Elon Musk’s 2022 deal to buy Twitter, which he later renamed X, involved borrowing $13 billion. The billionaire’s creditors only recently managed to finally assign their claims on those debts to other financial services players.
Image source: X, Elon Musk
This was reported by The Wall Street Journal. Seven banks, including Morgan Stanley and Bank of America, provided financing for the deal in the fall of 2022, but they only recently managed to assign claims for $1.2 billion, which was the last part of Musk’s loans under the deal. The terms of the sale of these debt obligations were quite favorable for the primary creditors, since they received 98 cents from each dollar. In the first quarters after the deal, the discount was more noticeable (minus 35%), so the banks had to wait for a more favorable situation to arise.
By last summer, the deal’s lending terms were considered the worst for the banks involved since the 2008 financial crisis. With Donald Trump’s election victory last November, investors began to look with enthusiasm at the prospects for Elon Musk’s core business, as he was one of the president-elect’s main backers and became his “right-hand man” after the inauguration in matters of streamlining government spending. This allowed the banks to realize their loan obligations from the Twitter deal on more favorable terms than they had under the previous US president.
Active trading in debt obligations of the social network X began in February of this year, and since then banks have managed to sell loans worth $11 billion. The last tranche of $1.2 billion was distributed among participants in the interbank loan market at the beginning of this week. In fact, primary obligations worth $13 billion have been hanging on the balance sheets of large banks for almost two and a half years, although they were originally planned to be assigned with minimal delay after the deal with Twitter in October 2022.
After Elon Musk’s rise to political prominence in the US, advertisers began to return to the X social network, providing it with an important source of revenue, so the deal to sell the company’s debt obligations was able to take place on favorable terms for creditors. It cannot be said that the banks suffered all this time, since Musk still paid them an average of $1.5 billion annually in interest on loans. A certain increase in trust in X’s business was also facilitated by a deal to merge with the xAI startup, which used the social network’s data to train its artificial intelligence systems.
The merged XAI Holdings will find it easier to raise funds for its development. The company is expected to raise $20 billion, which will raise its capitalization to $113 billion. In 2022, Musk spent about $44 billion to buy Twitter, and since then the social network is believed to have reached the corresponding capitalization mark, although at the time of the deal the billionaire overpaid for its assets by about 40%, as is commonly believed.