For a start, the cost of borrowing has soared.
Yields on junk bonds in the CCC tier, where Twitter’s riskiest unsecured debt would likely be rated, have soared to
The banks, and Musk himself, will also need to explain why Twitter’s bot problem isn’t a problem after all, and how the company can afford the huge annual interest burden that is nearly
A representative for Morgan Stanley didn’t immediately respond to requests for comment.
Musk plans to assume the role of chief executive officer at Twitter, taking the helm of the social media giant on top of leading Tesla Inc. and SpaceX. Musk intends to replace
The controversial deal, also financed with $33.5 billion of equity from Musk and other backers, has left many constituencies unhappy, including Twitter employees, some users of the platform around the world, and arguably Musk as well given the purchase price that now looks far too high given the slump in stock markets.
Winning the mandate to support the acquisitive ambitions of the world’s richest man was supposed to be a coup back in April. Morgan Stanley provided the largest commitment, followed by
Representatives for all three banks declined to comment.
But then months of uncertainty about whether the deal would go ahead followed as Musk backtracked. And by the time he agreed to buy the San Francisco-based tech firm in October, debt markets were reeling. Even if they could have tried selling
This marks the biggest so-called hung deal for a leveraged buyout this year, and one of the largest on record. The Twitter deal is just one of many troubled LBO transactions causing problems for Wall Street in this latest cycle, albeit at a much smaller scale than during the 2007-2008 Great Financial Crisis, when banks
Banks have already
Wall Street lenders have also sustained
Musk now has grand plans about how he will
Those potential buyers will be focused on the health of Twitter as a company. Credit conditions have worsened in recent months amid high inflation, quickly rising rates, and recession fears. With buyside demand limited, banks now find themselves as direct creditors to the social-media platform, rather than as providers of temporary bridge financing, as is typically the case.
The lenders originally planned to sell $6.5 billion of leveraged loans to investors, along with $6 billion of junk bonds split evenly between secured and unsecured notes. They also provided $500 million of a type of loan called a revolving credit facility that they would typically plan to hold themselves, though it is unclear if that was drawn or undrawn when the deal closed.
Eventually when markets calm, the banks will likely try and sell at least part of the debt to investors, which is when they will ultimately realize those losses -- unless there’s a big and unexpected rebound in market risk appetite.
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