The loan used by Elon Musk to buy Twitter was the worst merger-lending deal for banks since the 2008-09 financial crisis, according to the report.
The seven banks involved in the deal, including Bank of America and Morgan Stanley, lent Musk’s holding company about $13 billion to take the social media giant private in 2022. Banks that lend money for an acquisition typically try to quickly sell their debt to other investors, but that didn’t happen with the Twitter deal, according to The Wall Street Journal.
The Wall Street Journal reports that banks have been unable to sell the debt without taking a big loss, largely due to the company’s poor financial health, meaning the loans remain “stuck” on banks’ balance sheets.
Lending volumes have fallen since Musk bought Twitter Inc. (now renamed X) for $44 billion, but the Wall Street Journal said deals are now in “historic territory” in terms of underperformance.
“Twitter’s loan has been stuck on the market longer than any similar unsold deal since the 2008-09 financial crisis for which the research firm has complete records,” the report said, citing data from PitchbookLCD.
While lenders received generous interest payments on their X-loans, some banks wrote down the value of their loans by hundreds of millions of dollars.
Last October, X said it was valued at about $19 billion, about 55% lower than the price Musk paid for it a year earlier. During Musk’s tenure, the company had a tense relationship with advertisers, who make up the majority of its revenue, and he told some to “fuck you” after they abandoned the site. Earlier this month, X filed a lawsuit against the Ad Coalition and several of its members, accusing them of conspiring to boycott the platform, which has cost the company billions of dollars.
The Twitter loan and other hang deals have contributed to some banks dropping in investment-banking rankings, while some employees have said they feel the loans are affecting their salaries, according to The Wall Street Journal.
Top investment bankers in Barclays’ mergers and acquisitions team were told last year that their compensation would be cut by at least 40% from the previous year. The bank had several pending deals that had hurt its overall performance, but X was by far the biggest of them all, people familiar with the matter told The Wall Street Journal.