Emmanuel Ochayi
In a bid to reassure lenders amid mounting concerns over the declining business fortunes of X platform formerly known as Twitter, Elon Musk reportedly pledged to protect banks from losses on the substantial $13 billion loan used to fund the leveraged buyout.
Musk’s verbal guarantee comes as the value of the platform rebranded as X, plummeted following the acquisition last year.
Join our WhatsApp ChannelAccording to sources familiar with the matter, Musk conveyed assurances to the seven lending banks—Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho, and Société Générale—stating that they would not suffer financial losses on the deal.
However, despite Musk’s promises, these financial institutions now face potential losses as they grapple with the looming challenge of offloading the debt.
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Efforts to sell off the debt have been hindered by Musk’s actions, including attempts to withdraw from the takeover agreement in 2022 and the controversial remarks, which have further complicated the platform’s ability to attract advertisers.
This has made the debt unappealing to potential investors, with some describing it as “uninvestable.”
Despite various offers from hedge funds and credit investors to purchase the debt, none have been successful due to uncertainties surrounding X’s business revival under CEO Linda Yaccarino. Investors expressed hesitancy, refusing to buy the bonds and loans, fearing the inability to predict the platform’s future performance.
The debt, comprising $12.5 billion in bonds and loans, is currently held by the banks on their balance sheets, hoping for an improvement in X’s performance through cost-cutting measures.
Selling the debt at current market values could result in losses, which might reach or exceed $4 billion, a situation not yet publicly disclosed by the lending syndicate.
While Elon Musk did not respond to requests for comments, the banks and X declined to provide any statements on the matter. Musk’s guarantee, though not legally binding, has influenced some bankers to justify a higher valuation of the debt while they retain it on their balance sheets.
Despite Musk’s assertions about protecting investors’ interests, skepticism remains prevalent among some on Wall Street, particularly considering his prior attempts to withdraw from commitments despite contractual obligations.
The situation has put considerable strain on the banks involved, reflected in Morgan Stanley’s disclosure of mark-to-market losses tied to corporate loans, further exacerbating existing concerns over similar hanging bridge loans.
The deteriorating condition of X’s business, marked by a drop in advertising revenue and controversies surrounding Musk’s statements, has deeply impacted the platform’s attractiveness to advertisers and potential investors alike.
With uncertainties looming over the future of X, the fate of the debt remains uncertain, leaving the banks with a challenging financial predicament.
The overall sentiment among investors and financial analysts suggests that the resolution of this debt crisis is far from imminent, with doubts persisting regarding the banks’ ability to mitigate potential losses and offload the debt in the foreseeable future.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
