Banks stand to lose at least $500m if they fund Elon Musk’s Twitter takeover

theguardian.com:

Several large US and international banks would lose $500m or more if they proceed with obligations to fund Elon Musk’s $44bn takeover of Twitter, according to a report on Saturday.

The banks, led by Morgan Stanley and six others, including Barclays and Bank of America, committed six months ago to raise $13bn in debt to finance Musk’s purchase – an agreement that does not hinge on whether they are able to sell the debt on to investors.

According to Bloomberg calculations published on Saturday, the banks’ losses would collectively amount “to $500m or more if the debt were to be sold now”.

Higher interest rates tied to efforts to bring down record inflation have led to a deterioration in the credit markets, with returns on risky junk bonds and leveraged loans surging. When the Musk-Twitter deal was financed in April, banks agreed to terms with lower yields than the market would now accept, leading to potential write-downs.

About $400m of the $500m in losses that the banks are estimated to have on the Twitter debt are in unsecured, high interest bonds, and they exclude fees the banks would typically earn on the transaction.

“I think that those banks would like to get out of it, I think the deal makes less sense for them now, and that the debt will be harder to syndicate to investors,” Moses Singler law firm partner Howard Fischer told the outlet.

In a surprise turnaround last week, Musk abandoned his three-month effort to terminate the Twitter deal through a US court in Delaware, citing the large number of fake accounts on Twitter. By some estimates, 20% of Twitter users are fake.

The billionaire boss of Tesla and SpaceX also cancelled negotiations to shave $10bn off the agreed $44bn price tag (Twitter shares have traded as much as