Lenders that helped to finance Elon Musk’s $44 billion takeover of Twitter, the social media business he later renamed X, expect to make a $2 billion loss on the $13 billion lent for the deal.
Seven banks, including Barclays, Morgan Stanley and Bank of America, have been struggling to offload the debt because of poor appetite among investors for Twitter/X, forcing the lenders to hold it on their own balance sheets at a discounted value, The Wall Street Journal reported.
Lenders most exposed to the deal faced hundreds of millions of dollars in losses, the newspaper said, as the banks expect to take a collective hit of roughly $2 billion, a 15 per cent loss on the money provided.
Musk’s unusual management style and a weaker advertising market were said to be causing concern among lenders that the debt could be downgraded to “junk” rating, which denotes a higher risk of default.
The billionaire, 52, bought Twitter a year ago this week after becoming the largest shareholder in the social media business in April last year. He renamed it X in July. In February, Musk said he had to “save Twitter from bankruptcy”. The social media business had been given a “junk” rating before the acquisition, when it carried less debt.
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The Wall Street Journal reported that after holding the debt for a year, a long time in corporate finance, the banks have begun preparing to try to sell at least some of it.
If Twitter/X receives a poor rating from the agencies that assess corporate debt, the lenders could face difficulties in attracting conventional investors, such as mutual funds and loan managers, without taking a larger loss than the one they already expect.
Musk’s acquisition was followed by job cuts, which have led to thousands of people leaving the business. His leadership has been characterised by apparently impulsive decisions, contentious changes to the user experience and provocative tweets.
Musk appointed Linda Yaccarino, 59, to replace him as chief executive of Twitter/X in May. He has said that an advertiser boycott since his takeover, prompted by brands’ concerns about appearing next to inappropriate or offensive content, and concern about the company’s management of such material, has caused advertising revenue to decline by 60 per cent.
Barclays, Morgan Stanley and Bank of America were approached for comment.
