks have been forced to pull back from debt financing in the wake of Citrix and other deals weighing on their balance sheets, and that’s unlikely to change anytime soon.

In the second quarter, US banks also began to take a hit on their leveraged loan exposure as the outlook for deal-making worsened. The banks will start reporting results for the third quarter next week.

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Reporting by Anirban Sen, additional reporting by Megan Davies, Lananh Nguyen, Sheila Dang and Hyunjoo Jin; Written by Paritosh Bansal; Editing by Edwina Gibbs

Our standards: Thomson Reuters Trust Principles.



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