Banks led by Morgan Stanley prepare to sell around $3 bn of X buyout debt

By Paula Seligson, Carmen Arroyo and Reshmi Basu

  A group of banks led by Morgan Stanley is preparing to sell as much as $3 billion of senior debt tied to Elon Musk’s buyout of X, the social media platform formerly known as Twitter, according to people with knowledge of the matter. 

Bankers have contacted a small group of investors to assess their interest in buying chunks of at least $250 million at a discounted price in the range of 90 to 95 cents on the dollar, said the people, who asked not to be identified discussing private information. A sale may kick off as soon as next week, they said.

 

The approach marks the banks’ most significant effort so far to rid themselves of $13 billion of debt tied to Musk’s purchase of Twitter Inc. that got stuck on their books in 2022 after the billionaire launched a surprise bid to take the company private. Seven banks including Bank of America Corp., Barclays Plc, and Mitsubishi UFJ Financial Group Inc. agreed to finance that deal. 

 

The banks, which recently offloaded about $1 billion to multiple investors in a private transaction, plan to hold on to Twitter’s more junior debt for the time being, one of the people said.

 

The Wall Street Journal first reported about the plans on Friday.

 

In 2022, Wall Street banks became stuck with about $40 billion of debt for acquisitions that they had underwritten in the easy-money era, as the Federal Reserve began aggressively hiking interest rates. They have since managed to offload the majority of those deals.

 

The social media giant’s transaction proved especially thorny after Musk spent months trying to back out of the Twitter purchase before being forced by a judge to close the deal. Through his ownership, Musk renamed the company to X, slashed costs and headcount, and positioned the platform as a bastion of free speech. Some of his early moves angered advertisers, threatening a much-needed source of revenue.

 

The acquisition saddled Twitter with an unprecedented amount of debt, bringing its annual interest expense from around $50 million to well over $1 billion. Since then, the banks have been waiting for an opportune moment to show investors that Musk’s ambitions for the company can justify that cost. 

More recently, Musk’s prominent role in President Donald Trump’s inner circle — including his spot at the top of the newly minted Department of Government Efficiency — has ignited a new wave of optimism around his businesses. The tone in debt markets has also improved markedly, as investors clamor for new transactions after a drought in mergers and acquisitions.

 

When the acquisition closed, banks got stuck with three tranches of debt: $6.5 billion meant to be sold to investors as senior secured leveraged loans, along with two $3 billion tranches to be replaced by secured and unsecured junk bonds. To take the company private, Musk and co-investors put up $33.5 billion of equity.