Banks Financing Musk's Twitter Deal Facing Huge Losses

Elon Musk's U-turn on buying Twitter Inc. could not have come at a worse time for the banks funding a large portion of the $44 billion deal and they could be facing significant losses, Anirban Sen reported for Reuters.

Photo Insert: The banks include Morgan Stanley, Bank of America Corp., and Barclays Plc. Mitsubishi UFJ Financial Group Inc., BNP Paribas SA, Mizuho Financial Group Inc., and Societe Generale SA are also part of the syndicate.

As in any large acquisition, banks would look to sell the debt to get it off their books. But investors have lost their appetite for riskier debt such as leveraged loans, spooked by rapid interest rate hikes around the world, fears of recession and market volatility driven by Russia's invasion of Ukraine.

Just last week, a group of lenders had to cancel efforts to sell $3.9 billion of debt that financed Apollo Global Management Inc.'s deal to buy telecom and broadband assets from Lumen Technologies Inc.

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

While the wishy-washy Musk will provide much of $44 billion by selling down his stake in electric vehicle maker Tesla Inc. and by leaning on equity financing from large investors, major banks have committed to provide $12.5 billion.

They include Morgan Stanley, Bank of America Corp. and Barclays Plc. Mitsubishi UFJ Financial Group Inc., BNP Paribas SA, Mizuho Financial Group Inc. and Societe Generale SA are also part of the syndicate, Megan Davies and Lananh Nguyen also reported for Reuters.

Noting other recent high-profile losses for banks in leveraged financing, more than 10 bankers and industry analysts told Reuters the outlook was poor for the banks trying to sell the debt. The Twitter debt package is comprised of $6.5 billion in leveraged loans, $3 billion in secured bonds, and another $3 billion in unsecured bonds.

"From the banks' perspective, this is less than ideal," said Wedbush Securities analyst Dan Ives. "The banks have their backs to the wall - they have no choice but to finance the deal."

Leveraged financing sources have also previously told Reuters that potential losses for Wall Street banks involved in the Twitter debt in such a market could run to hundreds of millions of dollars, Sheila Dang and Hyunjoo Jin reported for Reuters.

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