Sources: some US banks that lent Elon Musk $13B to buy Twitter are preparing to book losses on the loans this quarter, as investors shy away from risky debt
Reuters : Tweets: @astaniscia86 , @marxculture , @helvetius66 , and @underoak Tweets: Giulio S. / @astaniscia86 : $10 billion worth of loans secured by Twitter's assets might have to be written down by as much as 20%. Twitter's lenders have found their metaverse black hole. https://www.reuters.com/... https://twitter.com/... Mark O'Neill / @marxculture : “Alexa, show me someone who is going to be lose their job.” https://www.reuters.com/... https://twitter.com/... Paul Bowman / @helvetius66 : This is the problem of mark-to-market for debt assets that don't trade. The holders of the debt can just make up a figure (10%) that everybody knows is vastly underplaying the real losses. Kicking the can down the road. But sooner or later those chickens will come home to roost https://twitter.com/... @underoak : “The person ... added that some lenders are likely to take a smaller hit initially and write it down over time if valuations keep getting worse. Projected losses could also be divided between investment banking and trading divisions....” https://twitter.com/...
Context & Ripple Effects
The acquisition was already expected to impose a far larger interest burden on Twitter than it carried in 2021, with related coverage estimating annual interest costs of $750M-$1B. As the deal was revived, banks were also confronting a market in which risky debt was difficult to offload.
The reported write-down preparations turn that funding-market concern into an immediate balance-sheet issue for the lenders. They also establish the starting point for the debt overhang that later coverage says the lending group continued to carry.
First-order effects
- Some of the US banks that provided the $13B in Twitter acquisition loans are preparing to recognize losses this quarter as the debt cannot attract risk-tolerant buyers.
- Twitter-backed loans become less valuable on lenders' books, while Elon Musk's acquisition financing remains concentrated with the original bank group.
Second-order effects
- Banks seeking to distribute the debt face weaker pricing and reduced investor demand, making the financing harder to move than anticipated at closing.
- The experience raises the cost of holding and syndicating debt for similarly large, highly leveraged technology acquisitions, particularly when the issuer must support substantially higher interest costs.
Third-order effects
- If banks repeatedly retain debt they expected to sell, leveraged buyout financing shifts from a distribution business toward longer-term balance-sheet exposure for underwriters.
- The episode points to a more selective market for debt-backed platform acquisitions, with investors' appetite becoming a constraint alongside a target company's ability to carry the debt load.
The trend: Large technology acquisitions financed with leveraged debt are becoming more dependent on lenders' ability to place risk with investors after closing.