How Elon Musk's U-Turn On Twitter Deal Could Leave Wall Street Banks That Pledged Financing Choking On Debt

Zinger Key Points
  • With Elon Musk deciding to go ahead with the Twitter deal, many see it as a win-win proposition for all stakeholders.
  • Banks, however, could be aggrieved, given that the credit market is already distressed amid the economic uncertainty.

In a surprising move on Tuesday, Elon Musk reversed his stance and renewed his commitment to buy Twitter Inc. TWTR.

What Happened: Although the development removes an overhang on the shares of both Musk’s Tesla Inc. TSLA and Twitter, it could pose a headache for the banks that have given financing commitment, reported Bloomberg.

Wall Street banks, led by Morgan Stanley MS, had, in April, given a commitment for $12.5 debt financing with the intention of selling most of it to institutional asset managers.

See Also: Much Wow: Elon Musk Revives $44B Twitter Offer, Keeps Dogecoin Out Of Doghouse

The breakup is a $6.5 billion leverage loan, $3 billion of secured bonds and $3 billion of unsecured bonds, the report said. Additionally, banks have agreed to provide a $500 million revolving credit facility.

Why It's Important: If the terms remain the same, these banks could face difficulty in selling the debt, given that the credit market is already distressed due to the macroeconomic uncertainty, the report said.

The financiers could be staring at hundreds of millions of dollars of losses on the unsecured portion of the financing, if they decide to resell it to investors, it added.

Given the sky-high yields, the bankers may have to offer the debt at a steep discount. If there are no takers, the bankers may be forced to finance the deal themselves, the report said.

The Twitter debt is part of a roughly $51 billion of “risky committed financings that banks need to sell to asset managers," Bloomberg said, citing Deutsche Bank’s estimates. This threatens to trigger a wider fallout in the corporate debt markets, it added.

Price Action: Morgan Stanely closed Tuesday's session at $83.97, up 4.47%, according to Benzinga Pro data.

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Posted In: M&ANewsSocial MediaFinancingGlobalTechMediaGeneralDebt FinancingElon MuskWall Street
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