UNITED STATES: For the banks financing a sizable piece of the $44 billion purchase, Elon Musk’s U-turn on purchasing Twitter Inc. could not have come at a worse time, and they may now be facing huge losses.
Banks would attempt to sell the debt to get it off their books, as they would in any significant transaction. However, investors’ appetite for riskier debt, such as leveraged loans, has decreased as a result of quick interest rate increases globally, recessionary fears, and market instability brought on by Russia’s invasion of Ukraine.
Major banks have agreed to contribute $12.5 billion, while Elon Musk will contribute the majority of the $44 billion by selling his shares in the maker of electric vehicles Tesla Inc (TSLA.O) and relying on equity financing from big investors.
The syndicate also potential losses for Wall Street banks involved in the Twitter debt in such a market may total hundreds of millions of dollars.
The other banks declined to comment, while Societe Generale did not respond to a request for comment. Twitter also choose not to respond. A request for comment from Musk did not immediately receive a response.
Just last week, a group of lenders were forced to abandon their efforts to sell $3.9 billion in debt that had been used to finance Apollo Global Management Inc.’s acquisition of Lumen Technologies Inc.’s telecom and internet operations. Includes Morgan Stanley, Bank of America Corp., and Barclays Plc., as well as Mitsubishi UFJ Financial Group Inc., BNP Paribas SA, Mizuho Financial Group Inc., and Societe Generale SA.
More than ten bankers and industry analysts said that the outlook was dismal for the banks trying to sell the debt, noting other recent high-profile losses for banks in leveraged finance.
Leveraged loans totalling $6.5 billion, secured bonds worth $3 billion, and unsecured bonds worth another $3 billion make up the debt package for Twitter.
Due to Citrix and other agreements weighing on their balance sheet, banks have been compelled to refrain from using leveraged financing, and this is not expected to change anytime soon.
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