According to a report, several major US and foreign banks stand to suffer losses of $500 million or more if they carry out their commitments to finance Elon Musk’s $44 billion acquisition of Twitter.
The banks, led by Morgan Stanley and six others, including Barclays and Bank of America, pledged to raise $13 billion in debt six months ago to finance Musk’s purchase. This commitment is unconditional and does not depend on their ability to sell the debt to investors.
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As per Bloomberg “if the debt were to be sold now” it would lead to a collective loss of $500 million or more.
Banks agreed to terms with lower returns when financing the Musk-Twitter deal in April. Since then, the credit markets have gotten worse as a result of higher interest rates due to efforts to reduce record inflation, with returns on riskier junk bonds and leveraged loans increasing. This can potentially result in write-downs.
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“I think that those banks would like to get out of it, I think the deal makes less sense for them now, and that the debt will be harder to syndicate to investors,” said Howard Fischer of Moses Singler law firm while talking to Bloomberg.
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However, he cautioned that, despite incurring significant losses, there aren’t many legal or reputational ways for banks to avoid granting the loan.
This comes as last week Musk abruptly abandoned his three-month attempt to end the Twitter agreement through a US court in Delaware. The billionaire had blamed the prevalence of false accounts on the social media platform for his disinterest in sticking to the deal.
(With inputs from agencies)
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