Elon Musk’s $13B Twitter buyout is worst deal for banks since financial crisis – report
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Scott Olson
Elon Musk’s $44B acquisition of Twitter has become the worst merger-finance deal for banks since the 2008-’09 financial crisis, according to a media report.
A group of seven banks, including Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS), lent $13B to Musk to take Twitter private in October 2022. Usually, banks quickly sell such loans to get them off their balance sheets, generating money from fees in the process.
But Twitter, now named X, soon saw its financial performance falter. As a result, the banks that financed the deal were unable to sell the debt without racking up big losses. In industry jargon, the debt has become “hung.”
The Wall Street Journal, citing data from PitchBook LCD, said the Twitter loans have been hung longer than every similar unsold deal for which the research firm had complete records since the financial crisis. While there were many more hung deals during the financial crisis, most were either sold or written off within about a year after the loans were issued, the newspaper said.
A professor of finance at the University of Chicago goes as far as to say that Twitter is the biggest hung deal by dollar amount of all time. “The loans have weighed on the banks for much longer than other hung deals we’ve seen,” Steven Kaplan told the WSJ.
Other banks involved in the Twitter financing are Barclays (NYSE:BCS), Mitsubishi UFJ Financial Group (NYSE:MUFG), BNP Paribas (OTCQX:BNPQF) (OTCQX:BNPQY), Mizuho (NYSE:MFG), and Société Générale (OTCPK:SCGLF) (OTCPK:SCGLY).
X has been paying the interest on the loans, which are hefty because below investment-grade debt has wider rate spreads than investment-grade, the article said. The banks could still be made whole if X can cover its interest obligations and repay the principal when the loans mature. Such loans generally are for seven to eight years.
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