Banks sell down $7.5 billion of Musk’s X debt to investors: Source

NEW YORK - Banks led by Morgan Stanley have sold US$5.5 billion (S$7.5 billion) of some US$13 billion of debt they lent to support Mr Elon Musk’s US$44 billion acquisition of Twitter, now called X, in 2022, said a source with knowledge of the deal.

The acquisition was funded by a US$6.5 billion secured term loan, a US$500 million revolving credit facility, US$3 billion unsecured loan and US$3 billion of secured loans.

One investor source said the deal was offered to a small group of investors by the bank consortium that also included Bank of America, Barclays, Mitsubishi UFJ , BNP Paribas, Mizuho and Societe Generale. They were looking for minimum commitments in the hundreds of millions of dollars, the source said.

The banks marketed the deal last week with an intention to sell down the debt at 90 US cents to 95 US cents to the US dollar but managed to price it at a higher price of 97 US cents, said the first source.

Investors will get paid a yield of 11 per cent, he added.

It is the only known second attempt by the banks to sell down the debt. In late 2022, an attempt to sell the unsecured loan attracted bids in the 60 US cents to the dollar range, which would have seen the banks take on a large loss on the face value of the debt, the investor source said.

At 97 US cents, it is likely they sold at a profit, he added.

Banks typically sell such loans to investors soon after the deal is done, but in the case of X, they have been stuck holding it. Mr Musk’s sweeping changes to the platform, including laying off many people who worked to moderate content, and one of his posts on X, scared away advertisers and hit revenues. That reduced the value of the debt, as the risk of default increased.

But the banks were confident of finding more traction with investors after Mr Donald Trump’s election victory in November and Mr Musk’s emergence as a close aide to the new president was expected to drive more traffic to the X platform.

One investor who did not participate in the deal said buyers were likely feeling more confident about the business.

One selling point was that investors will gain exposure to X’s stake in Mr Musk’s artificial intelligence start-up xAI, according to a Bloomberg News report earlier.

Another investor source from a large high-yield fund manager who was offered the loan however said he declined because it was unclear Mr Musk’s closeness was giving X’s revenues a boost big enough to justify him buying debt with no credit ratings at even 90 US cents to 95 US cents to the dollar.

Bank of America, Barclays, BNP and Societe Generale declined to comment, and other banks did not immediately respond to a request for comment. REUTERS