The banks providing $13 billion in financing for Tesla CEO Elon Musk’s purchase of Twitter Inc have scrapped plans to sell the debt to investors amid uncertainty over the social media company’s fate and losses, people familiar with the matter said.
The banks do not plan to consolidate the debt, as is typical of such acquisitions, but plan to keep it on their balance sheets until there is more investor appetite, the sources said.
The banks, including Morgan Stanley, Bank of America and Barclays Plc, declined to comment. Representatives for Musk and Twitter did not immediately respond to requests for comment.
Musk agreed to pay $44 billion for Twitter in April, before the Federal Reserve began raising interest rates to fight inflation. This made the financing of the acquisition look too cheap to lenders, so the banks would have to take a financial hit of hundreds of millions of dollars to get it off their books.
What also prevented the banks from being able to market the debt was the uncertainty that the deal would be completed. Musk has tried to get out of the deal, arguing that Twitter misled him about the number of spam accounts on the platform, and only agreed to meet an Oct. 28 deadline to close the deal in a Delaware judge earlier this month. He has not disclosed details of Twitter’s new leadership and business plan, and many debt investors are holding back until they learn more about it, the sources said.
The debt package for the Twitter deal consists of junk-rated loans, which are risky because of the debt the company is taking on, as well as secured and unsecured bonds.
Rising interest rates and broader market volatility have prompted investors to stay away from some junk-rated debt. For example, Wall Street banks led by Bank of America suffered a $700 million loss in September from the sale of about $4.55 billion in debt that backed a leveraged takeover of business software company Citrix Systems Inc.
In September, a group of banks abandoned efforts to sell about $4 billion of the debt financing Apollo Global Management Inc’s deal to buy the telecommunications and broadband assets of Lumen Technologies after failing to find buyers.