Wall St banks prepare to sell billions of dollars of X loans

The banks have waited – and waited – for the window to sell without huge losses as platform owner Elon Musk tells staff that X is ‘barely breaking even’.

With the X debt, the banks have waited for a moment when both the markets and the company’s financial health would open the window to sell without huge losses Pictures: Mauro Pimentel/AFP/Getty Images

Wall Street banks are getting ready to sell a big chunk of debt holdings in X, the social-media platform controlled by Elon Musk.

Morgan Stanley bankers have reached out to investors ahead of a planned sale next week of up to $US3 billion ($4.75bn) of debt the bank and others such as Bank of America and Barclays lent to Musk to complete his 2022 buyout of the company formerly known as Twitter, people familiar with the matter said.

The banks hope to sell senior debt at 90-95¢ on the dollar, while retaining more-junior holdings, the people said. The banks just sold approximately $US1 billion of debt in a private transaction to several investors, some of the people said.

The sale would mark an important step in removing an albatross that has weighed on the banks since they agreed to finance Musk’s $US44 billion purchase of the social-media company. Banks lent around $US13 billion to help pay for the deal. The price Musk paid for Twitter was high, even at the time of his purchase, and the company’s rocky performance had knocked down the value. The deal is considered one of the worst that banks agreed to finance since the 2008 financial crisis.

To sell the debt, bankers will have to convince investors that the company’s financials have stabilised. Musk’s recent rise in power and alliance with President Trump have seemed to help change the narrative around X’s fortunes.

Investors have been reaching out to the banks and have indicated interest in buying the company’s debt because they believe that the company’s financials are on an upward trajectory, one of the people familiar said.

In a January email to staff, Musk pointed to the company’s growing influence and power, but said the finances remain problematic.

“Our user growth is stagnant, revenue is unimpressive, and we’re barely breaking even,” he said in the email, which was reviewed by The Wall Street Journal.

The banks never disclosed how they value the loans on their books. Some of X’s equity investors had written down their stakes in the company by as much as 75 per cent.

Banks don’t finance acquisitions intending to hold the buyout debt for long; usually, they will arrange a sale to outside debt investors within months of their commitment to finance the deal. But in volatile periods, when fewer investors are lining up as buyers, banks will opt to hold on to the loans for longer stretches to avoid selling it at a discount, locking in losses.

With the X debt, the banks have waited – and waited – for a moment when both the markets and the company’s financial health would open the window to sell without huge losses.

Meantime, X’s lenders – which also include Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho and Société Générale – have been collecting hefty interest payments. Loans to companies like X typically pay out several percentage points more in interest than the benchmark rate for investment-grade credit.

After Musk bought the social-media company, major advertisers fled and the company’s revenue plunged. However, the company’s financials have been steadily improving as some brands have started spending again on the platform, people familiar with the company said.

Musk in his staff email tipped his hat to the current rising fortunes of the company.

“Over the last few months, we’ve witnessed the power of X in shaping national conversations and outcomes,” Musk wrote.

“We are also seeing other platforms begin to adopt our commitment to free speech and unbiased truth,” he added, in a seeming reference to Meta Platforms’ recent decision to roll back fact-checking and adopt a user-driven Community Notes system similar to the one on X.

Dow Jones Newswires