Scott Olson
Elon Musk’s $44 billion acquisition of Twitter is the worst merger and financing deal for banks since the 2008-09 financial crisis, according to media reports.
A group of seven banks, including Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS), loaned Musk $13 billion to take Twitter private in October 2022. Typically, banks quickly sell such loans to get them off their balance sheets, earning revenue from fees in the process.
But Twitter, now called X, quickly went under, and as a result the banks that funded the deal were unable to sell the debt without taking a huge loss — in industry parlance, the debt became “hung.”
The Wall Street Journal reported, citing data from Pitchbook LCD, that the Twitter loan is the longest-pending of any similar unsold deal for which the research firm has complete records since the financial crisis. There were many more stalled deals during the financial crisis, but most of them were sold or written off within a year of being financed, the Journal reported.
A University of Chicago finance professor went so far as to say Twitter is the biggest hung deal in history, in terms of value: “This loan has been weighing on the banks for a lot longer than any other hung deal we’ve seen,” Steven Kaplan told the WSJ.
Other banks involved in Twitter’s fundraising are Barclays (NYSE: BCS), Mitsubishi UFJ Financial Group (NYSE: MUFG), BNP Paribas (OTCQX: BNPQF) (OTCQX: BNPQY), Mizuho (NYSE: MFG) and Société Générale (OTCPK: SCGLF) (OTCPK: SCGLY).
According to the article, X pays interest on the loan, which is high because subinvestment grade debt has a larger interest rate spread than investment grade debt. If X can cover the interest payments and repay the principal at the maturity of the loan, the bank could potentially repay the full amount. These loans are typically for a term of seven to eight years.
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