Elon Musk’s Twitter Acquisition is Banks’ Worst Buyout Since the Crisis

Elon Musk’s acquisition of Twitter has become a financial burden for several banks, marking it as the worst buyout financing deal since the 2008 financial crisis, as reported by The Wall Street Journal.

The deal involved $13 billion in loans, which Musk secured to fund his takeover of the social media platform. However, these loans have remained stuck on the balance sheets of the seven banks that financed the deal, primarily due to Twitter’s underwhelming performance since the acquisition.

This situation is quite atypical for lenders, who generally prefer to quickly offload such loans. They do this to clear them from their books while also earning fees from selling the debt.

Major banks involved in the financing, including Morgan Stanley, Bank of America, and Barclays, have held on to Musk’s loans for 22 months. This delay represents the longest period of unsold debt financing for banks since the Great Financial Crisis, according to data compiled by PitchBook LCD.

While these banks were initially eager to finance the deal, driven by Musk’s high-profile status as one of the wealthiest individuals globally, the loans have turned into a significant strain on their financial capacities. Sources suggest the banks have had to significantly write down the value of these loans since the acquisition at the end of 2022.

In some cases, taking on Musk’s debts has restricted banks’ ability to engage in other mergers and financing deals. The adverse effects of the loans have also reflected in bankers’ compensation, with reports indicating that some M&A bankers have experienced up to a 40% reduction in their pay for the year 2023 compared to the previous year. This decline is largely attributed to the loans that remain stuck on the banks’ balance sheets, with Musk’s Twitter takeover representing the substantial portion of that burden.

Despite this financial strain, the loans have generated some income for lenders through large interest payments. However, the banks are projecting losses, with expectations of incurring around $2 billion when X (formerly known as Twitter) fails to fully repay the principal by the time the loans mature.

Financial difficulties persist for X, which has struggled despite Musk’s controversial overhaul and aggressive cost-cutting strategies. In the first half of 2023, the company reported $1.48 billion in revenue, which is a staggering 40% drop compared to the same period the previous year.

As the situation continues to unfold, it is clear that Elon Musk’s ambitious takeover of Twitter has created an ongoing financial challenge for the banks involved. With the company’s performance faltering and the loans remaining on balance sheets, both parties are facing uncertain financial futures.

The implications of this deal highlight the risks associated with financing large acquisitions, especially in volatile industries like social media.

While there is still hope for recovery if X can turn its financial situation around, the past performance indicates that the road ahead may be fraught with difficulties.