Banks that lent $12.7bn to Elon Musk for his $44bn Twitter takeover are getting ready to carry the debt till early subsequent 12 months as they watch for the billionaire to unveil a clearer marketing strategy they’ll market to buyers, in line with three individuals with information of the plans.
Barring an sudden rally in credit score markets this 12 months, the group of lenders, led by Morgan Stanley, Financial institution of America and Barclays, have conceded they are going to be caught holding the debt on their books for months and even longer and can in all probability find yourself incurring enormous losses on the financing package deal.
The banks have in current weeks held brief discussions with a number of massive credit score buyers as they try to gauge the demand for the debt and the reductions they may finally want to supply to dump it. The conversations have been casual and a few buyers mentioned they got the impression the deal wouldn’t come to market shortly.
The seven lenders are wagering it will likely be simpler to enchantment to collectors after Musk presents a transparent technique for Twitter, together with the dimensions of value cuts and estimates for the corporate’s monetary efficiency in 2023 and 2024.
The $12.7bn in debt has tentatively been break up between $6.7bn of secured loans, together with $3bn every of secured and unsecured debt, obligations which might be finally anticipated to be financed as fixed-rate bonds.
A pointy sell-off in credit score markets has saddled banks with greater than $35bn of debt from takeovers that they’ve been unable to promote to buyers.
Musk’s $44bn buyout of Twitter closed on Thursday with the banks having to stump up the $12.7bn themselves — $200mn greater than the $12.5bn they’d agreed to lend in April.
The group of banks, which additionally contains MUFG, BNP Paribas, Mizuho and Société Générale, didn’t try to promote the debt to institutional buyers earlier than the deal closed, as is customary, given authorized wrangling between Musk and Twitter. They’re now contending with one of many largest “hung” financings ever.
Musk has taken the helm of the corporate after firing chief govt Parag Agrawal and ordered employees to work across the clock to discover implementing monthly fees for verified Twitter accounts.
“My guess is Twitter has numerous fats,” mentioned one debt purchaser. “Within the case of Twitter and Elon Musk, there are materials issues he can do to vary the enterprise.”
Bankers hope to get a greater sense of the yields being demanded by buyers once they begin advertising and marketing a portion of the $5.4bn in debt they’ve pledged to fund Apollo’s takeover of Tenneco. Three individuals briefed on the matter mentioned they deliberate to begin doing so this week. The deal to buy the automobile components provider was introduced in February.
Tenneco, together with a handful of small however dangerous credit score gross sales deliberate for this week, ought to give bankers a greater sense of the yields buyers are demanding to lend to junk-rated companies.
“Not like the final a number of weeks the place the whole lot was double-B to get completed, we’re beginning to take a look at single-B land,” Roberta Goss, a senior managing director at asset supervisor Pretium, mentioned, referring to the standard of debt banks are starting to market.
Twitter’s bankers are hoping a interval of market stability might mitigate losses on the financing package deal that might stretch to $1bn. If markets have been to turn into rather more hospitable, they may select to attempt to offload the debt shortly.