Banks Compelled To keep Twitter Deal Debt, Sources Say

The banks offering $13 billion in financing for Tesla CEO Elon Musk’s buyout of the Twitter deal (TWTR.N) have ditched plans to sell the debt to investors due to uncertainty around the social media company’s fortunes and losses, people with knowledge of the matter said.

These banks do not intend to syndicate the debt as is common with such acquisitions, and are instead hoping to keep it on their balance sheets until there is added investor appetite, the sources said.

The banks, which include Morgan Stanley, Barclays Plc (BARC.L), and Bank of America, refused to comment. Representatives of Twitter and Musk did not instantly reply to requests for comment.

Musk agreed to pay $44 billion for the Twitter deal in April, before the Federal Reserve began hiking interest rates in a bid to curb inflation. This made the acquisition financing appear too cheap in the eyes of credit investors, so the banks would have to take a financial loss amounting to hundreds of millions of dollars to remove it from their books.

Also hindering the banks from marketing the debt, was uncertainty around the deal’s conclusion. Musk has attempted to pull out of the deal, stating Twitter misled him over the number of spam accounts on the platform, and only agreed to conform to a Delaware court judge’s October 28 deadline to finalize the transaction earlier this month.

He has not disclosed details on Twitter’s new leadership and business plan, and many debt investors are taking a step back until they acquire more details on that front, the sources said. The debt package for the Twitter deal consists of junk-rated loans, which are risky due to the amount of debt the company is undertaking, together with secured and unsecured bonds.

Hiking interest rates and greater market volatility have driven investors to avoid some junk-rated debt. For instance, Wall Street banks led by Bank of America incurred a $700 million loss in September on the sale of about $4.55 billion in debt backing the leveraged acquisition of business software company Citrix Systems Inc.

In September, a syndicate of banks abandoned efforts to sell about $4 billion of debt that financed Apollo Global Management Inc’s deal to acquire telecom and broadband assets from Lumen Technologies after failing to obtain buyers.