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Twitter left out of bank debt revival

Michael Flaherty
Dec 5, 2022
Data: Twitter SEC filing; Chart: Kavya Beheraj/Axios

Emerging from a near freeze, most banks holding acquisition debt are seeing prices pickup, with buyers emerging. But that's not the case for the banks that financed Elon Musk's $44 billion purchase of Twitter.

Why it matters: The six banks holding onto $13 billion of Musk's Twitter financing face a double whammy: the debt limits banks' ability to underwrite new deals from other clients, and the only way to get the loans off their books is to sell at a steep loss.

Details: Bank of America, Barclays, BNP Paribas, Morgan Stanley, MUFG, Mizuho, and SocGen provided Musk the $13 billion in debt financing for the Twitter deal. All banks declined to comment for this story. Twitter did not respond to a request seeking comment.

Catch up quick: When CPI figures hit a few weeks ago, showing inflation abating more than expected, credit markets woke up. Hung bank loans started seeing bids, and money started flowing.

  • U.S. leveraged loan prices recovered to an average of nearly 93 cents on the dollar, according to Bloomberg, citing index data.
  • Banks sold a $2 billion high yield bond at 11% earlier this month that will help finance the leveraged buyout of Nielsen Holdings..

Yes, but: Twitter's debt isn't moving yet. The reason: Twitter, under Musk's leadership so far, is a mess.

  • "There is so much turmoil in the business right now," said Bill Zox, a high yield portfolio manager at Brandywine. "Regardless of what you think of Musk, at the end of the day, a debt investor has to answer to clients. And right now, it's hard to know what kind of business you're investing into."
  • When asked if any fund would be making a move on the secured or the unsecured part of the Twitter financing right now, Zox said no.
  • "I would have to think that it's un-investable," he said.

Of note: When banks lend money to a company for an acquisition, they typically sell the loans on to debt investors, namely hedge funds, credit funds, and institutions. Each tranche of debt has a stated price and yield, and banks profit by selling the loan at a higher price, or lower yield, than the original terms.

  • Credit yields have spiked since the banks gave firm financing commitments to Musk, and as a result, investor demand for the Twitter loans now sits at a much lower price/higher yield.
  • Some bank debt yields have jumped to more than 15%, meaning lenders would have to cut the price to around 70 cents on the dollar for buyers to bite, sources say, assuming buyers show interest.

Meanwhile, debt investors are investing. Apollo Global Management just raised a $2.4 billion fund this month.

  • Apollo says its Accord+ Fund will primarily target "performing, dislocated, private, and asset-backed credit opportunities."
  • Debt investors seek investments in companies where there's steady cash flows and stability. Twitter doesn't fit that profile right now.

By the numbers: Musks bank financing for Twitter includes a $6.5 billion leveraged loan, $3 billion of secured bonds, and another $3 billion of unsecured bonds — the riskiest tranche.

  • Axios previously reported that banks face hundreds of millions of dollars in combined losses from the unsecured debt alone. That excludes exposure to the leveraged loan and secured bonds.

Zoom in: Twitter has less than $1 billion in cash flows and since Musk took over, he's fired a huge proportion of its workforce and engaged in a public spat with one of the platform's largest advertisers.

  • "There's no bidders," said a debt investor, referring to the Twitter financing.
  • He said banks just have to keep holding onto the debt and wait until investors feel more comfortable about the company.
  • He added that if the company's prospects worsen, and the financing market seizes up again, the banks could face combined losses in the billions of dollars.

What we're watching: When and if the six banks are able to move the loans off of their books.

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