Several major US and international banks would lose $500 million or more if they were forced to fund Elon Musk’s $44 billion takeover of Twitter, according to a report on Saturday.
The banks, led by Morgan Stanley and six others including Barclays and Bank of America, pledged six months ago to raise $13 billion in debt to fund Musk’s purchase – a deal that doesn’t depend on them ability to sell debt to investors.
According to Bloomberg calculations released on Saturday, the banks’ losses would collectively amount to “$500 million or more if the debt were to be sold now.”
Rising interest rates linked to efforts to curb record inflation have caused credit markets to deteriorate, with yields on risky bonds and leveraged loans rising. When the Musk-Twitter deal was funded in April, banks agreed to terms with lower yields than the market would now accept, leading to potential writedowns.
About $400 million of the $500 million in losses the banks are estimated to have on Twitter debt are in high-interest debentures, and they exclude fees the banks would typically earn on the transaction.
“I think those banks would like to get away with it, I think the deal makes less sense for them now, and the debt will be harder for investors to syndicate,” said law firm partner Howard Fischer. Moses Singler.
In a surprise twist last week, Musk abandoned his three-month-long effort to end the Twitter deal through a US court in Delaware, citing the large number of fake accounts on Twitter. According to some estimates, 20% of Twitter users are fake.
The billionaire boss of Tesla and SpaceX also called off talks to cut $10 billion from the agreed price of $44 billion (Twitter shares traded up to $20 below the $54 per share agreed in April) and said he would accept the original terms of the deal. .
Musk told the Financial Times on Saturday that his interest in the company had never been primarily financial.
“I don’t do Twitter for the money. It’s not like I was trying to buy a yacht and couldn’t afford it. I don’t own any boats. But I think it’s important that people have a reliable and inclusive way of exchanging ideas as much as possible and that it’s as reliable and transparent as possible.
Twitter, however, did not immediately drop the lawsuit it is pursuing in order to force Musk to comply.
“There is no need for an expedited trial to order the defendants to do what they are already doing,” Musk’s attorneys wrote in a filing. “Still, Twitter won’t take yes for an answer. Amazingly, they insisted on pursuing this litigation, recklessly putting the deal at risk and playing with the interests of their shareholders.
Twitter said the attempt to stop the litigation was “an invitation to further mischief and delay”.
On Thursday, the judge presiding over the case, Kathaleen McCormick, granted Musk’s request to postpone a trial scheduled for October 17. Musk’s attorney said they could close the deal by Oct. 28 “pending receipt of debt financing proceeds.”
But some warn there are few ways for banks to pull out of funding, for both legal and reputational reasons, even if it means incurring substantial losses. “In general, it would be difficult to make deals if they depended on bank financing and that bank financing wasn’t rock-solid,” Fischer told the outlet.
But if the deal doesn’t close later this month, McCormick said she would schedule a trial for November.