Banks that loaned Elon Musk $12.7bn for his $44bn takeover of Twitter are preparing to hold the debt until early next year while they wait for the billionaire to reveal a clearer business plan they can market to investors, according to three people with knowledge of the matter. plan.
Barring an unexpected rally in credit markets this year, the group of lenders, led by Morgan Stanley, Bank of America and Barclays, have admitted they will be stuck holding debt on their books for months or longer and may incur great burden. loss on the financing package.
Banks in recent weeks have held brief talks with some big credit investors as they try to gauge demand for the debt and the discounts they will eventually have to offer to offload it. The talks were informal and some investors said they were given the impression that the deal would not come to market quickly.
Seven lenders are betting it will be easier to appeal to creditors after Musk laid out a clear strategy for Twitter, including the size of cost cuts and estimates for the company’s financial performance in 2023 and 2024.
The $12.7bn of debt has been split between $6.7bn of term loans, along with $3bn each of secured bonds and unsecured debt, obligations that are ultimately expected to be financed as fixed-rate bonds.
A sharp selloff in credit markets has saddled banks with more than $35bn of debt from acquisitions they have been unable to sell to investors.
Musk’s $44bn purchase of Twitter closed on Thursday with banks having to raise $12.7bn themselves – $200m more than the $12.5bn they had agreed to lend in April.
The banking group, which also includes MUFG, BNP Paribas, Mizuho and Société Générale, did not try to sell debt to institutional investors before the deal closed, as is customary, given the legal tussle between Musk and Twitter. They are now competing with one of the largest “suspended” financings ever.
Musk has taken the helm of the company after firing chief executive Parag Agrawal and ordering staff to work around the clock to explore the implementation of monthly fees for verified Twitter accounts.
“My guess is that Twitter has a lot of fat,” said one debt buyer. “In the case of Twitter and Elon Musk, there are important things he can do to change the business.”
Bankers hope to better understand the yield investors are demanding as they begin to market some of the $5.4bn in debt they pledged to finance Apollo’s takeover of Tenneco. Three people briefed on the matter said they plan to begin doing so this week. The deal to buy the auto parts supplier was announced in February.
Tenneco, along with a handful of small but risky credit sales planned for this week, should give banks a better sense of the yield investors are asking for lending to junk-rated businesses.
“Unlike the last few weeks where everything was double-B to settle, we’re starting to test single-B land,” Roberta Goss, senior managing director at asset manager Pretium, said, referring to the quality of the bank’s first-to-market debt.
Twitter’s bankers hope that a period of market stability will mitigate losses on a financing package that could reach $1 billion. If the market becomes friendlier, they may choose to try to unload the debt quickly.
This article has been amended to clarify the $12.7bn debt structure