Finance
Elon Musk's Twitter takeover has ended up as the worst buyout deal for banks since the financial crisis
Elon Musk’s Twitter purchase has ended up being the worst buyout financing deal for banks since the 2008 recession, according to The Wall Street Journal.
The $13 billion in loans Musk took out to fund his takeover of the social media platform have remained stuck on the balance sheets of the seven banks that financed the deal, largely due to the poor performance of the company, the Journal reported on Tuesday.
That’s unusual for lenders, who typically offload loans quickly to get them off their books and collect fees related to the sale of the debt.
The lenders, which include banks like Morgan Stanley, Bank of America, and Barclays, have held onto Musk’s loans for 22 months. That’s the longest unsold debt financing deal for banks since the Great Financial Crisis, according to data from PitchBook LCD cited by the Journal.
Sources told the outlet that banks were willing to finance the deal mostly because Musk, who still ranks as one of the world’s wealthiest people, made the opportunity too attractive.
However, sources added that the loans have mostly been a burden on banks’ balance sheets, with some lenders writing down their value considerably since the deal went through at the end of 2022.
In one instance, the burden of taking on Musk’s debt limited the amount of money available for other mergers and financing deals, the sources said.
The debt has also eaten into bankers’ pay, with some M&A bankers seeing compensation reduced by 40% in 2023 compared to the prior year, largely because of loans stuck on balance sheets, the largest of which by far was for Musk’s Twitter takeover.
Musk’s loans have been bringing in some cash for lenders through large interest payments, the report said.
Banks could recoup the total value of the debt if X is able to pay back the principal on the loans when they mature. Lenders, though, are expecting to incur a sum $2 billion loss, people familiar with the matter told the Journal in a separate report.
X, meanwhile, still appears to be struggling financially, despite Musk’s controversial revamp and cost-cutting measures. The company saw $1.48 billion in revenue in the first half of 2023, a 40% decline from the same period a year earlier, according to Bloomberg.