Wall Street Banks Eye Debt Sale to Recoup Twitter Buyout Losses
Wall Street banks are seeking to mitigate losses stemming from Elon Musk's Twitter acquisition by selling portions of the debt incurred. Morgan Stanley and Bank of America are reportedly reaching out to investors to gauge interest in purchasing senior debt tranches that offer a potential 90-95% return on investment.
The banks extended $13 billion in financing for Musk's $44 billion Twitter purchase in October 2022, but the loans depreciated with X's (Twitter's new name) financial struggles. Banks have been unable to shed these loans without substantial losses.
Despite the setbacks, banks anticipate potential profitability from junior debt stakes if X's financial performance improves. The sale of senior debt is motivated by the expectation of brighter prospects for X, particularly due to Musk's alliance with President Donald Trump. Musk's ownership of potential IPO candidates, such as SpaceX, also enhances his value as a client for banks.
Trump's recent inauguration speech, in which he reiterated his goal of sending American astronauts to Mars, elicited a positive response from Musk. Additionally, X's valuation has been bolstered by a previously unknown $6 billion stake in xAI Corp., Musk's AI startup.
The banks' debt sale efforts are a reflection of the optimism within Wall Street dealmakers about the Trump administration's potential to reduce regulatory hurdles and facilitate corporate mergers. The anticipation of a favorable regulatory environment should drive an uptick in dealmaking activity throughout the year.