Musk’s X Buyout Debt Tests Investor Appetite as Banks (MS) Offload $3B

A consortium of banks led by Morgan Stanley (MS) is preparing to sell as much as $3 billion of senior debt tied to Elon Musk’s (TSLA) $44 billion acquisition of X, formerly known as Twitter. The debt sale, expected to launch next week, will offer the loans at a discounted price of 90 to 95 cents on the dollar, according to a source familiar with the matter. This move marks a significant step for the banks, which have been holding onto $13 billion in debt since financing the 2022 deal.

The debt package has proven challenging to unload amid volatile market conditions. Earlier this year, the banks sold $1 billion of the debt in a private transaction to a group of investors. The remaining junior debt will remain on their books for the time being, highlighting the difficulty of offloading financing tied to the high-profile buyout. The Wall Street Journal first reported on the banks’ renewed efforts to offload the loans on Friday.

• Banks led by Morgan Stanley aim to sell $3 billion in senior debt from Elon Musk’s X buyout.
• Debt sale expected to launch at 90-95 cents on the dollar, reflecting market discounts.
• Consortium includes Bank of America (BAC), Barclays (BCS), and Mitsubishi UFJ Financial Group.

• Banks have struggled to offload $13 billion in debt since financing the 2022 buyout.
• An earlier $1 billion tranche was sold privately to multiple investors this year.
• Junior debt from the financing remains on the banks’ balance sheets.

• Market participants will monitor investor appetite for the discounted debt package.
• The sale’s outcome could set a precedent for future leveraged buyout debt transactions.
• Focus remains on X’s financial performance under Elon Musk’s leadership.

• The sale of $3 billion in senior debt tied to Elon Musk’s acquisition of X at a discounted price (90-95 cents on the dollar) represents a significant step for banks to alleviate their balance sheet burdens, improving financial flexibility.
• Investor interest in the debt sale reflects growing confidence in X’s financial trajectory under Musk’s leadership, potentially setting a positive precedent for future leveraged buyout debt transactions.
• The banks’ ability to offload a portion of the $13 billion debt package could reduce exposure to one of the most challenging merger-finance deals since 2008, stabilizing their financial performance.
• High interest payments on the loans have provided steady income for lenders, and the successful sale of senior debt could enhance their ability to finance new deals and improve investment banking rankings.
• Musk’s influence and alliance with President Trump may bolster market sentiment around X’s long-term prospects, attracting more investors to participate in the debt offering.

• The discounted sale price of 90-95 cents on the dollar underscores the difficulty banks face in marketing the debt, potentially leading to further write-downs and losses on remaining junior debt holdings.
• X’s financial struggles, including a 40% decline in revenue during the first half of 2023, raise concerns about its ability to meet future debt obligations, increasing risks for potential investors.
• The inability to fully offload the $13 billion debt package highlights ongoing challenges in the credit markets, limiting banks’ capacity to finance other mergers and acquisitions.
• Lingering reputational damage from this high-profile deal could erode confidence in banks like Morgan Stanley and Bank of America, impacting their relationships with future clients.
• Market volatility and skepticism about X’s financial stability may deter institutional investors from participating in the debt sale, prolonging challenges for banks holding onto unsold portions of the financing package.

The banks' efforts to offload the debt come at a time when credit markets are increasingly selective, creating challenges for firms seeking to shift exposure to leveraged buyouts. Investors are likely to scrutinize the offering, given the risks associated with X’s uncertain financial trajectory under Musk. The discounted pricing underscores the difficulty of marketing such debt.

This transaction could serve as a bellwether for how the financial sector handles challenging buyout loans in the current climate. If successful, the sale could alleviate some pressure on the banks’ balance sheets, though questions remain about their ability to navigate other portions of the $13 billion debt package.