Elon Musk’s Twitter acquisition marks the worst buyout since the financial crisis – WSJ

In a recent analysis by The Wall Street Journal, Elon Musk’s $13 billion acquisition of Twitter, now known as X, is being labeled as one of the most problematic financing deals for banks since the 2008-09 financial crisis. The deal, finalized in October 2022, involved seven major banks, including Morgan Stanley and Bank of America, which provided the substantial loan required for the purchase. However, the anticipated financial benefits have been overshadowed by the underperformance of X, complicating the banks’ ability to manage the debt effectively.

Typically, banks handling such large loans would offload the risk to other investors. Yet, the poor financial performance of X has made it challenging to find buyers for this debt, resulting in the loans remaining on the banks’ balance sheets. This situation has led to a significant devaluation of the loans, leaving the banks in a precarious financial position. Despite these issues, the banks continue to receive interest payments from X, holding out hope for a potential recovery of the principal amount in the future.

The WSJ reported that the devaluation of X has been stark; its current valuation has plummeted to approximately $19 billion, a significant drop from the $44 billion acquisition price. This decline has not only affected the banks’ financial stability but also impacted their standings and compensation within the leveraged-finance sector. Notably, Barclays’ investment bankers experienced a reduction in their compensation due to the underperformance of such “hung” deals, particularly the X acquisition.

Despite these financial setbacks, banks remain cautious about severing ties with Musk. The potential future business opportunities associated with his other ventures, such as SpaceX, continue to influence their decisions, suggesting that the relationship might still hold value beyond the current challenges.