Musk’s Twitter takeover – Worst buyout for the banks since the 2008 financial crisis

From the WSJ. Well the laugh is on the banks.

The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis. The seven banks involved in the deal, including Morgan Stanley and Bank of America, lent the money to the billionaire’s holding company to take the social-media platform, now named X, private in October 2022. Banks that provide loans for takeovers generally sell the debt quickly to other investors to get it off their balance sheets, making money on fees.

But nearly two years after Musk’s acquisition, X’s business is still struggling to climb out of the deep hole it fell into under his ownership—the company last year said its value had fallen by more than half, to around $19 billion.

While data indicate that use of the app rose amid the explosion of political news in recent weeks, there isn’t evidence that that is translating to a meaningful recovery in the advertising revenue that long sustained the revenues of the company, which pre-Musk struggled to maintain profits. Musk has gone from telling advertisers who fled the platform to “go f— yourself” to suing them and a trade group this month, claiming they illegally conspired to boycott X. The group has said it plans to rebut the claims in court. 

Servicing the loans isn’t helping X’s financial health. Even before rates stopped rising, Musk said its annual interest payments total around $1.5 billion.

With the two-year mark on the Twitter loans rapidly approaching, the banks haven’t made moves to sell them, even after some banks have marked the value of the loans down by hundreds of millions of dollars. 

Paper losses on the debt have dented bank profits, and holding high-risk loans directly on the balance sheet attracts more scrutiny from regulators. Because of Twitter and other hung deals, some of the banks also scaled back how much they lent in providing capital for merger-finance deals, according to some of the people.

There’s more but here’s what will really break your heart –

The hung loans also have cut into some investment bankers’ annual pay.