Elon Musk privately told some of the bankers who lent him $13 billion * (€11.9 billion) to fund his leveraged buyout of Twitter that they would not lose any money on the deal, according to five people familiar with the matter.
The verbal guarantees were made by Musk to banks as a way to reassure the lenders as the value of the social media site, now rebranded as X, fell sharply after he completed the acquisition last year.
Despite the assurances, the seven banks that lent money to the billionaire for his buyout – Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale – are facing serious losses on the debt if and when they eventually sell it.
The sources did not specify when Musk’s assurances were made, although one noted Musk had made them on several occasions. But the billionaire’s behaviour, both in attempting to back out of the takeover in 2022 and more recently in alienating advertisers, has more broadly stymied the banks’ efforts to offload the debt since he engineered the takeover.
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Large hedge funds and credit investors on Wall Street held conversations with the banks late last year, offering to buy the senior-most portion of the debt at roughly 65 cents on the dollar. But in recent interviews with the Financial Times, several said there was no price at which they would buy the bonds and loans, given their inability to gauge whether Linda Yaccarino, X’s chief executive, could turn the business around.
One multibillion-dollar firm that specialises in distressed debt called X’s debt “uninvestable”.
Selling the $12.5 billion of bonds and loans below 60 cents on the dollar – a price many investors believe the banks would be lucky to achieve in the current market – would imply losses before accounting for X’s interest payments of $4bn or more, writedowns that have not yet been publicly reported by the syndicate of lenders, according to FT calculations. The debt is split between $6.5 billion of term loans, as well as $6bn of senior and junior bonds and a $500 million revolver.
Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale declined to comment. A spokesperson for X declined to comment. Musk did not return a request for comment.
The banks have held the debt on their balance sheets instead of selling at a steep loss in the hope that X’s performance will improve following a series of cost-cutting measures. Several people involved in the transaction noted that there was no plan to sell the debt imminently, with one saying there was no guarantee the banks would be able to offload the debt even in 2024.
The people involved in the deal cautioned that Musk’s guarantee was not based on any formal contract. One said they understood it as a boastful statement that the entrepreneur had never let his lenders down.
“I have never lost money for those who invest in me and I am not starting now,” he told Axios earlier this month, when asked about a separate fundraising push by his company X.ai Corp.
Some on Wall Street view Musk’s personal guarantees with scepticism, given that he tried to back out of his agreement to buy Twitter despite a watertight contract, before relenting.
Nevertheless, the guarantee from a man whose net worth Forbes pegs at about $243 billion has helped some of the bankers make the pitch to their internal committees that they can ascribe a higher price to the debt while they hold it on their balance sheets.
Morgan Stanley, the largest lender on the deal, in January disclosed $356 million in mark to market losses on corporate loans it planned to sell and loan hedges. Banks rarely report specific losses tied to an individual bond or loan, and often report writedowns of multiple deals together.
Wall Street was saddled with the Twitter buyout loan at the same time they were holding a smattering of other hung bridge loans – deals they were forced to fund themselves after failing to raise cash in public bond and loan markets. The FT has previously reported on large losses tied to other hung loans at the time, including the buyouts of technology company Citrix and television rating provider Nielsen.
How the debt has been marked on bank balance sheets has been an open question for traders and investors across Wall Street, given how much X’s business has deteriorated since Musk bought the company.
Musk, already out of favour with marketers for loosening content moderation, last month lost more advertisers after endorsing an anti-Semitic post. In November he followed by telling brands that were boycotting the business over his actions to “go fuck” themselves, criticising Disney’s Bob Iger in particular.
According to a report last week from market intelligence firm Sensor Tower, in November 2023 total US ad spend among the top 100 advertisers on X was down nearly 45 per cent compared with October 2022, prior to Musk’s takeover. -- Copyright The Financial Times Limited 2023
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