Banks Funding Musk’s Twitter Deal Suffer Huge Losses

Oct. 5 (Reuters) – Elon Musk’s turnaround in buying Twitter Inc (TWTR.N) couldn’t have come at a worse time for the banks funding much of the $44 billion deal and could face significant losses .

As with any major takeover, banks would try to sell the debt to get it off their books. But investors have lost their appetite for riskier debt such as leveraged loans, rocked by rapid interest rate hikes around the world, recession fears and market volatility following the Russian invasion of Ukraine.

While Musk will provide a large portion of $44 billion by selling its stake in electric vehicle manufacturer Tesla Inc (TSLA.O) and relying on equity financing from major investors, major banks have pledged to raise $12.5 billion. provide.

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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 noted other recent high-profile losses for banks with leverage and told Reuters the outlook was bleak for the banks trying to sell the debt.

Twitter’s debt package consists of $6.5 billion in leveraged loans, $3 billion in covered bonds and another $3 billion in unsecured bonds.

“From a 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 funding sources have previously told Reuters that potential losses for Wall Street banks involved in Twitter debt in such a market could run into 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 cancel efforts to sell $3.9 billion in debt that financed Apollo Global Management Inc (APO.N) deal to buy telecom and broadband assets from Lumen Technologies Inc.

That came on the heels of a group of banks that had to take a $700 million loss on the sale of about $4.55 billion in debt to support the leveraged buyout of enterprise software company Citrix Systems Inc.

“The banks are crazy about Twitter — they took a big loss on the Citrix deal a few weeks ago, and they’re getting even more headaches with this deal,” said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.

Banks have been forced to pull out of leveraged financing in the wake of Citrix and other deals that weighed on their balance sheets and that is unlikely to change anytime soon.

In the second quarter, US banks also began to suffer from their leveraged loan exposure as the deal prospects deteriorated. Banks will start reporting third quarter results 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: The Thomson Reuters Trust Principles.

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