Elon Musk's Twitter bankers face potential hit on the riskiest debt

A group of banks led by Morgan Stanley that agreed to provide Elon Musk with $13 billion of debt financing for his acquisition of Twitter would risk taking a hit if they had to offload the financing to investors in the current risk-off market climate. 

The lenders forged a deal based on a maximum interest rate of 11.75 per cent for the $3 billion unsecured portion of the financing package, which is expected to be replaced by a bond with ratings in the CCC tier, according to a person with knowledge of the matter. Yet the average yield on similarly rated junk securities soared past 12 per cent last week as investors pulled back from risk amid fears over rampant inflation.

Selling the debt at a yield above 11.75 per cent would force the banks to incur a hit on the fees they will earn for underwriting the transaction, and could result in outright losses.