(Bloomberg) — Wall Street banks that lent $13 billion to help fund Elon Musk’s buyout of Twitter Inc. have been quietly sounding out hedge funds and other asset managers for their interest in a chunk of the buyout debt at deeply discounted prices.
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Some funds have offered to take a piece of the loan package at a discount as low as 60 cents on the dollar, which would be among the steepest markdowns in a decade. The banks have so far deemed those bids unattractive, according to people with knowledge of the discussions who asked not to be identified because the talks were private.
The lukewarm investor reception shows just how big of an albatross the Twitter debt is becoming for a Morgan Stanley-led cohort that committed to finance Musk’s acquisition of the social-media firm back in April, before credit markets cratered. The seven banks are now saddled with risky loans that they never intended to keep on their books, and face an increasingly uphill battle to minimize losses.
Read more: Twitter’s Big Debt Bills Add Urgency to Musk’s Turnaround Plans
Discussions so far have centered around the $6.5 billion leveraged loan portion of the financing, the people said. Banks had seemed unwilling to sell for any price below 70 cents on the dollar, one of the people said. Even at that level, losses could run into the billions of dollars, Bloomberg calculations show.
The discussions were informal, and there’s no certainty that they will lead to an agreement, the people said.
Barclays Plc, BNP Paribas SA, Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. declined to comment. Bank of America Corp., Morgan Stanley and Societe Generale SA did not respond to requests for comment.
Musk has acknowledged a “massive drop” in revenue while the social media company’s growth prospects look uncertain. That doesn’t bode well for Twitter’s annual interest burden, which is estimated to be $1.2 billion a year. The billionaire also alluded to loosening policies that restrict free speech, a risk that is spooking advertisers.
The Twitter financing package also comprises $6 billion of junk bonds split evenly between secured and unsecured notes and a $500 million loan called a revolving credit facility.
Junk bond and leveraged loan yields have surged since April, meaning that Wall Street banks risk losing money on big buyouts after having agreed to provide financing at lower yields than the market will accept now. Lenders have already sustained billions of dollars of writedowns and losses this year after central banks worldwide have started hiking rates to tame inflation.
Moody’s Investors Service recently cut Twitter’s rating two notches to B1, or four steps into junk territory. The agency cited a substantial increase in debt and reduction of cash as well as governance for rating action.
“Twitter’s governance risk is highly negative reflecting Moody’s expectation for aggressive financial policies and concentrated ownership by Elon Musk,” the ratings firm said.
–With assistance from Gowri Gurumurthy and Lisa Lee.
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