Introduction: Banks Are Almost Free of Musk’s Debt
Elon Musk’s acquisition of Twitter (now X) in 2022 was a $44 billion deal that relied heavily on borrowed money. Two years later, the banks that helped fund the purchase are making progress in unloading their share of the debt.
On Thursday, Morgan Stanley and its partners completed a major sale of $4.74 billion in loans tied to Musk’s Twitter acquisition. This sale, a big chunk of the debt, comes after the banks had been sitting on the loans for almost two years. With this move, the banks have now sold almost all of the $13 billion they originally held, leaving just $1.3 billion in debt still on their books.
This move marks another step in banks’ efforts to distance themselves from the financing of Musk’s high-profile purchase of Twitter and, more recently, the shift to X. But what does this mean for Musk, X, and the banks involved? Let’s dive into the details.
The Debt That Fueled Musk’s $44 Billion Acquisition of Twitter
When Elon Musk acquired Twitter in 2022, the deal was funded using a mix of loans, including secured loans, revolving credit, and unsecured loans. This totaled up to a massive $13 billion in debt.
The banks that facilitated this transaction—led by Morgan Stanley, and including other big names like Bank of America, Barclays, and Mitsubishi UFJ—have been holding onto these loans for nearly two years. Their primary aim was to sell these loans to investors, but the process has been slower than expected.
Initially, the debt included:
- $6.5 billion in secured term loans
- $500 million revolving credit facility
- $3 billion in unsecured loans
- $3 billion in additional secured loans
This large debt load was a major piece of the acquisition puzzle, and the banks were eager to offload it once the deal was finalized.
The Latest Loan Sale: $4.74 Billion Gone
This week, the banks completed the sale of a $4.74 billion chunk of the debt, marking a significant step in getting rid of the remaining obligations tied to the acquisition. This loan, which is secured and matures in October 2029, came with a 9.5% fixed interest rate, and the sale was done at par (meaning at face value, or 100 cents to the dollar).
The loan sale had originally been expected to amount to $2.97 billion, but strong interest from investors led to an upsizing of the deal. This is a positive sign for the banks, as it shows there is continued demand for X’s debt among investors.
Why the Banks Are Interested in Selling
For banks, the longer they hold onto these loans, the greater the risk that they’re not going to recover their full investment. After all, loans tied to a high-profile deal like Musk’s Twitter acquisition are risky, especially given the volatility of social media companies and the public interest in Musk’s ventures.
By selling these loans off to investors, the banks are not only reducing their risk exposure but also freeing up their balance sheets for other opportunities. While these loans may have been a financial burden, their sale is a crucial step in stabilizing the books for the banks involved.
Who’s Buying Musk’s Debt?
This particular loan sale attracted significant interest from large fund managers who were looking for a lucrative deal. Musk’s acquisition of Twitter, now X, has been closely tied to his influence in other sectors, particularly artificial intelligence. Investors were drawn to the long-term potential of X, especially as it holds a stake in Musk’s AI startup, xAI.
The loan had a fixed interest rate, which is rare for these types of deals, and it offered investors exposure to X’s future prospects. Even though the deal is tied to a social media company that has faced its fair share of challenges, investors are betting that X will continue to improve its revenues, especially with Musk’s connections and the recent political developments following Trump’s election victory.
The floating-rate loans that had been sold earlier in the year were priced at about 97 cents on the dollar, showing that the market is willing to take on some risk for the potential upside. However, this new fixed-rate loan was priced more favorably, which could have contributed to the demand for this latest sale.
The Remaining Debt: What’s Next?
With the $4.74 billion sale now complete, the banks are left holding just $1.3 billion in unsecured loans. The timing for the sale of this remaining debt is uncertain, but it’s likely to be sold off in the coming months as well.
However, the market for this debt is likely to be trickier. Unsecured loans carry more risk because they are not backed by collateral, and investors typically seek higher returns for these riskier assets. Additionally, the remaining $1.3 billion could be impacted by how well X performs in the market in the coming months, particularly as Musk’s vision for the company evolves.
Why Are Banks So Eager to Sell?
Banks typically sell off loans after big deals to avoid getting stuck with them for too long. For most transactions, there’s a period of time where the loans are held before they’re flipped to investors. In the case of X, the banks had to hold onto the loans far longer than expected, and it’s clear that they were eager to offload them as soon as the market conditions were right.
In the end, the successful sale of $4.74 billion is a good sign for the banks, indicating that there is still a market for the debt despite the complex dynamics of Musk’s X. It’s also a sign that investors remain interested in what Musk is doing, especially with his involvement in the world of artificial intelligence.
Conclusion: A Step Closer to Clear Books for the Banks
With the completion of this $4.74 billion loan sale, the banks have made significant progress in unloading the debt tied to Musk’s Twitter acquisition. While there’s still some remaining debt on the books, this sale shows that investors are still interested in backing Musk’s ventures, even as the company transitions from Twitter to X.
For now, the banks involved can breathe a little easier, knowing that they’ve shed a huge portion of the debt and may soon be rid of the remaining amount. As for Musk and X, the focus now turns to how well the company performs in the coming years, particularly with its stake in the rapidly growing field of artificial intelligence.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.