- Elon Musk’s relaunch of the $44 billion Twitter takeover comes as demand for subprime debt declines.
- That means the big banks funding the deal could suffer heavy losses, Reuters reported.
- Rising interest rates and fears of recession have investors worried about taking on debt.
Elon Musk’s U-turn on buying Twitter for $44bn comes at a time when investors’ appetite for riskier debt is waning – leaving big banks lined up to fund the deal potentially facing steep challenges losses, Reuters reported on Wednesday.
Musk will put much of the takeover tab by selling his stake in Tesla, the electric vehicle maker he runs, while major banks have pledged $12.5 billion in financing.
Reuters reported that more than 10 bankers and industry analysts, pointing to recent high-profile losses in leveraged finance, said the outlook was poor for banks seeking to sell debt to get it off their books. Investors worry about riskier debt as interest rates climb, recession fears have grown and markets are volatile following Russia’s invasion of Ukraine.
Morgan Stanley, Bank of America and Barclays have pledged to fund the Twitter deal, and BNP Paribas, Mitsubishi UFJ Financial Group, Mizuho Financial Group and Societe Generale are also part of the syndicate, Reuters reported.
Twitter’s debt package is made up of $6.5 billion in leveraged loans, $3 billion in secured bonds, and $3 billion in unsecured bonds.
Reuters said leveraged finance sources had previously said potential losses could run into the hundreds of millions of dollars for Wall Street banks involved in Twitter’s debt as they try to sell it. to investors.
On Tuesday, Musk’s lawyers sent a letter to Twitter again offering to acquire the social media company for $44 billion, or $54.20 a share, making the decision after months of legal wrangling as the billionaire was trying to pull out of the deal. The parties were scheduled to meet in court on October 17. Twitter said it plans to complete the deal at a price of $44 billion, with the offer matching Musk’s offer made in April.
Twitter stock fell 0.6% to $51.68 in Wednesday’s session, below Musk’s offer of $54.20 per share.