Elon Musk's revived $44B Twitter acquisition could rely on $12.5B from banks at a time when offloading risky debt is difficult, potentially leading to losses
The financing risk identified here became more concrete later that month, when the underwriting group planned to keep the full $13B debt package on its own balance sheets rather than sell it into a weak debt market. By November, Morgan Stanley and six peers were reportedly waiting for a clearer business plan before moving the debt.
The subsequent record ties the acquisition’s capital structure to lender losses: some banks were preparing to recognize losses in December, and a year later the seven lenders still held the debt and expected a substantial markdown on sale.
First-order effects
The banks supplying roughly $12.5B of acquisition financing are immediately exposed to losses if they cannot distribute the Twitter debt to investors at the price assumed in the deal.
Musk’s acquisition financing remains available, but its bank backers must carry a concentrated, hard-to-sell position instead of rapidly recycling the loans.
Second-order effects
Investor aversion to risky debt shifts the burden from debt buyers to the underwriting banks, constraining those banks’ balance sheets until the loans can be sold or marked down.
A clearer Twitter business plan becomes material to the lenders’ exit: the banks later delayed a sale pending that plan, tying debt-market appetite to the acquired company’s operating outlook.
Third-order effects
The episode illustrates how committed acquisition financing can turn banks into involuntary long-term holders when debt distribution windows close, leaving underwriting economics dependent on post-deal performance.
If this pattern persists, buyers pursuing highly leveraged takeovers will face financing that is formally committed but priced around lenders’ increased risk of warehousing debt rather than syndicating it.
The trend: Tighter debt markets are shifting leveraged-buyout risk from dispersed credit investors back onto the banks that commit acquisition financing.
“They promised a maximum interest rate of about 11.75% on the unsecured bond portion, Bloomberg reported, but CCC debt now trades on average at around 15%, according to Bloomberg data” @LivRaiReports https://www.bloomberg.com/... https://twitter.com/...
So, looks like banks promised a 11.75% cap for the unsecured bonds (planned cap structure is $6.5 bn term loans, $3 bn secured bonds, and finally $3 bn of unsecured bonds). this is fine.gif https://twitter.com/...
Read the Room. “Twitter debt package announced in April includes a $6.5bn leveraged loan, $3bn of secured bonds, and another $3bn of unsecured bonds, with the latter particularly tricky to sell in recent months as the capital structure is riskier” https://www.bloomberg.com/...
The Twitter debt package is the largest in a roughly $51 billion pipeline of risky committed financings that banks need to sell: DB research. It threatens to fuel a wider fallout in credit markets at a time when new issues have come to a virtual standstill https://www.bloomberg.c…
If terms of original $12.5B $TWTR financing package remain, bankers “are potentially on the hook for hundreds of millions of dollars of losses.” On the $3B of unsecured, banks committed to a max interest rate of 11.75%. CCC debt today trading at 15%. https://www.bloomberg.com/...…