Elon Musk's $44 billion Twitter purchase ranks as worst deal for banks since the financial crisis: WSJ

By Steve Gelsi

The 2022 take-private deal for Twitter has left about $13 billion in 'hung' debt held by Bank of America, Morgan Stanley and other big lenders

Elon Musk's $44 billion purchase of Twitter Inc. has emerged as the worst buyout since the global financial crisis for seven large financial institutions that provided debt for the deal, the Wall Street Journal reported Tuesday.

The deal has now run up about $13 billion in so-called hung debt, which is money owed to banks that has not been sold partly because the value of the underlying asset has dropped so sharply due to its weak performance.

Citing data from Pitchbook, the Journal said Twitter ranks as the biggest hung deal since the turmoil that followed the collapse of Lehman Brothers some 16 years ago, and one of the largest hung deals of all time.

It's also been sticking around on banks' balance sheets longer than any other hung loan since the 2008-'09 financial crisis, at about 20 months and counting. By contrast, most of the troubled loans in the wake of the financial crisis were sold within about a year.

The seven major banks that lent the money for Twitter (which has since been renamed X) are Bank of America Corp. (BAC), Morgan Stanley (MS), Barclays (BCS), Mitsubishi UFJ Financial Group (MUFG), BNP Paribas (FR:BNP), Société Générale (FR:GLE) and Mizuho (JP:8411).

To be sure, the banks have continued to receive interest payments on the loans, which are typically above market averages due to the higher level of risk associated with tech buyouts.

However, it seems unlikely that X's enterprise value will approach the $44 billion that Musk paid after the media company disclosed a $19 billion valuation as of last year.

Citing people familiar with the deal, the Journal reported that the banks have accumulated paper losses on the debt totaling hundreds of millions of dollars each. This in turn has caused banks to reduce the capital available to finance other deals.

A spokesperson from Mitsubishi UFJ told the Journal that the bank has had "constructive conversations" with Musk and that it expects it'll reach a "positive outcome regarding repayment."

At the time, Musk himself had complained that the price for Twitter was too high, but he decided to go ahead with the deal after waffling over it for a while.

Banks moved to finance the deal partly because Musk and his backers contributed $30 billion for the Twitter acquisition as a cushion for the debt if the deal soured, the report said.

The losses on banks' balance sheets from the deal are also biting into potential bonuses for some bankers, the report said.

-Steve Gelsi

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08-20-24 1553ET

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