The banks that lined up $12.5 billion in financing for Elon Musk's Twitter deal reportedly facing steep losses as appetite for riskier debt sours

Elon Musk is on course to own Twitter.
Chesnot/Getty Images

Elon Musk’s revival of the $44 billion buyout of Twitter comes as demand for risky debt is sinking. 
That means major banks financing the deal could face big losses, Reuters reported. 
Rising interest rates and recession fears are making investors worried about taking on debt loads. 

Elon Musk’s turnaround on the $44 billion buyout of Twitter is taking place at a time of reduced investor appetite for riskier debt – leaving major banks lined up to finance the deal potentially facing sharp losses, Reuters reported Wednesday. 

Musk will put up much of the takeover tab by selling down his stake in Tesla, the electric vehicle maker he runs,  while major banks have committed to $12.5 billion in financing. 

Reuters reported that more than 10 bankers and industry analysts, pointing to recent high-profile losses in leveraged financing, said the outlook was poor for the banks looking to sell the debt to get it off their books. Investors are concerned about riskier debt as interest rates spike, recession fears have grown and markets are volatile in the wake of Russia’s invasion of Ukraine. 

Morgan Stanley, Bank of America, and Barclays have committed to financing the Twitter deal, and BNP Paribas, Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Societe Generale are also part of the syndicate, Reuters reported. 

The Twitter debt package is made up of $6.5 billion in leveraged loans, $3 billion in secured bonds, and $3 billion in unsecured bonds. 

Reuters said leveraged financing sources have previously said potential losses could amount to hundreds of millions of dollars for Wall Street banks involved in the Twitter debt as they try to sell it to investors. 

On Tuesday, Musk’s lawyers sent a letter to Twitter offering again to acquire the social media company for $44 billion, or $54.2o per share, making the move after months of legal wrangling as the billionaire attempted to back out of the deal. The parties were set to meet in court on October 17. Twitter said it plans to close the deal at the $44 billion price tag, the bid matching Musk’s offer made in April. 

Twitter stock was down 0.6% at $51.68 during Wednesday’s session, below Musk’s bid of $54.20 a share.