Elon Musk’s acquisition of Twitter was the worst acquisition financing deal for a bank since the 2008 recession, according to The Wall Street Journal.
The Wall Street Journal reported on Tuesday that $13 billion in loans Musk took out to fund his acquisition of the social media platform remain stuck on the balance sheets of the seven banks that provided the money for the acquisition, largely due to the company’s poor performance.
That’s unusual for lenders, which typically sell loans quickly to get them off their books and collect fees associated with selling them.
Lenders, including banks including Morgan Stanley, Bank of America and Barclays, have held Musk’s loan for 22 months, the longest-standing debt-financing deal for banks since the global financial crisis, according to PitchbookLCD data cited by The Wall Street Journal.
Sources told the outlet that banks were willing to finance the deal because Musk, still one of the world’s richest men, made the opportunity seem so attractive.
But the sources added that the loans were mainly a burden on banks’ balance sheets, with some lenders writing down the value of their loans significantly since the deals closed at the end of 2022.
In one instance, the burden of assuming Mr. Musk’s debt limited the funds available for other merger or financing transactions, the people said.
Debt is also eating into bankers’ salaries, with some M&A bankers seeing their compensation fall by 40% in 2023 compared to the previous year, largely due to loans stuck on the balance sheet, the largest of which was for Musk’s acquisition of Twitter.
According to the report, Musk’s loans have generated some cash for lenders through large interest payments.
If X is able to repay the principal at maturity, the banks could potentially recover the full amount owed. But lenders are expecting losses of $2 billion, according to a separate report in The Wall Street Journal citing people familiar with the matter.
Meanwhile, X still appears to be struggling financially despite Musk’s controversial restructuring and cost-cutting measures: The company is expected to report revenue of $1.48 billion in the first half of 2023, down 40% from the same period last year, according to Bloomberg.