Elon Musk’s banks, faced with huge losses on their commitment to finance the $44 billion buyout of Twitter Inc, may not be able to back out of the deal easily but they might have a way to minimise the hit they take.
‘s banks, faced with huge losses on their commitment to finance the $44 billion buyout of Twitter Inc, may not be able to back out of the deal easily but they might have a way to minimise the hit they take.
Morgan Stanley, Bank of America Corp, Barclays Plc and Mitsubishi UFJ Financial Group Inc led a $13 billion financing for the bid by Musk, the world’s richest man and chief executive of Tesla Inc and SpaceX.
Typically, banks would sell the debt to investors and pocket an underwriting fee. But the terms of the financing were set in April when Musk first made an offer for Twitter and the market for such debt has collapsed since then. That means if banks tried to sell the debt now, they would have to do so at a loss to entice investors to take it off their hands.
Banks could, however, try to minimise their losses by increasing the amount of debt that is secured by collateral so that it is less risky, holding a bigger portion of it on their balance sheets, and reducing the amount they have to sell to investors in the near term, according to half a dozen debt capital market bankers and investors.
Two people familiar with the thinking of the banking syndicate pointed to Wall Street’s experience with the financing provided to fund the buyout of business software company Citrix Systems Inc as a possible model.
In that case, Wall Street firms ended up taking a loss of about $700 million after selling $8.55 billion of loans and bonds but averted an even bigger loss by tweaking the package, the market sources and investors said.
