Banks put together to carry $12.7bn Twitter debt on books till early 2023

Banks that lent $12.7bn to Elon Musk for his $44bn Twitter takeover are making ready to carry the debt till early subsequent yr as they await the billionaire to unveil a clearer marketing strategy they’ll market to traders, based on three folks with data of the plans.

Barring an sudden rally in credit score markets this yr, the group of lenders, led by Morgan Stanley, Financial institution of America and Barclays, have conceded they are going to be caught holding the debt on their books for months and even longer and can in all probability find yourself incurring big losses on the financing package deal.

The banks have in latest weeks held brief discussions with a number of giant credit score traders as they try and gauge the demand for the debt and the reductions they’ll finally want to supply to dump it. The conversations have been casual and a few traders stated they got the impression the deal wouldn’t come to market rapidly.

The seven lenders are wagering will probably be simpler to attraction to collectors after Musk presents a transparent technique for Twitter, together with the scale of value cuts and estimates for the corporate’s monetary efficiency in 2023 and 2024.

The $12.7bn in debt has tentatively been cut up between $6.7bn of secured loans, together with $3bn every of secured and unsecured debt, obligations which are finally anticipated to be financed as fixed-rate bonds.

A pointy sell-off in credit score markets has saddled banks with greater than $35bn of debt from takeovers that they’ve been unable to promote to traders.

Musk’s $44bn buyout of Twitter closed on Thursday with the banks having to stump up the $12.7bn themselves — $200mn greater than the $12.5bn that they had agreed to lend in April.

The group of banks, which additionally contains MUFG, BNP Paribas, Mizuho and Société Générale, didn’t try and promote the debt to institutional traders earlier than the deal closed, as is customary, given authorized wrangling between Musk and Twitter. They’re now contending with one of many largest “hung” financings ever.

Musk has taken the helm of the corporate after firing chief government Parag Agrawal and ordered workers to work across the clock to discover implementing month-to-month charges for verified Twitter accounts.

“My guess is Twitter has a number of fats,” stated one debt purchaser. “Within the case of Twitter and Elon Musk, there are materials issues he can do to vary the enterprise.”

Bankers hope to get a greater sense of the yields being demanded by traders once they begin advertising a portion of the $5.4bn in debt they’ve pledged to fund Apollo’s takeover of Tenneco. Three folks briefed on the matter stated they deliberate to begin doing so this week. The deal to take the auto components provider was introduced in February.

Tenneco, together with a handful of small however dangerous credit score gross sales deliberate for this week, ought to give bankers a greater sense of the yields traders are demanding to lend to junk-rated companies.

“In contrast to the final a number of weeks the place every little thing was double-B to get performed, we’re beginning to check single-B land,” Roberta Goss, a senior managing director at asset supervisor Pretium, stated, referring to the standard of debt banks are starting to market.

Twitter’s bankers are hoping a interval of market stability might mitigate losses on the financing package deal that might stretch to $1bn. If markets had been to grow to be way more hospitable, they might select to attempt to offload the debt rapidly.