TLDR:
Elon Musk’s Twitter buyout is considered the worst leveraged buyout deal for banks since 2008
$13 billion in loans for the deal remain unsold on banks’ balance sheets after nearly 2 years
Twitter’s (now X) value has dropped from $44 billion to around $12.5-19 billion under Musk
Banks are struggling to offload the debt due to X’s poor financial performance
The deal has negatively impacted involved banks’ profits, rankings, and employee compensation
Elon Musk’s $44 billion acquisition of Twitter in October 2022 has become a financial burden for the banks that financed the deal. Nearly two years later, approximately $13 billion in loans used to fund the purchase remain on the balance sheets of major financial institutions, including Morgan Stanley, Bank of America, and Barclays.
Typically, banks aim to sell such debt to other investors within weeks or months of a deal closing. However, the poor timing of the Twitter acquisition, coupled with rising borrowing costs and the social media platform’s weak financial performance, has made it challenging for banks to find willing buyers for the debt.
The situation has led some financial experts to label this as the worst leveraged buyout (LBO) deal for banks since the 2008 global financial crisis. According to data from PitchBook LCD, no LBO debt has remained unsold for this long since the Lehman Brothers bankruptcy in 2008.
The financial strain is evident in the declining value of Twitter, now rebranded as X. At the time of purchase, Musk paid $44 billion for the company. Recent estimates suggest that X’s value has plummeted to between $12.5 billion and $19 billion, representing a significant loss in just under two years.
This devaluation has made it increasingly difficult for banks to offload the debt, as potential investors are wary of the platform’s ability to generate sufficient revenue to cover its financial obligations.
Before the acquisition, Twitter was already struggling to monetize its user base effectively. Under Musk’s leadership, the company has faced additional challenges, including an exodus of advertisers and controversial changes to the platform’s functionality.
The impact of this situation extends beyond just the loans themselves. Banks holding this debt have seen their ability to finance other deals limited, as the Twitter loans tie up significant capital.
This has affected their standings in global banking league tables, with some institutions losing top spots to competitors who weren’t involved in the Twitter deal.
The financial strain has also trickled down to bank employees. Reports indicate that some institutions, such as Barclays, have implemented substantial pay cuts for their mergers and acquisitions teams, citing the Twitter deal as a major factor.
Despite these challenges, it’s worth noting that the banks are still receiving interest payments on the loans.
However, the debt remains a significant concern, with some institutions reportedly marking down the loans by hundreds of millions of dollars in an attempt to make them more attractive to potential buyers.
Musk has reportedly held discussions with banks about restructuring the debt to achieve more sustainable financial terms. However, according to recent reports, these talks have reached an impasse, leaving the situation unresolved.
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