Banks funding a large portion of Elon Musk’s $44 billion Twitter could be facing significant losses after Musk’s sudden U-turn on buying the microblogging site.
Major banks have committed to provide $12.5 billion to fund the deal while 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.
The banks would be looking to sell the debt to get it off their books but that could be a major problem as investors have seemingly lost their appetite for riskier debt such as interest rate hikes around the world, fears of recession and market volatility driven by Russia’s invasion of Ukraine send chills across money markets.
Some of the major banks and large equity investors include Morgan Stanley, Bank of America Corp, Barclays Plc, Mitsubishi UFJ Financial Group Inc, BNP Paribas SA , Mizuho Financial Group Inc and Societe Generale SA.
Analysts and bankers polled by Reuters reach a consensus that 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.
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.